Judging Creditworthiness of an HOA or Condo Association

The documents required in a HOA capital improvement loan request by a community association will be substantially the same documents that a lender requires from any commercial enterprise. Loan officers should receive:

1. A description of the capital improvement involved or the repair work envisioned.
2. Engineering reports or analysis regarding such work, if applicable.
3. Bids or estimates for the work to be done.
4. Financial statements of the association for at least two years. (A sample income statement for a resort-area condominium is shown in Figure 4.)

Necessary documentation particular to the community association borrower includes an asset collection analysis to show what percentage of the association's monthly assessment is collected in a timely manner. The condo association should also provide a statement of its collection policy. The loan officer should request that the association provide a ratio of outstanding/ late assessments to budgeted assessments receivable. A percentage to show the amount of timely collected assessments will also be indicative of evenness in the association's cash flow. The lender should inquire whether the association has a standard policy for treating delinquent unit owners.

The condo association must provide the lender with copies of the association's documents that outline assessment and collection powers. Also, the association should provide documentation to verify its statutory or corporate power to enter into the loan transaction. The condo board of directors for the association should provide a corporate resolution of its approval of the loan in which the purpose of the loan is set out. Finally, HOA loan officers should require an opinion of the association's legal counsel to include a confirmation of the power to borrow and a brief analysis of the statutory and documentary bases for assessment and collection power.