Q&A with the HOALendingPro: What’s the difference between a bank loan and an HOA loan?

https://www.hoalendingxchange.comI was recently presented with the following question from one of my clients. I am publishing it here, along with my answer, in hopes of sharing the knowledge. It is a common question that all of us within the HOA lending field should be able to answer.

What are some differences between a construction loan or line of credit from a “normal” bank and an HOA loan or line of credit as a specialized lending option? I’m having trouble understanding the pros and cons between them.

The differences are very stark. A construction loan handled by a traditional bank reflects that there is real estate involved. The financing provided might be to construct a building, expand a building or recondition a building. In all cases, the real estate has different degrees of value during the build out period. The bank’s collateral is the value of the real estate. Depending on the bank’s loan policy, the borrower will need to provide 20% to 30% cash into the project in advance. Consequently, the bank has a vested interest in the value of the property during its various stages of change. Therefore, the bank will monitor the project in some way and they will release money from the credit line once stages of build-out have been achieved based on a budget submitted in the beginning of the project.

A construction line of credit to a community association from a bank that is skilled at providing such financing operates on an entirely different logic. There is no real estate interest in a community association. The community association has common elements that are not separable from the association and the property owners have an indivisible interest in the common elements. Consequently there is no real estate value. The financing does not rely on the value of real estate as does a traditional construction loan discussed above. What is being financed is the lack of reserves. In essence, the association should have accumulated cash reserves over time in order to pay cash for any project that needs to be done. The collateral for such a loan is the Assignment of the Association’s right to levy and collection regular and special assessments. It is a cash flow based loan. The bank looks to the level of budget increase that needs to occur to support the loan in order to make a credit worthiness judgment. It is typical for a community association specialized bank to provide 100% financing of the project. Depending on the loan policy of the bank, the bank might simply provide the funding to the association as a lump some and want to have any interest in the construction activity of the project. Other banks might provide a line of credit that is available to be drawn on at the sole discretion of the association. In other cases, the bank might want to see evidence that the project is being performed before they release funds from the credit line. Not because they have a value concern but only to be sure a project is being done at all.


Will Our Community Association or Timeshare Qualify for a Loan?

https://www.hoalendingxchange.comMany traditional banks are ill-equipped to even accept a loan application from a community association, timeshare, homeowner’s association, or any other commonly owned interest group. While there are a variety of reasons that this is true, the reality is that lending to a well-qualified community association, timeshare, homeowner’s association, or any other commonly owned interest group is a sound business practice that led to the creation of HOALendingXchange.

Qualifying for a community association, timeshare, homeowner’s association, or any other commonly owned interest group loan is really not so different from the way in which a business qualifies for a business loan. The community association, timeshare, homeowner’s association, or any other commonly owned interest group needs to show an ability to repay the loan and demonstrate that it has the credentials to seek the loan on behalf of its members. Other factors, such as creditworthiness, length of time incorporated, size and value of property, etc. go into the final determination but, for the most part, there is a lending solution for every community association, timeshare, homeowner’s association, or any other commonly owned interest group.

Are you ready to secure your community association, timeshare, homeowner’s association, or any other commonly owned interest group loan? Simply fill out our inquiry form and get started today.


Effects of Reverse Mortgages on Condos and HOAs

https://www.hoalendingxchange.comMany condominiums and HOAs are filled with units and homes that are financed with bank-held mortgages. Reverse Mortgages are available to home and condo unit owners over the age of 62 who would prefer to draw money from the equity in their home or condo unit. These mortgage owners can either take a lump sum or periodic payments from the equity in their home. The mortgage holder gets paid back when the home is sold or liquidated upon the death of the mortgage owner.

The Federal Housing Administration, better known as FHA, is the leading insurer of these mortgages. Banks prefer to offer mortgages to borrowers and real estate that is FHA approved as it means FHA is willing to guarantee some of the risk associated with making the loan. For this reason, FHA approval of the property being mortgaged is very important.

Condominium associations and HOAs are not required to apply for FHA certification. In fact, many voluntarily choose not to undergo FHA certification. There are many reasons for this but FHA certification requires a 10% minimum contribution to the association Reserve Fund and also has percentage of rental unit caps and other restrictions. Associations that forego FHA certification are effectively limiting their unit owners from receiving an FHA-backed Reverse Mortgage. Many unit owners are surprised when they learn that their condominium or HOA unit is not eligible for such a mortgage, especially when their units are paid off and they wish to access their equity. This can lead to outcry from unit owners that the association seek FHA certification.

