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Subject: HOA Loans
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Author Messages
LarryK3
(Florida)

Posts:4


11/02/2018 2:08 PM  
Opening up a new topic for HOA Loans. Pardon me if there is already an open HOA Loan topic - I didn't see it.
KerryL1
(California)

Posts:5852


11/02/2018 5:42 PM  
What is your question? Situation? Concern?

Does your HOA want to get a loan? Or??
DouglasK1
(Florida)

Posts:1263


11/04/2018 8:20 PM  
I'll borrow money from your HOA.

Escaped former treasurer and director of a self managed association.
GenoS
(Florida)

Posts:2466


11/06/2018 11:22 AM  
I get approved for about 20 loans a week if my email spam folder is to be believed. This topic was gonna be something like that, I suspect.
LarryK3
(Florida)

Posts:4


11/06/2018 12:07 PM  
Gosh based on the dialogue so far, I'm really sorry to have opened up the topic. I was innocently thinking that this topic would be worthwhile for HOAs. I didn't have a specific question in mind. In fact, I work with HOA loans every day and thought there may be some questions that boards or treasurers wanted to discuss.
MarkM19
(Texas)

Posts:128


11/06/2018 12:14 PM  
Larry,
So you are selling something. Not interested. Take this website off your list.
GenoS
(Florida)

Posts:2466


11/06/2018 12:27 PM  
Posted By LarryK3 on 11/06/2018 12:07 PM
Gosh based on the dialogue so far, I'm really sorry to have opened up the topic. I was innocently thinking that this topic would be worthwhile for HOAs. I didn't have a specific question in mind. In fact, I work with HOA loans every day and thought there may be some questions that boards or treasurers wanted to discuss.

Q.E.D.
LarryK3
(Florida)

Posts:4


11/06/2018 12:27 PM  
I'm not selling anything Mark and I'm an HOA board member myself. It is meant to be an innocent topic.
No problems if you aren't interested. Others may be.
KerryL1
(California)

Posts:5852


11/06/2018 1:09 PM  
Without some kind of context, it just isn't a "topic."
GenoS
(Florida)

Posts:2466


11/07/2018 12:46 PM  
It's like a booth on the floor of a conference with a sign that says, "Ask Me About Loans". That's a sales pitch if ever there was one. This site is not a portal where vendors can set up shop and try to lure in customers.

It's not a "Topic", it's an unsolicited commercial sales pitch, also known as "spam".
SteveM9
(Massachusetts)

Posts:3105


11/07/2018 4:43 PM  
Posted By LarryK3 on 11/06/2018 12:07 PM
Gosh based on the dialogue so far, I'm really sorry to have opened up the topic.


Larry, you asked no question, nor offered any knowledge, leaving people very confused.
KellyM3
(North Carolina)

Posts:1319


11/08/2018 9:07 AM  
There's no confusion.

HOA loans are horrible products that limit a community's ability to save money and keep HOA finances in a reactive stance as opposed to saving money proactively and planning for community improvements. HOAs can do years and years of damage to their operational budgets by relying on HOA loans or having the carrying of loans as a hedge against raising dues to build a cash account. The banks are friendly, helpful and willing to lend money where needed so the "devil" is in the debt accrued and NOT on financial lenders.

I've led and HOA board through debt repayment. This is a first-hand account.
LarryK3
(Florida)

Posts:4


11/08/2018 9:18 AM  
Kelly, thank you very much for your post. This is exactly the type of discussion that I was hoping would occur within this topic. I'm sorry, you had such a bad experience but may I ask what circumstances put the HOA in the position of getting a loan?


Also, I'm curious about the loan-related experiences of other HOAs.
RoyalP
(South Carolina)

Posts:65


11/08/2018 11:06 AM  
To state what should be obvious:

Loans must be repaid WITH INTEREST thereby making the expenditure(s) MUCH more expensive than if they had been 'pre-funded' via a reserve fund.

Loans will, of course, shift the cost to the 'new guys' and away from the people who actually 'used up' and did not fund the replacement of the items in question.

I have heard over and over in my 55+ community:

Why should I pay, I won't be here later.



I say:

Never a lender or a borrower be.
KellyM3
(North Carolina)

Posts:1319


11/08/2018 12:02 PM  
Posted By LarryK3 on 11/08/2018 9:18 AM
Kelly, thank you very much for your post. This is exactly the type of discussion that I was hoping would occur within this topic. I'm sorry, you had such a bad experience but may I ask what circumstances put the HOA in the position of getting a loan?


Also, I'm curious about the loan-related experiences of other HOAs.





Hi Larry,

The loan experience and lenders were nice and made the deal.

