ToniW (North Carolina)
Posts: 28
Posts: 28
Posted:
Are there companies that make loans to HOAs? Any experience with them? We are in North Carolina.
thanks!
thanks!
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Need Capital Improvements funds
Started by ToniW • 16 replies • 2725 views
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MelissaP1 (Alabama)
Posts: 13,836
Posts: 13,836
Posted:
A HOA can get a bank loan. However, there are better options available for the HOA to do rather than get further in debt. A HOA is ONLY funded by it's member FOR it's members. This allows for options to raise the money amongst the membership by raising dues or having a special assessment. Some dues can be raised a certain percentage each year by the board but larger raises over example 5% (Whatever documents state)requires a majority vote of the membership. You need to read your CC&R's to verify if and by how much your HOA is allowed to raise dues.
It sounds like the option of having a special assessment may fulfill your needs. It's best to have a solid amount than just a number out of thin air. Example: If you need money for a 10K pool repair then it's best to divide the 10K evenly amongst ALL the owners. If your just wanting to have a reserve/capital improvement fund for the sake of having one, then it's better to finance that through dues/improved budgetting.
The HOA would have to be in rather good health and prove it can pay back any loans just like any person applying. That means if your HOA is already having issues paying bills by not collecting enough dues, a loan may not be obtained. The HOA needs to be in "good health" and able to cover the monthly payments of a loan.
There's still the possibility of raising dues or special assessments if you get a loan to cover the payments. It's just better off to find the money within before looking out...
It sounds like the option of having a special assessment may fulfill your needs. It's best to have a solid amount than just a number out of thin air. Example: If you need money for a 10K pool repair then it's best to divide the 10K evenly amongst ALL the owners. If your just wanting to have a reserve/capital improvement fund for the sake of having one, then it's better to finance that through dues/improved budgetting.
The HOA would have to be in rather good health and prove it can pay back any loans just like any person applying. That means if your HOA is already having issues paying bills by not collecting enough dues, a loan may not be obtained. The HOA needs to be in "good health" and able to cover the monthly payments of a loan.
There's still the possibility of raising dues or special assessments if you get a loan to cover the payments. It's just better off to find the money within before looking out...
Former HOA President
ToniW (North Carolina)
Posts: 28
Posts: 28
Posted:
Thanks for your response. this is the backstory:
The previous President had her head in the sand over many matters concerning maintenance and repairs and because SHE personally did not want to pay higher dues, refused to approve repairs a number of years ago (when they were not so major) because we didn't have the money at that time to do the 'entire' property or even consider raising the dues $5 or $10 a month. We've also had the misfortune of poor quality contractors having been used in the past that covered many problems (the former Board went the low-cost route. )
So here we are, several years later with even bigger problems and not a lot of money to deal with it. We are looking at nearly $100K needed to fund the issues that have recently been uncovered. The current Board had thought we could spread the projects out over several years but the contractor found rotting trusses near the roof lines of several units that puts a greater urgency to getting repairs done sooner. There are only 40 units and I know I personally would have a hard time of coming up with $2500 right now.
I'll double check about what is required for special assessments, but I do think the membership would have to approve one that big! And that would be a really hard sell given folks have been complaining that dues are too high!
Given the mess the Board has inherited, we are looking for options - any and all.
The previous President had her head in the sand over many matters concerning maintenance and repairs and because SHE personally did not want to pay higher dues, refused to approve repairs a number of years ago (when they were not so major) because we didn't have the money at that time to do the 'entire' property or even consider raising the dues $5 or $10 a month. We've also had the misfortune of poor quality contractors having been used in the past that covered many problems (the former Board went the low-cost route. )
So here we are, several years later with even bigger problems and not a lot of money to deal with it. We are looking at nearly $100K needed to fund the issues that have recently been uncovered. The current Board had thought we could spread the projects out over several years but the contractor found rotting trusses near the roof lines of several units that puts a greater urgency to getting repairs done sooner. There are only 40 units and I know I personally would have a hard time of coming up with $2500 right now.
I'll double check about what is required for special assessments, but I do think the membership would have to approve one that big! And that would be a really hard sell given folks have been complaining that dues are too high!
Given the mess the Board has inherited, we are looking for options - any and all.
JonD1
Posts: 2,350
Posts: 2,350
Posted:
Sadly Toni your property is in an all to familiar position. Some Board members and Boards are both short sighted and lack any real knowledge of the issues that face properties as they get older.
