Loan for new siding?

I will give you my preceptive. I'm guessing you can't go 5% of the Annual Budget without the vote of at least 51% of the Members if not higher. That should be the least of you issues. Getting the money from the homeowners in this economy will be very difficult if not impossible.

According to another thread you actually have 58 paying owners. If you need a special assessment for a total of $250,000, you are asking the 58 to cough up almost $480 a month, in addition to the $130 to put up the siding. That's a lot to ask for. Having a adequtely funded reserve would have been the answer especially since the HOA has been around since 1981. I'm not sure why a $100K assessment was put up by the Board and passed when really $200-$250K was needed. If I were a homeowner I would be asking you why you didn't get bids before you came to me for money.

Good luck..You guys will need it.

Yes, do it in phases. Can you paint some of the other units until you can get to them? There has been great improvement in siding paints in recent years.

(PS. Where has your reserve fund been all these years . . .?)

Glen and Susan:

Thanks for your suggestions and remarks.

We do not need work on concrete parking lots or on the roof until 2015 or 2020. These things have been addressed and maintained so that they are not an issue except to plan for over the next five to ten years.

Our attorney has strongly recommended that we go for the entire property and that he believes that the CCRs do not provide for a partial without an amendment to the CCRs. How would you assess an entire property for improving only a portion of it? Not rhetorical...I'm asking. We have seven buildings. They all have their issues. Our curb appeal is still high, but then when you get up close and live here, you see the problems.

Susan, the reserve fund is what it is. Major repairs in drainage was necessary and over the past three years a chunk was spent on fixing that. Carports were falling down in some areas and had to be fixed. Drainage and carports will make people crazy, and seriously, these things were necessary. That cost about $62,000. But, still, there has been no comprehensive plan for having a thriving reserve fund.

I have also suggested getting paint job, and patching, then beginning to work on the reserves, but no...the "unofficial" consensus is that "This would be a waste of money to go in this direction. We all want siding, we just don't want to really pay for it."

Reserve Fund study is a good idea. While I do not like the idea of paying for such a study, I also know that "experts" on such matters are listened to while the common sense foresight of qualified (not me, but others) board members are poo-poo'd. Recommendation on a good consultant?

Our siding is wood composition, and so we cannot get money for metal in this situation.

As a side note: I should mention that we have a large board--10 active board members, 15+% of the membership. One recently resigned from our 11, and one will resign in December (moving). That will leave 9. Unless the membership insists on replacing the two, we will probably leave it at that. That's pretty good representation for our small community. The board also comes from owners who live here, owners who rent out units, and owners who have a child living in the condos. We've got input from all types of members living in all the 7 buildings. These were not handpicked by a perpetuating board. They were elected by membership because they were deemed to be people of good character by their neighbors. So, there are more than a handful with a narrow agenda trying to figure this all out.

Brenda -

You've received a lot of good advice in this thread about (a) what caused this situation to develop in the first place, and (b) how your HOA should have done a reserve study to fund a reserve fund to avoid the problem to begin with. All well and good.

However as juxtaposed against your original question, this is a little like the situation of "it's hard to remember that your original objective was to drain the swamp when you're up to your a$$ in alligators".

Given your current situation, I'm going to offer up a philosophically different point of view. It will undoubtedly be perceived by others as "hard line" and "unforgiving". So be it.

While it is true that HOAs do obtain financing for major projects, doing so in essence puts them in the loan business by floating a note that will be paid back with the promise of future dues payments by the owners. Fundamentally I don't think this is the business of the HOA. Rather you should invoke the total special assessment necessary from the owners with the assessment payable in a reasonable time (now vs. 30 days, vs. 90 days, etc). It's up to the owner to either pay it or find their own loans or source of financing for their obligation to the HOA.

Simply stated, HOAs aren't in business to be financial institutions by offering loans to their members - they exist to manage the community.