Our HOA did not save money for future repairs to our pool. The pool suffered a large failure that was partially expected due to age and partially not expected due to literal structural failure. The HOA had little cash savings and took a loan (which was non-collateralized as we're not allowed to use common property as debt collateral). The loan term was 6 years and anyone could question the appropriateness of even carrying this loan.

In year 5, our clubhouse needed such repair that the insurance company threatened to drop us and declare the house uninhabitable by its terms. Since we were paying a loan payment, we weren't saving enough cash and were forced into consolidation loan for a fresh, seven-year term. I was new president at this point.

The consolidation loan held our monthly payment steady, which was a operational cost, and we raised dues by the inflation rate to increase cash flow (while staving off cost increase requests from vendors and being very very prudent on repairs). Our loan payment and monthly cash deposit was nearly equal in cost.

Over a couple of years, we increased our cash savings enough to match the outstanding loan amount.

At that point, I asked the board to "whistle by the graveyard" and pay off the loan while depleting cash (as I had developed some certainty that we'd build cash reserves in time for the next round of property improvements).

We paid off the loan and immediately sent the previous loan payments into savings - doubling our monthly savings rate. This was 2010 or so.

That said....to this day (because we can only raise dues by the US inflation rate), we are not at a point where we are truly healthy from a cash savings standpoint. We won't need a loan for a future repair but we cannot, financially, have two future "Reserve Fund Project" needs arise in parallel.

That loan was a bailout and a financial curse.
KellyM3
(North Carolina)

Posts:1319


11/08/2018 12:03 PM  
Posted By RoyalP on 11/08/2018 11:06 AM
To state what should be obvious:

Loans must be repaid WITH INTEREST thereby making the expenditure(s) MUCH more expensive than if they had been 'pre-funded' via a reserve fund.

Loans will, of course, shift the cost to the 'new guys' and away from the people who actually 'used up' and did not fund the replacement of the items in question.

I have heard over and over in my 55+ community:

Why should I pay, I won't be here later.



I say:

Never a lender or a borrower be.



BINGO!
KerryL1
(California)

Posts:5852


11/08/2018 12:59 PM  
Our twin tower rooftop cooling towers (provide HVAC) were prematurely failing due to construction defects. We got a loan for about &750K (was in '09, as I recall). collateral was our mo. assessments to owners. We paid it off about a year later with the settlement against the developer.

It wasn't hard to get and we paid maybe 1% above the going interest rate at the time
JohnC46
(South Carolina)

Posts:7820


11/09/2018 8:48 AM  
HOA in MA consisting of 175 units. 150 in townhouses of 3-4 units per building. 25 standalone homes. Needed extensive work to the tune of about 4 million dollars. The HOA made arrangements for a loan with a local bank. Each owner would be assessed $20K to $30K depending on the size of their unit. Owners would have upto 5 years to pay the assessment. Pay in full at once or finance with the bank with several plans offered but a max of 5 years.

Needed 75% of all owners to approve. 82% approved. Several dissenters banded together, hired a lawyer, and went to court. This took a few months but the court ruled all was done proper and legally so it stood.

For those that financed their assessment, it became a negotiating point when selling.

Place ended up look great. Values jumped.

SheliaH
(Indiana)

Posts:2302


11/09/2018 11:16 AM  
Posted By LarryK3 on 11/08/2018 9:18 AM
Kelly, thank you very much for your post. This is exactly the type of discussion that I was hoping would occur within this topic. I'm sorry, you had such a bad experience but may I ask what circumstances put the HOA in the position of getting a loan?


Also, I'm curious about the loan-related experiences of other HOAs.





Well, it would have been simpler and faster if you'd just said what you wanted to do in the first place - something like "Has your community ever taken out a loan? if so, what was it for, what were the pros and cons, what did you learn, etc." The way you started this thread, no one had a clue as to what you were talking about.

That said....I prefer HOAs avoid loans whenever possible (that's why one should have a reserve fund and a reserve study at least every five years). As Pita said, loans mean interests and so your budgets have to factor in loan payments, paying regular expenses and funding reserves - just like you do with your household budget. Sometimes you don't have a choice to get one, especially if the community was destroyed from, say a wildfire or earthquake, and there wasn't enough insurance money and reserves to pay for damages.

If you must get a loan, I think it's important to let the homeowners know at the start and give them the numbers to see how intense the situation has become. In lieu of a loan, you might have to persuade homeowners to accept assessment increases of 10% a year or more for a few years, with the money designated for that project (our community allows up to a 5% increase without homeowner approval). You also need to review the loan agreements with your attorney carefully and come up with a payment schedule that'll enable you to pay off the loan as quickly as possible.
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