Unfortunately, this happens often; a new homeowner association or condo association is formed, the developer sells off a majority of units then abandons the association with construction projects left to be completed and little money in the association's reserve account.  A new association will rarely have the funds needed to complete these projects.  The best alternative is for the HOA or association to take out a loan.  These are specialized HOA loans that use the right to assess as collateral instead of property.  Associations can apply for a loan or line of credit, which can be drawn down upon anytime.

Construction Defect Litigation

HOA Loans and Condo Association Loans can be used to fund a construction defect litigation.  With the number of new homeowner associations (HOAs) that have been built over the past 10 years, the number of construction defect litigations have risen accordingly.  Most HOAs and Condo Associations are not prepared for the costs involved in funding these law suits against developers and contractors.  Construction defect litigations can often become expensive and prolonged.  Rather than having a large HOA or condo association assessment, often the HOA is better off taking out an HOA loan to covers costs of the litigation, which can be repayed after the HOA is rewarded by either settlement or by the court system.

TimeShares 

CondoAssociation.com welcomes Timeshare Associations to apply for loans on our site.  Timeshare Associations will go through the same loan qualification process of Community Associations, HOAs, Homeowners Associations and Condo Associations.  Timeshare Association loans are secured by the lender's right to assess the association itself.

Co-Ops 

CondoAssociation.com matches Manhattan Co-Ops with association loan providers for free.  Co-Op loans (same thing as Condo Association Loans or HOA Loans) are specialized because they are secured with Co-Op assessment rights rather than property. 

Areas for our Co-Op loan and Condo Association Loan service include Manhattan, Brooklyn, Bronx, Queens, Westchester and Rockland Counties, Harlem, Staten Island and Long Island.

Specialized loans to community associations, condo associations and HOAs are becoming more popular.  HOA loans are a great alternative to over-assessing association members, because the association get the funds up front and the loan can be paid off over time, enabling the HOA or condo association to build in the cost of loan into future condo fees or sporadic, smaller assessments.

Some uses for HOA loans include, but are not limited to:

• purchasing condo units or new property for common use
• construction defect litigations
• hoa reserve funding
• elevator repairs and replacement
• brick re-pointing
• roof replacements
• new heating and plumbing, air conditions, boilers, windows
• lobby renovations
• parking lot repairs and re-paving
• building or repairing water, sewer and electricty infrastructure
• refinancing of exisiting HOA or condo association debt
• building or repair of common areas including community centers, tennis courts, golf courses, club houses, and other facilities.

Lenders usually work with associations to provide innovative loan structures to just about any situation.  Other solutions include an Association Line of Credit which HOA's can tap at their discretion to increase their cash flow.

HOA loans can help offset lost income by potential foreclosures on units owned by condo association members.  An HOA loan can hold over a condo association until the condo unit is resold and condo fees start getting paid again to the condo association.  Also, condo associations should look into debt purchasing options.

Dues stop when owners lose home

By MARCIE GEFFNER
BANKRATE.COM

When too many condominium owners lose their units to foreclosure, condo associations feel the financial pain. That's bad news for homeowners and real estate investors who depend on these associations to take care of building maintenance, property insurance, utilities, landscaping and other shared amenities.

While most owners pay their association dues as they are obligated to do, a rising number have fallen behind for various reasons. The problem isn't insignificant: Approximately 24 million housing units are governed by some 300,800 homeowner associations in the United States, according to the Community Associations Institute, a nonprofit organization of homeowner-association managers in Alexandria, Va.

Shortfalls may be more common among newer associations that haven't had much time to build up reserves and may be more exposed to owners who have burdensome mortgages. But older associations aren't immune, especially if they haven't set aside reserves, budgeted for bad debts or kept up with common-area maintenance, said David Swedelson, a partner at Swedelson & Gottlieb, a law firm that represents community associations in Southern California.

Associations do have options, though none of them may be all that palatable to the owners, CAI spokesman Frank Rathbun says. Depending on the severity of the problem, size of the association and bounds of state laws and regulations, an association may be able to consider several options, including: borrow money from a bank; borrow money from the association's reserves; reduce contributions to reserves; cut back on amenities; reassess costs; renegotiate service contracts; delay capital expenditures; increase monthly assessments; and levy special assessments.

Associations can't abandon their obligations just because the funds aren't adequate. Rather, they have a responsibility, as determined by state law and the association's governing documents, to maintain common areas and provide promised services and amenities to the owners.

Nor can associations ignore their obligation to try to collect delinquent dues and assessments. Some associations are "a little bit lax in their assessment collection," Swedelson said. If that's the case, owners again should take an active interest. Contact the board, ask for information about the collections process and press for prompt action.

One common misconception is that an association owns an individual unit free and clear after a foreclosure. That's not the case. In fact, the association takes title to the property subject to the first mortgage, said David Muller, an attorney at Becker & Poliakoff, a Sarasota, Fla.-based law firm that represents community associations.

