Need help: Problem securing financing for repairs

AdamF (Texas)
Posts: 7

Posted:

I was hoping some of you might be able to help our HOA board. We have a small complex, 22 units. We manage ourselves. There is approximately $200,000 worth of repairs that the community approved by vote to undertake, most of which is structural and needs to be done. Thanks to previous regimes we have no reserve fund. The board asked that each unit pay $9000, preferably up front. It was offered to some owners that were unable to afford it that we would try to obtain a loan to cover the remainder and work out a payment plan (with interest). Many of the owners preferred this option. However, in talking to many banks this is proving to be a difficult task. No bank will finance $200k without some collateral (which the HOA has none of) or without one or several people "guaranteeing" the loan, which no individual wants to do. Any suggestions on how this might be accomplished? I know in most cases a management company will front the collateral or guarantee it, but we cut ours out 2 years ago because of rising costs. Thanks for any help.

BradP (Kansas)
Posts: 2,640

Posted:

Adam:

Does the HOA have any common area property is can provide as collateral? It is obvious since you have no reserves that your assessments are way too low, what about raising your assessments and guaranteeing them X % of them for a certain number of years? I don't have a good answer, it sounds like you will need to get a lot of this money up front.

AdamF (Texas)
Posts: 7

Posted:

No common area property for the HOA.
This apparently is the 1st assessment in about 5 years. Our dues are $250/mo, already high thanks to the cost of Dallas homeowner insurance and comparable to surrounding properties. We are leery of raising them higher and hurting resale.
I'm not sure I followed your idea about guaranteeing the assessment?

BradP (Kansas)
Posts: 2,640

Posted:

Adam:

It is quite obvious that your assessments are not high enough if you have a 200k repair bill and no reserves. You already know this but that 200k should have been collected throughout the years and ready to go. Now you have to play catch up with that 200k but also plan for future repairs. the only way I know how to do that is through an increase in your assessments. I don't know if the loan company would be willing to accept the increased assessment as collateral or not, I doubt it, but it doesn't hurt to ask. Other than that I don't have any ideas other than to suck it up and pay up front.

LanceT (Alabama)
Posts: 121

Posted:

I would evaluate what the $250 in dues actually covers. Break each expense down and see where expenses can be eliminated or cut back. The extra money then can be assigned to the interest bearing savings account. This additional money may help reduce the overall individual requirement contribution.
We paid $50 a month in our HOA with about 107 homeowners. A breakdown in costs showed that about $2.00 per individual was "extra" once all the bills were paid. Muliply that by 107 homes and you have a monthly savings of $214. (I am over estimating here for example). So there is room to scrape up extra money.
I was able to replace a retaining wall that cost over $8K with less than $2K in savings, no raising of dues, and no special assessments. We didn't even get a loan! The project took me about a year to raise the money and pay for it. I just simply planned for it and stressed the importance of the project about 6 months before even bringing the subject up for a vote. Once the idea and need set in the heads of the members, I had their support to do anything I needed to get the job done. This included foreclosing on a home and placing liens on anyone more than 6 months late.
There are ways available to raise your money. You may need to ask for volunteer labor from the community. Do the projects in sections. Enforcing collections of late fees and unpaid dues. (This costs money so watch out). Be inventive but be careful. Bake sales or lemonade stands may NOT be looked at very well by the IRS. Make sure the collecting of the money is done to what your documents say you can do.

Recovering Ex-President of a HOA

AdamF (Texas)
Posts: 7

Posted:

I appreciate the advice to examine our current budget and raise the dues, but the point of this post was just to ask anyone for suggestions in obtaining a bank loan for repairs. Have any HOA members here had experience in securing financing for special repairs and if so, what was asked for in return?

