How Do Developers Finance Condo Associations and HOAs?
Posted on Fri, Feb 13, 2009 @ 05:42 AM
Often, a condo developer takes out a loan from a private bank or mortgage company and uses it to create an HOA or PUD, that is, he or she will build a condo complex or subdivision and create an HOA to manage it. The HOA membership consists of the property owners in the HOA development or condo building.
A typical loan is called an "interim loan," and it's not intended to be long-term or "permanent" financing. Rather, it's repaid as "units"-either condos or homes-are sold. So, the units in the HOA or PUD are like "inventory," and the interim loan enables the developer build and sell units until the project is complete and all units are sold.
When a unit is sold, the buyer-owner will be subject to a number of governing HOA documents for the development. This can include the HOA's covenants, conditions and restrictions ("CC&Rs"), which typically restrict and limit how the owner can use the property. Examples of CC&Rs include things like a ban on pets and how many cars you can park in the parking lot.
Typically, anyone who buys a home within the HOA's boundaries automatically becomes a member. Member-owners are then charged fees and assessments, which are usually charged and collected monthly, and are used for things like landscaping, snow removal and road maintenance. Also, there may be special assessments, which are used to pay for emergency repairs or repairs and maintenance costs that were not included in the HOA's budget.