Now as to seeking a loan to perform this necessary work. Many local banks would offer loans to HOAs. I recently attended a CAI trade show and there were several banks offering financing and at today's low interest rates that might be your best option as long as your budget allows the addition of the monthly payment.
One suggestion do NOT allow this loan to act as a magic bullet and lead your Board into thinking long term planning and SAVINGS are not a vital role of the Board's responsibilites. Simplemeinded folks who preach about maintaining low CCs at the expesne of running their property into the ground without saving the funds for normal upkeep are not serving the property's best interests.
Start a savings plan for reserves and do whatever is necessary to fund it.
Now as to seeking a loan to perform this necessary work. Many local banks would offer loans to HOAs. I recently attended a CAI trade show and there were several banks offering financing and at today's low interest rates that might be your best option as long as your budget allows the addition of the monthly payment.
One suggestion do NOT allow this loan to act as a magic bullet and lead your Board into thinking long term planning and SAVINGS are not a vital role of the Board's responsibilites. Simplemeinded folks who preach about maintaining low CCs at the expesne of running their property into the ground without saving the funds for normal upkeep are not serving the property's best interests.
Start a savings plan for reserves and do whatever is necessary to fund it.
MelissaP1 (Alabama)
Posts: 13,836
Posts: 13,836
Posted:
Here's the deal on how to sell the idea of special assessment. Let the members/owners know the costs of the items that need replacing or repaired. Homework needs to be done here. That means atleast 3 competing bids from contractors. Let the contractors evaluate the issue and not give them a defined list dictated from your original bid. This way you will have options. I would form a committee to gather those bids and then present the best 3 to the BOD/membership.
The membership/owners need to understand that the HOA is ONLY funded by the members/owners. If they need these items repaired then it's less expensive for them to divy out the costs evenly amongst ALL the members than pay for individually. Which may be an option if no one wants to participate in some of these repairs. Maybe their own insurance may cover some of these repairs on their units or they can contract their own contractor. If you allow them to hire their own contractors make it known the HOA will NOT reimburse the costs. So they may want to opt in the cheaper way and pay the special assessment to the HOA.
I would break down the projects instead of trying to cover them all. Take a bite out of each one at a time. Our HOA had many maintenance issues from age and lack of maintenance. I was able to have some of those projects done without raising dues or having a special assessment. That's because I either organized a "Volunteer day" where the HOA bought the supplies and owners volunteered the labor, or collected from non-payers.
We had some major projects such as replacing retaining walls, tree removal, and drainage issues. You may find the costs not to be as high as your estimating. So do some research and break things down would be the first start before I would look for financing.
The membership/owners need to understand that the HOA is ONLY funded by the members/owners. If they need these items repaired then it's less expensive for them to divy out the costs evenly amongst ALL the members than pay for individually. Which may be an option if no one wants to participate in some of these repairs. Maybe their own insurance may cover some of these repairs on their units or they can contract their own contractor. If you allow them to hire their own contractors make it known the HOA will NOT reimburse the costs. So they may want to opt in the cheaper way and pay the special assessment to the HOA.
I would break down the projects instead of trying to cover them all. Take a bite out of each one at a time. Our HOA had many maintenance issues from age and lack of maintenance. I was able to have some of those projects done without raising dues or having a special assessment. That's because I either organized a "Volunteer day" where the HOA bought the supplies and owners volunteered the labor, or collected from non-payers.
We had some major projects such as replacing retaining walls, tree removal, and drainage issues. You may find the costs not to be as high as your estimating. So do some research and break things down would be the first start before I would look for financing.
Former HOA President
EllieD (Vermont)
Posts: 446
Posts: 446
Posted:
ToniW,
You said 40 units – how many buildings? Are you a Condominium group?
Does you Declaration or CC&R’s provide for, allow, getting a loan? And what about your applicable State Statute - what if anything does it say about loans?
I am not familiar with North Carolina – but in Vermont depending upon when a Condominium was established, it might be necessary to amend your Declaration or CC&Rs to give the Association permission (the power) to borrow money.
A few years back our Association also faced “big money” building repair bills and not enough in Reserves. We decided to go the “special assessment route”.
And we “worked with our contractors” and once we explained our “money” problem to them, they “worked with us” and we were able to spread a portion of the work out, and even in one case spread out invoice payments over a couple of months.