**Are you trying to replace the wooden siding with wooden siding or are you looking at different alternatives which may be cheaper? If the homeowners will not increase the SA you may have to use the $100,000 you have to make repairs and go back next year for another try. About the only thing I can think of is to continue keeping the H/O's in the loop and explaining the hoops the BOD is jumping through to get value for their money. I don't envy you your job of trying to make up for years of neglect. **

Glen, We have looked at Hardie Plank and Wooden siding. Both are high.

Vinyl has been recently put on a property that is our near twin and it looks great. I don't know this are well enough to know if vinyl will mildew in this climate. Where I am from, the Texas coast, vinyl siding looks awful in a short amount of time. I need to find out prices on that as well as durability in this area.

Keeping them in the loop. I just finished an update letter to the membership. I emailed it to PM and they will send it out on Monday. I have been regularly advising those who read email on what is going on.

I also emailed the board this afternoon and strongly recommended that we take a hard line on dues asap. And, suggested the information that I was given here. Of course, we need to run it by the attorney. We will come up with a solution.

I do spend countless hours trying to figure out how to work through all this...the years of neglect. I have really good, smart and helpful board members who will do whatever I ask of them...what I mean is, calling people, getting bids and so forth. We DON'T always agree. When I became privy to the past due accounts last year, I hit the ceiling. I got onto the lien train real quick. At that time, I was working for our attorney and CCRS, liens...all that was my daily routine. He let me do the liens using his forms. Some of the board members at first felt like it was kind of mean for me to start placing liens so quick...but they got over it after they got a better undertanding of it.

Again, thanks for your input.

Jon:

*Please allow me to ask a few questions and then make a few comments.*
Sure.

*What rate of interest is the bank asking for on the loan you applied for?*

Yet to be determined. I will probably see their offer if they decide they will extend a loan to us on Monday. Why do you ask?

*And how much have you applied for in financing?*

$258,000 is the amount we tested the waters with. I would say that our current lender application is more of a way to see if this particular lender will loan the money or not once we are ready to move on this. We are not locked into an amount.

*Over what term and resulting in monthly payments of how much?*

Yet to be determined. I suggested what I thought was reasonable, but that may not be the terms that they come back with.

And, I am not going to only deal with this lender. I intend to ask two more.

Why do you ask?

*In my state NY the state has an agnecy that offers low interest financing on energy saving home improvements. Offered to homeowners, condos and HOAs alike. Perhaps you have a similar option in Texas? Might be worth checking into.*
I will. Thank you!

*The cost to reside the entire property is between $200k and $250k. Based on an esitmate from a contracotr I assume? I would love to read that estimate.*

Why? I don't follow what you are saying about the bid. Not "A" contractor. Four bids have been taken to come up with that range. A fifth will be turned over to us on the 15th. Jon, you almost sound like you are mocking my project! I recognize a little mocking when I see it.

*Is it based on wooden siding?* Yes.

*Price per square foot of siding?
How many buildings?
Work completed in what time frame?
I would like to know the actual scope of the work to be done under this estimate.*

One bid is handwritten...on one page! (Not gonna choose him. But amazing how he came in right where the others did.)

One bid is seven pages. Laid out the scope rather well. (I scanned it, but as you will see below, I'm not the chief on this project. I serve more of an administrative position on our board. I organize, delegate, communicate and other things that I am talented with. I know my limitations.)

I expect the bid I will get on the 15th to be around 25 pages. Those guys have done work for us before and they are thorough.

Seven buildings. 62 units - 1100 sq. ft. Not a huge property.

Here's the good news...I am not in this alone. One board member is an engineer and successful business owner. He has two units. He's going to analyze every bid with a microscope. Another is a logistics man and he is working with the financing and looking over bids. He has more questions about everything than you do....and I mean that in a good way. Another fellow is just finishing up his doctorate AND he's got a pile of common sense. He also knows how to say, "I don't know." You can't beat that with a stick.

*Many contractors will make estimates for the removal and installation of the siding period. How many square feet off and how many to put up.

Then when you begin you may find some structural issues that should be addressed when the siding is off the building that now needs to be added to your cost.*

Yep. We anticipate that.