LanceT (Alabama)
Posts: 121

Posted:

It is in our By-laws that the HOA is allowed to get a loan if need be. Make sure it is allowable in your documentation as well. This information may lead you to more answers on how to undergo the process. It can take only board approval or a Majority vote of membership (51 - 75%). A big difference. This is where I think part of your issue lies at this point. Sounds like your HOA members put the cart before the horse. They voted in for improvements without voting in a way to pay for them. Now you have to go back and vote for how to implement which could be loan, raising dues, special assessment, or other means.
Since you are sure a loan is the answer, your HOA has to show proof it is able to pay back any loan money. Do you have monthly and an annual budget records? Your HOA will need to show the amount of money it collects and that it can factor in a routine loan payment. The HOA needs to have a balance sheet that it can present to the bank. I would also make sure you have any tax records avaialable. The HOA tax records should provide a good history and overview of the monies spent.
I am confused on what the $200K is needed for in the first place if you have no collatoral? How is your HOA setup? We own our own homes but the HOA is responsible for the lawncare/common area around them. The streets are now public. We do have a pool/clubhouse. I would like to know exactly what the $200K improvements your HOA is looking for because it may not be responsible for doing them. There is a fine line between what the community wants and what it is responsible for.
My other suggestion is that if the issues are "structurally" related, why not contact your insurance company? Maybe your issues fall under your insurance policy. Your HOA may be able to make a claim. However, I will warn you, that may open another can of worms...

Recovering Ex-President of a HOA

AdamF (Texas)
Posts: 7

Posted:

Each person owns 1/22 of the condo community. That's what the bylaws say. So no common property owned by HOA. I know our HOA is ALLOWED to get a loan, I just want to know HOW to do it. We do have full budget and tax records. However, the banks didn't seem very interested in them. Here's what the repairs are for, which I doubt an insurance company would pay for:

- Stucco

o Replace all exterior wood siding with stucco (the wood is rotting)

o Patch/repair stucco

o Paint all stucco and trim

- Front doors

o Replace all front doors, door hardware, door bells and trim

o Replace unit numbers

- Lighting

o Replace all front door lights (to save money, we will do this installation ourselves)

o Replace 4 security lights in front of buildings

o Replace 4 building number lights in front

o Replace 4 courtyard lights with 6 new ones (3 per courtyard)

- Balconies

o Replace wood fascia (outside) panels on balconies with stucco (the wood is rotting)

o Repair/caulk/seal balconies

o Replace top wood piece on all balcony railings with metal

o Paint balcony railings

- Paint the covered parking area (the amount for this work has been reduced since last meeting)

o Sandblast first to clean and prepare metal (it is rusting and needs to be protected)

- Stain all fences (job done last year was of poor quality and the wood is currently unprotected)

- Replace address numbers on front of buildings

RogerB (Colorado)
Posts: 5,067

Posted:

Adam, you have tried to get a loan and every financial institution has turned you down; did you ask them why? Perhaps some reasons are:
1) The association has a record of no financial responsible since no reserve fund is available;
2) The plan to do all these improvements at one time raises an additional red flag about the ability for the association to be managed effectively; and
3) The association has not increased the assessment by a MAJOR amount and legally committed that amount until the loan is repaid.

I suggest you try getting each owner who needs a loan to cover their portion of a special assessment to use the equity in their property to get an individual loan.

AdamF (Texas)
Posts: 7

Posted:

Thanks Roger. I agree wholeheartedly, the HOA has been grossly mismanaged in the past. (i've been living here for 2 years). Many of the condo complexes around us have had dramatic upgrades to the exterior in recent years with ours lagging far behind. That's what sparked the interest in fixing up the exterior, at which time many structural issues were found to be needing to be addressed as well. I have not personally talked to the banks but our treasurer has and I'll ask her what reasons have been given for rejection. I am afraid that individual loans may be the only option here, but if anyone has any other suggestions please let me know.