One concern many HOAs and condominium associations have about Reverse Mortgages is how they can affect the association’s ability to collect delinquent common fees. Once the Reverse Mortgage is issued, it behaves like any other mortgage. The association’s lien on the unit can be superseded by the mortgage holder’s lien in the event of a foreclosure. This can lead to a prolonged foreclosure process in the event of a default. For this reason alone, some associations prefer to keep their association’s free of FHA certification, thus preventing the mortgage holder’s lien from ever getting in the way of the association’s right to foreclose on a delinquent unit owner.

The bottom line is that the decision to seek FHA approval lies strictly with the Board of Directors. Unit owners seeking Reverse Mortgages will not be successful without an FHA approval for the community association. Depending on the number of unit owners aged 62 and greater, the demand for Reverse Mortgages could increase at any HOA. Boards should be aware of the needs of the unit owners and take appropriate steps to meet those needs or be prepared to explain why they chose to ignore them. Reverse Mortgages have grown greatly in popularity over the past few years. If your community association isn’t already approved for such loans, there will likely be a need in the not too distant future.

The decision to seek or not seek FHA certification does not impact an association’s ability to borrow money on behalf of the association should the need arise. HOALendingXchange.com is the ultimate resource for community associations and HOAs seeking money. Get started with your own HOA loan by simply filling out the HOALendingXchange inquiry form and HOA loan experts will get busy preparing their very best HOA loan concepts for your consideration.


Does Your Business Specialize in Lending to Condominium Associations?

https://www.hoalendingxchange.comThat’s a question we get a lot. Believe it or not, lending to Condominium Associations and other common interest communities is our ONLY business. In the United States alone, Condominium Associations and other commonly owned properties make up more than 20% of the value of all residential real estate. There is more than 40 billion dollars spent annually on operating revenue. And the numbers are actually increasing. We think that is a market worth selling and servicing to.

The largest challenge facing this evolving industry is the lack of dedicated and specialized financial service professionals to service the growing demand for lending to Condominium Associations and other common interest communities. That is where HOALendingXchange comes in. We have seen the future of Condominium Associations like yours and we know that you will need lending solutions that are as unique as your community. Simply fill out our inquiry form and our HOA lending experts will submit their best concepts for your Condominium Association’s Lending needs.


The Best Loan for your Community Association

https://www.hoalendingxchange.comAs a banker specialized in the community association industry, I have paid close attention to the shifts of the banking industry since the beginning of the 2007 recession. The 2007 recession! Hmmmm… Has it ended yet?

One very significant point that the “man-on-the street” does not appreciate is the hyper level of new regulatory control that has been heaped upon banks since the beginning of the recession. As much of the “man-on-the-street” perspectives coalesce to; “a lot of Wall Street Bankers should have gone to jail”. The reality is that they did not. The government responded with enhanced bank regulations, which had the unintended consequence to restrict ease of access of capital to every-day people and businesses. Where does that leave you as a community association leader?

The bank regulators are formula driven versus being common sense driven.   They, as individuals, also are nearly impossible to discharge from their positions so they are not worried about making business mistakes. For efficiency reasons the regulators perceive to be accurate, the regulators are focusing on the bigger banks.   The bigger the bank, the more intense the regulatory oversight. A common perspective within the financial services industry is that the large banks have been privatized by the Federal government. Business decisions are being guided.

Enough of my whining and on to the answer for your community association. The point is that the platform for how banks operate has changed from how you have understood how they operate. Large banks have been interrupted due to regulatory inflexibility to operate in what one would consider as a “consumer service methodology”. I define a large bank as any bank over $5.0 Billion. A bank under that amount has been impacted by the regulatory environment but they still retain the “desire” to service the consumer. It has been my experience that banks over that level have largely capitulated to governmental demands.

So what is the best loan for your Community Association? It is likely a loan that is negotiated with a bank that is less than $5.0 Billion in Assets. It is a bank that is a member of Community Associations Institute (CAI) because they have decided to specialize in providing financing to this industry. The last and most important qualifier is skills. The first question that you need to ask the banker is: “How many years have you been a Community Association Specialized Lender?”   If their answer is 7 years or less, keep shopping…

Why is the year 2008 an important pivot point? The regulatory impact is the key. A banker entering any business activity guided by the hyperactive pressure of the government’s regulatory pressure since the recession does not actually understand the community association industry. They understand government control.

