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Why wont most banks provide loans to a condo association or HOA?

Posted on Fri, Aug 13, 2010 @ 05:59 AM
  
  
  
  
  
  
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hoa loansOur Condo Association has contacted several banks, including the ones that can be contacted directly through this website. However, because our Association is comprised of 14 units, no lender will even contemplate giving us a loan. We have several projects we would like to do, one for recaulking/flashing of the building exterior, the rest are for system upgrades and energy efficiency. Total cost of about $34-36k. Our reserves stand around $20k, and of course no one wants to do a special. The building is 8 years old, meets all the % requirements for occupancy, delinquency, and ownership spelled out in most articles and blog posts concerning HOA loans. We understand the idea behind spreading around the risk, etc., with larger Associations. We just don't understand why with "so many" lenders originating loans to HOA/Condo Associations, why no institution will even look into providing our Association a loan? Does anyone have any experience or knowledge of a lender that will at least work with us rather than just saying no when I tell them we have 14 units? Has anyone ever escrowed part of the reserves at collateral, in addition to assigning collections rights of the assessments as part of a loan? Thanks ~
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Comments

Unfortunately, most traditional lenders (community banks) don't understand how to assess risk of HOA loans, so they don't offer it. HOA loans are not asset-based like a mortgage, rather these loans use the cash flow of the condo association dues as security. Most banks are just too conservative to look at a new lending formula.
Posted @ Friday, August 13, 2010 5:24 AM by Evan
Banks have concluded that Condominiums are very high risk. Should one or more of your 14 unit owners default on their Condominium fee it affects the ability of the Condominium to meet their loan obligations. Further should a bank want to consider such a loan they would have to check the credit worthiness of all the unit owners. In doing so, they may find some owners to resent there intrusion on their private financial information and thus be uncooperative. These needs make the processing of a condominium home to be very high as compareed to a mortgage on an individuasl unit in a condominium.
Posted @ Friday, August 13, 2010 7:03 AM by Charles Adler
I understand both comments. However, the idea that lending $400,000 to one individual is less risky than loaning $36,000 spread out over 14 doesn't sound right. In reading all the loan documentation required to get an Association loan, no where is the individual unit owners credit brought up. All that is asked for are several years of various financial statements, and basically a business plan as to how the loan payment amount is factored into the budget. As far as cash flow is concerned, the idea of using a cash escrow from the reserves would seem like better collateral than real estate anyway. However, like I said in the original post, 25 units seems to be the minimum for the few banks we have talked to, regardless of the Associations financial situation... We are just looking for a lender that doesn't have such a concrete requirement.
Posted @ Friday, August 13, 2010 12:26 PM by Kris
Given most banks' aversion to associations with less than 15 units, perhaps a lender would work with you if you could offer something to mitigate your number of units. Since you have $20,000 in reserves, perhaps you could offer the lender the right to hold one or two years worth of debt service (approximately $4,600 per year) as collateral (i.e. in a restricted deposit account.)
Posted @ Thursday, September 30, 2010 11:13 PM by anonymous
Charles - When banks lend money to associations, they don't check the credit of the individual homeowners.
Posted @ Thursday, September 30, 2010 11:15 PM by anonymous
We are looking for a loan as well, we have even fewer units (11). It seems as though private money may be a better option for us, we already have an open ended special assessment twice a year which we could put into an escrow account. It seems as though because its different nobody wants to do the work.
Posted @ Wednesday, October 26, 2011 3:22 PM by Orlando Artigliere
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