Articles

08.28.09 – HOA Loan Structures & Long Term Budget Shortfalls

HOALendingSolutions.com has made financing for community association capital maintenance needs easily accessible.  Financial institutions that are truly skilled in serving this unique industry are particularly flexible to the differing needs of each community. Not only does each association have a unique culture but the projects all need to be approached in a tailor made fashion to suit what they desire to have accomplished.  The financing available is low cost because the transactions are acknowledged to be of low risk and the associations often provide the institutions with deposits that allow for buying down the interest rate or loan fees.

The one aspect that permeates the vast majority of all communities is the handling of financial affairs.  However, a very important responsibility has been broken in most communities.  I know this to be true by virtue of years of experience as a lender financing communities throughout the country and involvement with the Community Association’s Institute.  As well, interacting with professional Reserve Study professionals that reflect most associations are typically not more than 20% funded. That is, Reserve Studies indicate that a certain level of reserves are needed to support expired common elements but only 20% of that specified funding level has actually been accumulated.

The reason is also very consistent. No one wants to spend any money.  A culture of “keep monthly association fees minimal” exists almost universally. Now, I am not a spendthrift. But, I have witnessed nothing but adverse effects to the ostrich head in the sand mentality.  The reality is simply this: a community association regardless of size is a very complicated miniature town.  The buildings and infrastructure are a sophisticated system of structural materials that is constantly in a state of deterioration and its components are becoming obsolete.

Because of the desire to keep the annual budget low for the sheer sake of it, there is typically a huge cost impact put upon the unit owners when a project needs to be addressed.  Because of the under funding issue, the cost has typically been accomplished via large special assessments.  The availability of obtaining an association loan has smoothed the impact.