If you find a banker that has been active in the market more than 7 years, you have a community association lending hero. A person that has many years of skills honed by the growth years, survived the recession and been managing against the regulatory environment.

A lot of this conversation does not seem to address the article’s title. The point is that there is much more to a community association loan than the interest rate. It is my experience that Community Associations are notorious for gravitating to everything that is cheap for the exclusive reason that it is cheap. The reality is that “value” is what is important, not “cheapness”. Getting good service and good quality products at a fair price is Value. If you deal with banks with bankers that have not been in the industry prior to 2008, chances are that you not getting a proper value. The banker may not understand your business (Association). The bank will not likely be the lower cost. The bank will most importantly be the providing the best Terms & Conditions because they have “Lawyered –Up” per their regulator’s requirements. Negotiating the Terms & Conditions of loan is far more important than negotiating a ¼ % interest rate difference between one bank and another. Terms & Conditions can cost the Association far more than a minor interest rate deferential.


The Future of HOA Lending

https://www.hoalendingxchange.comThe advance of technology and social media have allowed technology-based entities such as Lending Tree, Prosper, Lending Club and other so-called “Fin-Tech” companies to all but destroy the traditional bank lending model. These high-tech bank alternatives often give borrowers more affordable, desirable, and easy to obtain methods to borrow money, pay off debt, and more. They further add the element of convenience by putting their resources at the fingertips of anyone with access to a smartphone, tablet, or computer.

Meanwhile, condominium associations, cooperatives, timeshares, and other HOAs seeking loans have had to rely on the “old-fashioned” bank lending model to obtain HOA loans. It no longer makes sense to simply rely on the bank where you deposit association funds. It is irresponsible to seek a loan by simply working with a single sales representative just because you are familiar with him or her. Why not let technology remove the cumbersome burden of searching for an HOA loan? Why not avoid the mistake of poor results from conducting far too narrow a loan search?

The future of HOA lending is here! HOALendingXchange (https://hoalendingxchange.com) is bringing all of the power of technology to streamline the HOA loan inquiry process for all HOA borrowers. Using our system, borrowers complete one simple loan inquiry and then relax while lenders compete for their business. They receive the best loan concepts for them to evaluate and decide which lender to pursue for their HOA loan. Best of all, HOALendingXchange is FREE of charge to the borrower. It costs NOTHING for a borrower to use the system.

Here’s how it works. HOALendingXchange invites HOA lenders to review all loan inquiries that fit their lending parameters. In other words, lenders have told us what types of borrowers and loans they are interested in. Borrowers submit their HOA loan inquiry anonymously. All of the banks that match the borrowers request are alerted and then, anonymously, put forth their most competitive lending concept for the borrower to review. It all happens quickly because of the power of technology. Borrowers can expect to have lending concepts to review in just three business days!

Ready to get your next HOA loan? Want to learn more? Head over to https://hoalendingxchange.com and get started today. You’ll have the best HOA loan concepts ready to review in just three business days. Welcome to the future! Welcome to HOALendingXchange!


Property Insurance and the Importance of Proper Coverage in a Time of Escalating Storm Intensity

https://www.hoalendingxchange.comIf you are a fan of great films, you have likely seen the movie, “The Perfect Storm”. Released in 2000, it tells the story of a group of unlucky fisherman who risk their lives to venture to the Flemish Cap where they have tremendous success in landing a great catch of fish they can sell at market for a handsome reward. However, standing in their way back to shore is the nightmarish hurricane that would become known as the Perfect Storm. If you’ve seen the film, you know the final outcome is simply tragic.

In the past, it seemed as though this Hollywood-style blockbuster of a storm was limited to faceless villains for suspense movies. However, with weather events this past decade across the country and around the globe, it is clear that community association leaders must pay great attention to the havoc and real-world losses these super storms can bring. We may not be able to avoid the storms but we can take steps to protect our communities from the financial destruction that is likely to ensue.

Whether you believe in global warming or not, the insurance industry is taking the threat of escalating storm intensity very seriously. The Insurance Information Institute (http://www.iii.org) provides accurate and timely information on insurance subjects. They have published a paper on climate change that addresses the very real impact on the insurance industry and those properties which underwriters insure. They acknowledge that while science has not yet provided all of the answers, they are encouraging insurers to spread the word about climate change and how insured properties can take steps to minimize potential damage.