*Water damage, humidity damage, insect damage to the plywood, partical board or insulation under the siding if present it would need to be addressed. At an adddtional cost.*

Right. We are having the insulation replaced. And, we are going to see how our termite contract has worked for us. Going to be interesting if we ever get that far.

*After 30 years I would doubt the buildings are in pristine condition under the existing siding in the Texas coastal areas.*

Agree. But, not on the coast. 200 miles inland now--I used to live on the coast and homeownership was a royal beach with the termites and shifting foundations. I guess that's why I EXPECT to spend money on maintenance. I can't understand people who live by the seat of their pants and think that a low monthly assessment is the last word on how much it will cost to live in their home.

* Windows do you plan to reside the existing windows without replacing the original ones??? Now would be the time, cheaper to replace when the siding is removed.*

No.

*Don't wish to add to your burden but to replace the siding on all buildings at one time is a huge undertaking. Is anyone knowledgable about construction on your Board? It certainly might help.*
Not a burden. I agree.

* As I believe Glen suggested this might best be done in stages so you might find out for sure what the true cost, not the estimate,to complete this work might be. *

Good point. Like it. But, that's not what our lawyer has recommended. That was our first thought.

*With a project of this scope it is not hard to run over the estimated costs of the project for unforeseen reasons. Better IMO to proceed in steps to understand and have the ability to cover the total final costs. *

Agree.

*Once you sign a contract to do the whole property if the costs exceed your assets you will have major issues with the contractor who might have gone out and purchased materials for the entire project and now be told you don't have the money to complete the entire job. Where then do you obtain additional funds?? Loans more assessments?*

We also have an attorney who will look over any contract, and we are already considering the need for hiring someone to oversee the project other than board members. We are not unconcerned about details or money.

*While you and others might have the means to cover the costs of such a project have you considered the possibility others may not.*

Yes. I am very concerned about that. And, you never know...some might just decide not to pay because they don't want to.

*Do you then plan to fund legal action against them? More money? And if they fail to come up with their share can you pay a higher percentage of the costs yourself?*

Legal action? Not sure. I will not pay a higher percentage myself. This has been a burning question in my mind for months.

* I wish you luck with this and I am only attmepting to share with you perhaps the entire picture that must be considered before taking on a project such as this.* And, your points are well taken.

*Getting some money put aside and sigining a contract is only the beginning.* Obviously!

*And when things go bad it many cases it is due to a lack of undersatanding as to the entire scope and details involved in such an undertaking.* Yep.

Don't underestimate mocking, Jon. It can be very fulfilling.

Especially if you have been an HOA board member for 25 years.

I truly appreciate the points you made. Knowing your background now, doubly so. Like I said, these are going to the next meeting with me. In fact, once they have time to parse through a few things I sent them over the weekend, I will send them over so they will have time to give it thought before we meet. Not all board members read their info ahead of time, but these guys do.

brenda

Brenda,

I cannot speak for your state and HOA's credit but you'll obviously receive financing terms that a couple of percentage points higher than what see from mortgage interest rates. We have a 7% interest rate on a loan that runs from 2008 to 2014. Principal and interest, every month, costs $1,100 or $13,200 per year. The bank gave us that by reviewing our dues cash flow. Now that the projects that loan has funded are in the rear-view mirror, the lost cash flow hurts.

Our HOA, due to a lack of Reserve Funds to pay for the huge ticket repairs, floated that loan to completely overhaul the community pool. It was a six or seven year loan term. The HOA didn't get it paid off before needing to carry out a new loan to repair our pool clubhouse that the insurance company was threatening to re-assess for insurability. That required refinancing the remaining balance and adding to it to cover these new repairs. That use of loans over assessments means the HOA's members will been making loan payment for a decade by the time our current loan is paid off in the year 2014.

The use of loans can only buy you time to get your HOA's budget in order, with building of Reserve Funds through spending cuts or dues increases so that residents aren't assessed at every turn. Assessments should not be a strategy. Assessments, in my opinion, reflect that the board has spent too much money on frills and saved too little for "rainy days." The argument that assessments are best, as you attest, isn't a good one. Property owners feel like their money goes nowhere. Sometimes, it is wasted but often it's because the dues are too low and resident expectations are too high.

