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HOA Loans for Financing Projects

stephen polinsky on Nov 8, 2009 9:22:00 AM

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Residents of a condo association building faced a quandary. Ignored, old and failing pipes in the building could burst at any moment and cause severe water damage. The fix, however, came with a hefty $1 million price the condo association didn't have.

And because the condo association had no real collateral, its condo board members wondered who would loan them the funds to make the overdo repairs.

Contractors are now repairing the plumbing. In the meantime, the HOA loan is allowing the individual condo owners to pay for the repairs over a 10-year span instead of having to come up with a large HOA assessment.

The HOA loan or condo association loan allowed the group to do all the repairs at once, rather than do it themselves or spread the work out over time. HOA loans or condo association loans are finding that this market niche can provide a significant source of business, although it does come with a unique set of challenges, HOA loan providers warn.

A Growing Market HOA Loan Market

It's little surprise that banks would be interested in working in this homeowners association market given its numbers. In 2006, 286,000 community associations governed more than 23 million housing units across the United States, with roughly 57 million residents, according to the Community Associations Institute.

These condo associations and HOAs spend significant money, too. The Community Associations Institute estimates that the annual operating revenue for allcommunity associations in the United States is more than $41 billion, which condo associations spend for goodsand services-including repairs and maintenance-to keep their condominium buildings, townhouse communities and subdivisions running.

Condo Association Loan Challenges Homeowners associations, HOAs and condo associations are supposed to condo reserve money tomaintain and upgrade the common areas of their condo associations and HOAS. In condominium buildings, this can mean upgrading hallways and replacing condo building roofs. In townhouse communities or housing subdivisions itmay mean sidewalks and parks. The problem is mosthomeowners associations and condo associations donot do this properly. Its estimated that 90 percentof all condo associations do not condo reserve enough money to handle repairs. That's why the condo associations need Condo Association Loans or HOA Loans to replace that leaky roof or crumbling driveway.

The one piece of collateral a condo association or HOA has is the legal right to levy condo unit owners in the formof condo association assessments or monthlycondo fees. Holding this right this condo assessment right as collateral, HOA loan providers or condo association loan providers could put a receiver in place to collect monthly condo assessments or condo fees to pay back the HOA loans if the condo association were to default. Because of this, the HOA loan interest rates may be a bit higher.

Condo Association Loan providers must also be preparedto contend with a revolving voluntary condo boards. But might just create an opportunity to put some of HOA loan providers and condo association loan providers small businesses lending skills to work.

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