Insurers often talk about disasters in terms of catastrophes. A catastrophe is a natural or man-made disaster that is unusually severe. The insurance industry declares a catastrophe when claims are expected to reach a certain dollar threshold, currently set at $25 million, and more than a certain number of insurers and policyholders are affected. A catastrophe can be a hurricane or tropical storm, which over the past decade have accounted for the largest portion of catastrophe losses, a tornado or winter storm, or any other type of disaster such as terrorism and earthquakes.

Catastrophes appear to be growing more destructive, but insured losses are also rising because of inflation and increasing development in areas subject to natural disasters. In 2005, the year of hurricanes Katrina, Wilma and Rita, catastrophe losses totaled more than $60 billion. Hurricane Katrina caused losses of $41.1 billion, the highest on record, about twice as much as Hurricane Andrew would have cost had it occurred in 2005. If, as suggested, hurricane-related losses grow by as much 40 percent over the next 20 years, a Katrina-like storm could cause $60 billion in losses, or significantly more if it struck a densely populated metropolitan area like Miami or New York City. For more information, read the excellent article at http://www.iii.org/issues_updates/catastrophes-insurance-issues.html.

You may be wondering how to best protect your community and financial investment in these times of climate uncertainty, escalating storm intensity, and more frequent storm prediction. Work with your community association insurer to review where you are most at risk and then purchase adequate insurance to protect unit owners from the potential ravages of a super storm. Schedule a meeting with your insurance broker and discuss your concerns as well as new insurance policies to protect your community association. And if, by chance, your community association is dealt a tragic blow and needs funds to rebuild, HOALendingXchange can help! Simply fill out our inquiry form and our HOA loan experts will get busy preparing their very best HOA loan concepts for your consideration.


The Vital Role of the Community Association Attorney

https://www.hoalendingxchange.comCommunity association attorneys play a vital role in the success of most condominiums and HOAs. Depending on the size of an association and the challenges it is facing, odds are pretty good that one or more attorneys are performing crucial work on behalf of the association. The work these professionals perform on behalf of the association is crucial to helping them maneuver the maze of legal challenges that vary from state to state.

Attorneys that specialize in the legal issues and challenges facing community associations are relatively abundant. The community association attorney is an important member of the management and advisory team and a vital asset to promoting a healthy and harmonious community for residents to enjoy. A quick review of any association’s covenant, declaration, by-laws, and rules and regulations documentation, gives a first-hand appreciation of how complex those documents can be. The community association attorney provides interpretation of those documents for the community and, when necessary, in a court of law. Entering into an HOA loan agreement with any lender will almost certainly require the services of a qualified community association attorney. He or she will even argue cases before the court when necessary and provide trusted guidance to the Board when called upon.

Since 1993, the Community Associations Institute has recognized excellence in the practice of Community Association Law. That is when the College of Community Association Lawyers, more commonly known as CCAL, was founded. Membership in CCAL is quite exclusive. Of the thousands of attorneys that practice community association law, less than 175 have been granted membership. You can learn more about the College of Community Association Lawyers at the CAI website – https://www.caionline.org/Advocacy/LegalArena/CCAL/Pages/default.aspx

As a matter of law, condominiums and HOAs are bound not only by federal but also state and local laws. Community association attorneys need to be familiar with laws on each of those levels as well as be able to interpret the association’s specific rules and by-laws. This is no easy task and one of the reasons that an association should choose an attorney with specific experience in this area of law to represent them. State laws addressing common interest communities have also been changing at a brisk pace over the past few years. A competent lawyer is needed for community associations to keep abreast of these laws and take advantage of those laws that change to enhance their community association governance practices.

If your community association is in need of an HOA loan, it is important that the association seek competent legal assistance. When your association is ready to seek extra funds for capital improvement projects or other reasons HOALendingXchange can help! Simply fill out our inquiry form and our HOA loan experts will get busy preparing their very best HOA loan concepts for your consideration.


A Bright Future for Solar Energy in HOAs

https://www.hoalendingxchange.comAccording to the Institute for Energy Research, slightly less than 1% of U.S. electricity production comes from solar energy. However, as the industry gets more efficient at producing high quality, affordable solar panels, many HOAs are taking note at how this technology can save money, and in some cases, actually create an income stream.

Not surprisingly, Florida (the Sunshine State) has enacted laws that allow for homeowners to install solar collectors. Even if the HOA has rules to the contrary, the state law trumps those rules and sets the stage for HOA members to jump on the solar band wagon. While the initial cost of installation can be high, solar power users experience significant drops in their energy bills immediately. In some cases, enough power is generated that the electric meter runs backward and the solar collector user is able to sell energy back to the energy supplier!