Loans are like giving yourself novacaine because you have a tooth cavity but will not get the tooth filled. The "pain" will return in the form of reduced cash flow from paying loan debt in conjunction with the other, still-unknown needs you'll face.

1. Go for the special assessment that covers 100% of the siding needs without loans.

2. Short of that, use the assessment you do have authorized to repair most dire building (though residents that don't live in this building will feel cheated).

3. If you qualify for the $258,000, and your current budget is rather strapped paying for bare essentials of property maintenance, get ready to go on a fiscal diet. Try to work with a local lender. You can pick up the phone and speak with a bank president.

It stinks that the perceived "low cost" or "free maintenance" ride is over for your HOA and its dues payers. You appear to be on top of the situation and I commend you for communicating as best you can with the residents. It's a fight but you're taking the high road. Also, your point about looking to move if the residents won't bring the siding up to a standard that passes basic inspection is very valid. Disintegrating property will drop in value. Complaining and verbal criticism won't get the job done, either, or HOA's would be the smoothest running and most effective "tiny governments" ever devised.

One more thing on enforcing collections, REMEMBER that the banks considering your loan will look at the strength of your cash flow coming in every month. If your board is too shy to collect what's owed to the HOA, think about how the banks will view it. We're facing three HOA-launched foreclosures in a month and we're hoping not to proceed. I called my local lender to notify them that they could see us printed in the papers but the actions are to replace non-dues payers with dues payers. The bank VP saw it as a positive move to maintain cash flow - the backbone of why they lent us money two years ago.

Good Luck........

Brenda,

It's commendable that you're basically handling collections by yourself and without a property management firm, which for the percentage of revenue and HOA pays, is quite helpful as it detaches the personal nature from collecting late dues from people who may be your neighbor.

Many people consider HOA loans like home equity loans in their private lives. There's a big difference. The difference is that HOA's can't sell off their assets to reduce expenses or raise quick cash. Private individuals can, at least, sell that new car, etc. to free up personal cash flow or get out from under the debt. Try selling the common area grass or pool....right. If the HOA loan goes into default, the bank could look to grab a big portion of your monthly cash flow - enough to threaten other contracts you pay.

But, a loan can be good to buy your board time to work the numbers and set up a game plan for building cash or assessing how much monthly dues should be to avoid special assessment. Your Reserve Funds are your insurance policy against the surprise of a special assessment, the sign of an ill-prepared board in many (but not all) cases. So, pick your path wisely. The assessment, if possible, avoids this loan repayment issue.

We've been there and we're trying to claw out. But that loan payment's removal of $13,200 per year from our cash flow certainly affects our ability to build Reserves for our next "rainy day." We're in a holding pattern with about $52,000 in the bank as Reserve. We should be twice that amount.

The biggest challenge will be the people will use your under-funded Reserve account, because it looks big in dollar amount, to justify not raising dues to further strengthen it. "You have $60,000, or whatever the amount, in savings!, " they'll say. They'll ignore the fact that a rather simple siding job costs $250,000 to be finished completely.

Better yet, most of your residents don't realize the scale of your expenses and compare your expenses to a single family home where prices are modest when compared to an HOA.

Your property owners might....might.....consider a trade-off on getting a loan now and recognizing that the HOA isn't cash flowing enough to save for the next big repair. Thus, you dodge a special assessment, but shore up your monthly income with a dues increase that could pay for the loan payment while a small portion enters reserves.

That seems prudent if you can generate the new cash flow in this tight economic environment.

JonD1,

That is an excellent summary of board service! Your board majority will let a dedicated person run themselves into the ground, but appreciate the effort the first year or two. But, get as much done as you can WHILE you have the energy.

By the third year, if you last, you can guide your commitment and stay away from the pettiness because your colleagues could get spoiled and begin second-guessing every move. The top problems come from "Once a Month" board members who have great ideas and plenty of YOUR time to devote to it!

Excellent summary, Jon!

(This threat is no longer hijacked...)