As HOA owners develop strategies for maintaining, repairing and renovating their buildings, more are turning to financial institutions to provide the funds necessary to complete the tasks at hand. Even those condo associations with adequate condo reserves are using loans instead of draining reserves. The current thinking is to borrow money for planned expenditures; a new roof, new windows, etc. while saving reserves for emergencies; a heating system that goes bust in the night.
Until the mid 1990s, only a handful of lenders understood this type of ending and were willing to make these types of loans. An HOA loan is not really a "real estate" loan since rarely is any real estate aledged as collateral. Likewise, they aren’t "commercial" loans since the borrowing entity rarely, if ever,
shows a profit, and the balance sheets are never very strong. Condo association loans were the poor orphans that didn't seem to fit anywhere.
This began to change in 1993 when the so called "Condominium Super Lien Law" was enacted. The strength in lending to condo associations lies in the associations' ability to set adequate levels of condominium charges and then collect them from unit owners. The lien loans has greatly enhanced a condo association's ability to collect HOA assessments on a timely basis. In fact, with the help of this law, most condo associations have had great success in reducing delinquent payments to almost nothing, resulting in healthier cash flows and, in many cases, much stronger balance sheets. The ability of condo associations to provide lenders with a very solid and steady income stream to repay debt has attracted many more financial institutions into the condo association loan business.
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