You said 40 units – how many buildings? Are you a Condominium group?
Does you Declaration or CC&R’s provide for, allow, getting a loan? And what about your applicable State Statute - what if anything does it say about loans?
I am not familiar with North Carolina – but in Vermont depending upon when a Condominium was established, it might be necessary to amend your Declaration or CC&Rs to give the Association permission (the power) to borrow money.
A few years back our Association also faced “big money” building repair bills and not enough in Reserves. We decided to go the “special assessment route”.
And we “worked with our contractors” and once we explained our “money” problem to them, they “worked with us” and we were able to spread a portion of the work out, and even in one case spread out invoice payments over a couple of months.
TimB4 (Tennessee)
Posts: 21,047
Posts: 21,047
Posted:
Toni,
Once you get your current issue under control, you should start thinking about how to prevent this issue from happening in the future by having a fully funded Reserve Fund.
If you haven't had a study done in the last five years, it's time to get a new one done.
On a side note - try not to blame just the past president for this issue. There was a Board in place and since majority rules, you would need to blame everyone who supported deferring the maintenance.
Tim
Once you get your current issue under control, you should start thinking about how to prevent this issue from happening in the future by having a fully funded Reserve Fund.
If you haven't had a study done in the last five years, it's time to get a new one done.
On a side note - try not to blame just the past president for this issue. There was a Board in place and since majority rules, you would need to blame everyone who supported deferring the maintenance.
Tim
KellyM3 (North Carolina)
Posts: 2,239
Posts: 2,239
Posted:
Toni,
Are you in the Triangle area of NC? If so, North State Bank has issued loans to HOAs in the past. The bank that handles your HOA accounts could also help you. It's basically a commercial loan that you'd obtain, payable over a period of three to seven years or so. Don't expect a 10, 15, 20 or 30 year term, like a mortgage.
Are you in the Triangle area of NC? If so, North State Bank has issued loans to HOAs in the past. The bank that handles your HOA accounts could also help you. It's basically a commercial loan that you'd obtain, payable over a period of three to seven years or so. Don't expect a 10, 15, 20 or 30 year term, like a mortgage.
KellyM3 (North Carolina)
Posts: 2,239
Posts: 2,239
Posted:
One more thing, Toni. I have experience dealing with having an HOA loan in NC.
JeffR7 (California)
Posts: 251
Posts: 251
Posted:
Toni, to answer your original question - yes there are banks that will loan money to HOAs. In fact I am a president of an HOA and we have just signed final paperwork for our loan.
I would recommend looking for banks that specialize in HOA banking. Some banks have special HOA groups that focus specifically on that.
If you truly examined your situation and need immediate work a loan maybe a viable option. You stated that you have 40 units and would need to do a special assessment of $2,500. This means you need about $100,000 to do the required work. With today's rates you can probably get a loan around 6% and at 10 year term you are looking at payments of about $1,100 per months. Divide that among 40 units and you are looking at a monthly payment of about $28 per owner. That amount might be much easier to swallow than a $2500 one-time payment.
Having just gone through the whole process I can tell you that we attempted getting a loan from eight banks and only two approved us. This is for the associations that has 100% assessment paid on time, only 15% non-owner occupied units, balanced budget, and our only true issue was that our reserve fund is only 20% funded. I am saying this to let you know that it might be difficult to get a loan but not impossible.
I would recommend looking for banks that specialize in HOA banking. Some banks have special HOA groups that focus specifically on that.
If you truly examined your situation and need immediate work a loan maybe a viable option. You stated that you have 40 units and would need to do a special assessment of $2,500. This means you need about $100,000 to do the required work. With today's rates you can probably get a loan around 6% and at 10 year term you are looking at payments of about $1,100 per months. Divide that among 40 units and you are looking at a monthly payment of about $28 per owner. That amount might be much easier to swallow than a $2500 one-time payment.
Having just gone through the whole process I can tell you that we attempted getting a loan from eight banks and only two approved us. This is for the associations that has 100% assessment paid on time, only 15% non-owner occupied units, balanced budget, and our only true issue was that our reserve fund is only 20% funded. I am saying this to let you know that it might be difficult to get a loan but not impossible.