Associations may be reluctant to foreclose on a unit that's worth less than the owner's mortgage, but a foreclosure may be a necessary step toward resolution of the problem, Muller said. Once the association forecloses, the owner typically will stop paying the mortgage and the lender may be willing to accept a deed to the property from the association in lieu of a bank foreclosure.

People who buy a property at a foreclosure sale or auction should be aware that in some states they can be held responsible for the prior owner's unpaid assessments, which could amount to many months' or even years' worth of accumulated dues, interest and penalties.

In any case, buyers should ask the seller about the association's financial condition, including any special assessments in the previous calendar year; pending assessments that will be due in the next 60 days to 90 days; homeowner delinquency rates; and pending foreclosures against current owners.

HOA Loans, also known as Condo Association loans are continuing to gain popularity with home owner associations as way to increase cash flow quickly.  Many uses for HOA loans include developer litigation funding, community property aquisitions, repairs and improvements to common areas and building a reserve fund.

Condo Associations and Co-Ops in major cities are major borrowers of condo association loans.  Top cities we are seeing both condo association loan and Co-Op loan applications in include:

A Condo Association loan or HOA loan can be approved rapidly once the loan application is received in full. When a condo association loan or HOA loan is approved, the commitment letter from the bank will be sent to the Association Board, Property Manager and Attorneys. The Condo Association or HOA must be in compliance with their governing documents as well as the state laws. This may require certain votes and possibly amending the declaration.  

A Condo Association or HOA can save time by consulting with their attorney at the beginning of the HOA loan process.

After this stage is complete, the condo association loan or HOA loan will close as quickly as the attorneys act. This may require persistence on both the borrower and bank's part. Lastly, once the condo association loan or HOA loan is closed, the Association may submit their request for advances, supported by invoices, to obtain funds to pay for the project.

HOA Loan Rates

1. Interest rates are set based on a spread above U.S. Treasury Rates or Wall Street Journal Prime Rate. Rates are negotiated.
2. During the Condo Association credit line period or HOA credit line period (project build out phase), interest rate floats with the Prime Rate as an Index.
3. During the period of principal pay down, the interest rate can be fixed for different increments of time.
4. Rates are negotiated based on risk, relationship and compensating balances provided (if any).

HOA Loan Collateral (How loan is secured)

1. Assignment of Association or HOA Common Charges/Assessments. (Please Review the details of this with your counsel.)
2. No personal guarantees.
3. No liens on individual units.
4. If the condo association loan or HOA loan request is to purchase real estate, a mortgage lien may be requested.
5. In some circumstances, a pledge of some amount of cash balances may be requested.

1. The condo association's or HOA's monthly assessment income may need to be increased by some amount in order to support the loan payment. But because there are no prepayment penalties, the Condo Association or HOA can make a partial prepayment during the Condo Association or HOA loan term, making it possible to reset the monthly payment on an annual basis, lowering the assessment level required.
2. The unit owner is not directly obligated for the Condo association's loan or HOA's loan. Units can be bought and sold regardless of whether there is a condo association loan or HOA loan in place.
3. The condo association loan or HOA loan does not become reported on a personal credit report.

Condo Association Loans or HOA Loans can be structured differently depending on the needs of the association, but this are the key points in structuring a condo association loan or HOA loan.

• Condo association loan length is negotiable and depends on the type of capital improvement project (landscaping, roofs, etc.).
• Banks offer an HOA or condo association line of credit available to draw on to pay for repairs and improvements. When the project is completed, the obligation converts to an amortizing period causing principal and interest payments. HOA credit line periods are typically three months to two years, depending on the project build out period. The Condo Association will provide invoices to receive advances from the credit line. Only the funds used by the HOA or Condo Association will be converted to an amortizing period causing principal and interest payments. The Condo Association or HOA does not pay for funds which they have not used.
• Amortizing periods are typically not longer than ten years. Longer amortization periods may be possible under certain circumstances.
• If the Condo Association or HOA knows they will use 100% of the Condo Association loan or HOA loan proceeds, a standard amortizing loan may be suggested to save the borrower interest expense during a line period. In this case, the HOA funds are put into a temporary deposit account, which may earn interest, and funds are released as invoices are presented.
• There are no prepayment penalties.
• Fully amortizing. No balloon payments.

Nobody likes to hear the dreaded words "special assessment."  Condo Association Loans give association members the option to pay assessments in monthly installments.

This is a great option, especially for unexpected repair projects. Since the loan is made to the HOA or the condo association directly, association members are not responsible individually for the repayment of the promissory note.

A condo association loan provides the condo association with buying power to negotiate repair contracts for work to be done and to pay the bills in a timely manner. The condo association or HOA loan can be used for reasonable purposes such as a new roof, painting, paving, concrete restoration, pool repairs or common area improvements.