Every year since 2006, the solar power industry has experienced exponential growth. As traditional fuel prices increase and production costs of solar panels decrease, the demand for solar power energy grows. The federal government has heavily funded research and development in this sector. Solar power companies are now poised to compete with more traditional power sources. In fact, many analysts believe that as solar energy becomes more readily available the energy industry as a whole may change. That change may come in the form of more affordable and more available energy.

Condominiums and HOAs are seeing some of these advantages already. California leads the country in solar panel installations, due in part to tax incentives. As mentioned earlier, Florida has many installations but actually trails New Jersey in East Coast installations. There have also been significant solar panel installations in Massachusetts, Pennsylvania, North Carolina, Nevada, Arizona, and Colorado.

It is only a matter of time before more states offer similar incentives and solar panel installations become the norm rather than the exception. Between the increasing costs of traditional power sources and the decreasing cost of solar panel installation, forward thinking community associations can take advantage of this alternative power source today and start saving money on power tomorrow.

Your community association may wish to make the move to solar power but lack the funds to invest in the upgrade. When your association is ready to seek extra funds for capital improvement projects or other reasons HOALendingXchange can help! Simply fill out our inquiry form and our HOA loan experts will get busy preparing their very best HOA loan concepts for your consideration.


A Primer on Financial Security Offered Through Proper Insurance

https://www.hoalendingxchange.comOffering peace of mind and financial security in the face of risk, insurance for condominium associations and other common interest communities is simply vital in sustaining a secure and fiscally strong environment. However, understanding the deductible system, coinsurance, and the division of responsibility between unit owner and association responsibility can be the difference between false and true security for associations and their members.

At the very core of the insurance relationship between unit owners and associations is an understanding of who is responsible for what. For the most part, unit owners are tasked and, in many states, required to carry homeowner’s insurance for the contents of their unit and the portion of their unit that is not covered by the association’s Master Policy. Even if it is not a requirement for association membership, it is good policy to require individual homeowners to have their own policy for the simple reason that it provides them coverage for unforeseen events that could otherwise create a fiscal hardship for them. Theft, fire, water damage, and more risks are typically covered by the homeowner’s policy. Unit owners should discuss their particular needs with a qualified insurance professional to choose the amount of coverage that is adequate for them.

Policies designed to protect the association are an entirely different subject matter, although equally important to the individual unit owner. Master policies cover the association common elements including buildings and grounds. One way to describe this coverage is “walls in”, meaning that the building exteriors up to the inside of the individual units are generally covered. Roofs, walls, hallways, elevators, lobbies, and such are covered. Improvements to individual units as well as contents are generally not covered. That isn’t to say that an association cannot upgrade their policy to cover some of these non-covered items but it will vary from association to association and additional coverage comes with a cost of additional premium.

Additionally, associations will purchase policies for Directors & Officers, commercial liability, Worker’s Compensation, and Umbrella, among others. Where it is deemed appropriate, associations may also need to provide Flood insurance. While all of these insurances provide fiscal piece of mind for unit owners within the association, all come with different terms and premiums based on the level of coverage and the associated deductibles and coinsurance amounts.

Coinsurance is the amount of risk that is shared by the insurer and the association and is assigned as a percentage value. The higher the coinsurance value, the lower the premium. However, as the coinsurance value rises, the potential uncovered loss to the association is also elevated. For this reason, associations need to be careful in determining their true risk when purchasing insurance with a relatively high coinsurance variable.

Deductibles are the out of pocket expense an insured entity will face when making a claim. Again, as the deductible amount increases, the insurance premium decreases. However, higher deductibles can create larger out of pocket expenses whenever an insured loss is experienced. In many instances, associations can also pass along the deductible to the unit owner making claim against the association policy thus reducing their liability and expense while still providing the required insurance.

While higher levels of coinsurance and increased deductibles may generate insurance savings to the association, they clearly add risk to the unit owners within the association. It is important that unit owners give their input to their Board as they weigh the sweetness of a low premium with the bitterness of financial burden to potential claimants. If your condominium or HOA needs funds to cover policy premiums or help pay for uninsured or underinsured losses, HOALendingXchange can help! Simply fill out our inquiry form and our HOA loan experts will get busy preparing their very best HOA loan concepts for your consideration.