KyleP (Florida)
Posts: 26
Posts: 26
Posted:
Hi,
I have a question regarding having the homeowners repairing some of the issues themselves. Our HOA docs specifically delegate the maintenance issues, between ownwer and association. We currently have an issue with maintenance of common element which is maintained and repaired ONLY by HOA. HOA docs also say no changes can be made to maintenance and repair issues w/o membership vote and approval. HOA doc also say that all parties are obligated to follow governing docs. I would question whether it is legal or if there are liability issues surrounding the HOA asking
the owners to make repairs to property that the HOA is obligated to maintain and insured for? If I repair a common element and the repair fails or makes an issue worse than I becoam liable, don't I?
I have a question regarding having the homeowners repairing some of the issues themselves. Our HOA docs specifically delegate the maintenance issues, between ownwer and association. We currently have an issue with maintenance of common element which is maintained and repaired ONLY by HOA. HOA docs also say no changes can be made to maintenance and repair issues w/o membership vote and approval. HOA doc also say that all parties are obligated to follow governing docs. I would question whether it is legal or if there are liability issues surrounding the HOA asking
the owners to make repairs to property that the HOA is obligated to maintain and insured for? If I repair a common element and the repair fails or makes an issue worse than I becoam liable, don't I?
KellyM3 (North Carolina)
Posts: 2,239
Posts: 2,239
Posted:
Kyle,
Repost this question as a new thread on the forum and you'll get more results and feedback.
If the HOA has a responsibility delegated to it for maintenance, it just do its best to uphold that obligation. After all , the HOA must lead by example on by-laws.
Repost this question as a new thread on the forum and you'll get more results and feedback.
If the HOA has a responsibility delegated to it for maintenance, it just do its best to uphold that obligation. After all , the HOA must lead by example on by-laws.
ToniW (North Carolina)
Posts: 28
Posts: 28
Posted:
Hi Kelly,
Yes we are in Clayton in Johnston County. Who did you use?
Yes we are in Clayton in Johnston County. Who did you use?
ToniW (North Carolina)
Posts: 28
Posts: 28
Posted:
We are a townhouse community. Our governing documents are rather outdated (also something that needs to be done!) but does allow us to borrow for capital improvements with member approval when it's more than 25% of our annual expenses.
Whether we go special assessment or borrow money, the owners will have to approve. We are definitely between a rock and a hard place on this.
Whether we go special assessment or borrow money, the owners will have to approve. We are definitely between a rock and a hard place on this.
KellyM3 (North Carolina)
Posts: 2,239
Posts: 2,239
Posted:
North State Bank approved our 7-year loan but we do our banking with North State Bank. They can look at our accounts at any time plus, being local, they can walk our property if they want. They're in Raleigh.
Talk to your HOA's local bank (if it's a local bank) about your potential needs. Community banks are great and can work with you in a personal manner. If you bank with them, it's especially helpful.
Be prepared to secure your lawyer to help out figure out how to legally borrow money (by-laws, petitions, etc). It costs money up front to borrow money for an HOA.
Talk to your HOA's local bank (if it's a local bank) about your potential needs. Community banks are great and can work with you in a personal manner. If you bank with them, it's especially helpful.
Be prepared to secure your lawyer to help out figure out how to legally borrow money (by-laws, petitions, etc). It costs money up front to borrow money for an HOA.
KellyM3 (North Carolina)
Posts: 2,239
Posts: 2,239
Posted:
Take it from experience, when you borrow tens of thousands of dollars, your HOA's cash flow must adjust to make monthly payments. So, if you're not paying your bills now, forget borrowing money (you won't get approved anyway). My HOA makes its monthly payment like clockwork but my reserve funds are denied an $1,100/month cash deposit as a result. We are saving into the Reserves, however - just missing that monthly payment.
A special assessment hurts up front but your regular HOA monthly cash flow continues, allowing you to save money if you make a special assessment part of a greater strategy to reform your HOA budgeting.
I'm not sure of your situation.
It's like a person who can choose immediate surgery and correct a problem or limp along, over time, and let it heal naturally.
A special assessment hurts up front but your regular HOA monthly cash flow continues, allowing you to save money if you make a special assessment part of a greater strategy to reform your HOA budgeting.
I'm not sure of your situation.
It's like a person who can choose immediate surgery and correct a problem or limp along, over time, and let it heal naturally.
JeffR7 (California)
Posts: 251
Posts: 251
Posted:
Depending on what loan money were spent on you may have to revisit your reserve amount. If you replaced some significant parts of common property (roof for example) its life expectancy is now much greater and as a result your reserve fund allocation is lower.
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