Request a HOA Loan Proposal

Applying for HOA Loans or Condo Association Loans

stephen polinsky on Feb 9, 2009 7:28:00 PM

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What are the FAQs (Frequently Asked Questions) when applying for a condo association loans or HOA loans?

Condo Associations and HOAs applying for HOA loans or a Condo Association Loans should be prepared to answer the following questions:
 
Why do we need an HOA Loan or Condo Association Loan to do this project?
Write out a brief history of the problem that the HOA or Condo Association needs to address or the improvements that your HOA wants to undertake. Let everyone know what the impact will be if repairs are not done.
What will the HOA project that the HOA Loan or Condo Association Loan is needed for cost?
Provide a detailed list of the work that needs to be done, along with
explanations of the cost breakdown.
Are these items covered in the Condo Reserve Study? Explain which components are
going to be repaired and if condo reserve funds are going to be used to help offset the costs.
How is the HOA or Condo Association going to pay for the HOA Loan or Condo Association loan? Explain how the condo associaiton assessment is going to
work and if it will have any impact on the general condo association assessment or future condo reserve
contributions.
What are the options to pay a Condo Association Loan or HOA Loan? Provide some options to paying the special condo association assessment, such as payment in full by a specified date; a 50/50 plan, where half of the HOA loan or Condo Association Loan is paid up front and half is paid over time; or pay the whole HOA loan off over time.
Is it possible for only some of the condo owners to pay their condo association assessment as part of the HOA loan payment made by the condo association, with others electing to pay a lump sum payment?
Yes, since the HOA loan or condo association loan is made to the HOA or condo association as a corporate
entity and not its individual HOA members, the Condo Board or HOA Board can determine how its
condo owners can pay their share (e.g. monthly or lump sum) of the HOA loan or Condo Association loan.
If the condo association defaults on its HOA loan payments, would a lien be placed against the property of all condo owners, or just the condo owners that didn't pay lump sum?
The HOA loan provider will rely on the condo association to follow its collection policy to collect past due assessments and condo fees, including placing liens and foreclosing on condo owners who foreclose on their special condo association assessment. While the condo association may place liens on the condo units that didn't meet their obligation, the condo association as a corporate entity is still responsible for the total HOA loan payment or condo association payment.
This may include the need to pass an additional HOA assessment against all of the condo owners or HOA owners to make up any uncollected difference. In this sense, the HOA loan payment or condo association loan payment is no different than any other condo association obligation that isn't being met by the ongoing cash flow of the condo association or HOA.
Is the proportional interest on the HOA loan tax deductible by each HOA owner?
No, because the HOA loan or condo association loan is made to the condo association and is recorded on its condo association tax ID number. Condo owners and HOA owners who opt to pay their portion of the HOA loan or Condo Association Loan by getting a mortgage loan against their condo unit may get a tax benefit. Condo owners should consult with their own tax advisor.
What information will the HOA loan provider or condo association loan provider need in order to process our request?
It varies from HOA loan provider to HOA loan provider, but be prepared to provide information about the condo association (including your condo board presentation made to your condo owners), HOA financial information, collection policies and collection history, a current HOA reserve study, operating budgets, CC&Rs and Condo By-Laws, and cost breakdowns of the work to be done. Your HOA loan provider should provide you with an HOA loan application and a list of what's required.
What might they look at when reviewing the HOA loan or condo association loan?
Size - How large is your HOA or condo association? Condo Associations under 25 condo units may find it
difficult to get a HOA loan since the risk is spread over a much smaller number of condo units
and one or two condo fee delinquencies can cause a cash flow problem.
Cash Flow - Can your condo association assessments cover the HOA loan payment and
fund future condo reserve items? Is there a plan in place to cover expenditures
required during the term of the HOA loan or Condo Association Loan?
Condo Reserve Study - Is it current, prepared by an experienced condo reserve company, and does it
have a presentation of future cash flow requirements for yoru condo association or HOA?
HOA Delinquencies and Condo Foreclosures- Is there a high level of delinquent condo owners, either by condo units or by dollars? More than 10% of condo owners is usually a warning sign of HOA problems. Is the
condo association following its condo fee collection policy, or letting its HOA owners or condo owners fall behind?
HOA Financial statements
Are they reviewed or audited by a qualified CPA with
experience in the HOA industry or condo association industry?
Stability - Is there high turnover in the condo units? Do you have a high percentage of
non-owner condo unit occupancy (more than 30%)? Is there any litigation pending among
the condo owners or with the condo developer?
Condo Association Management - Do you use professional condo association management firm that is experienced in handling condo associations and HOAs and carries professional designations such as
6PCAM or CCAM? Have you engaged a construction manager to help the
condo association manage the project.
A lot to think about, and a lot to do for the condo association, the property manager and the potential
HOA loan provider or condo association loan provider. It's important to remember that some of these HOA loans can be in excess of $1 million, and understanding the project is vital to everyone concerned.
Passing a condo assessment and getting an HOA loan for any amount requires thought, patience and understanding of what's required. Follow the steps and your condo association or HOA will be well informed about how your project will work, the HOA loan provider will be in a position to make an informed HOA credit
decision, and your condo association or HOA will have a good chance to get the improvements that it
needs.

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