JoeS4 (Kentucky)
Posts: 77

Posted:

To address your question a lender would want to see past performance as well as ability to repay and some type of collateral to cover the loan. It appears as per your other post most of that is a mute point, however with 22 homeowners maybe there is a possibility that along with a loan that you give 22 personal financial statements and offer to each sign personally along with the corporate loan. In additional advice you quickly need to get a hold of the monthly assessments as well as some capital reserve. Also, look at what your trying to do and maybe do it in phases instead of trying to borrow $ 200,000 at once look at maybe 3 or 4 phases of repairs, this will solve two problems: first if you borrow $ 50,000 and 22 people repay that over one year your building your trust with the lender as well as its more affordable to everyone, while that process is started your monthly dues can be raised along with starting a future reserve and after 3 or 4 years the entire project will become finished and your complex can build its relationship with the lender. Lastly make sure and get at least 3 written bids on each part of the project, this will usually save you at least 10% when qualified contractors know they are in competition for your business.

Good Luck

LanceT (Alabama)
Posts: 121

Posted:

I think you got some great advice from the other posters. Doing the repairs in phases, individuals taking loans out for their share, and the fact that mismanagement may be a factor in loan denial.
However, as I reviewed your list of necessary repairs, I noticed a few could be passed onto the owners individually. The painting/sandblasting, stucco, and some additional lighting should be a group effort. However, the door replacement, Unit numbers, and general repairs/cleanup should be the owners of that unity responsibility. These are items that may be cheaper done by each owner than splitting the costs amongst all the owners.
An overall plan of what the condo's end result should be developed. These are things such as the new paint color scheme, type of numbers to be displayed, and other issues that are common amongst all the units. Once this is established then ask the owners to stay within those parameters when selecting repair/improvement items.
For example: Our HOA the "theme" is an old Northeastern sea village. The house colors are to be from a select pallet of muted pastels and NO white trim. The outdoor lighting posts are to be black and stay within the same styles as everyone elses. All the privacy fences must be wooden and between 4-6 feet tall.
Our HOA does NOT pay for any of this. Each homeowner is responsible for selecting their own materials and selecting a pre-approved color from the HOA Board approval color pallet. If an owner violates any of the approved selections, then the HOA can force the homeowner to remove the offending item at the owner's cost. If the owner refuses, the HOA can vote and do the work themselves and charge the owner the repair/removal bill. That money owed the HOA can then be turned into a lien if not paid.
Your condo may want to take a similar approach. Pick out a "Theme". If the condos are planned to be painted Sunset Red with Albatross White then any owner should be able to pick the colors up at the local paint store for repairs. Maybe the house numbers are to be done ONLY in the Greek style of lettering. The choices can be made up by the board or in most HOA's this is done by the Archectural Control Committee. (ACC). That way, the owners who can't afford to do all the repairs can do them over time and at their convenience.

Recovering Ex-President of a HOA

CristinaY (California)
Posts: 1

Posted:

1. Classify the repairs in order of urgency
2. Pay a special assessment of $2,000 x 22 homeowners. Make the most urgent repairs for
$44,000.
3. Pay special monthly assessments of $200 x 22 homeowners = $4,400 x 12 m $52800.
Make repairs for $ 52,800 every year until you complete the repairs for $200,000, and
you do not waste money in interests.

GloriaM (North Carolina)
Posts: 829

Posted:

Adam:

This is one good reason for having professional management, to assist in these types of ongoing day-to-day issues. Nonetheless, I would ask first what are the Owners obligations in your governing documents? In condo's documents (of course all differ, especially state to state)generally the doors, windows and even light fixtures are the Owners obligation. In general anything that solely services the unit is the Owners responsibility. If this is the case, then some of your costs are already reduced. The second suggestion is to do the improvements, building by building (one at a time) starting with the oldest on to the newest. The third suggestion would be to remove the blinders off of the "old" way of repairing and think about maintenance free repairs. By replacing what is there with the same means, will only result in having to do it again in the future. What I mean by that is instead of replacing with stucco again, why not vynil siding or another maintenance free product. I did a old condo repair in Long Branch, NJ 42 condo's, and worked a deal with the contractor to do the job in phases and to pay him as he completed the job, building by building. Instead of replacing the wooden sofit's, we boxed and wrapped them with vynil and even today 10 years later its still working. As for banks, the only way to secure a loan is signing over your annual assessments as collertal, by who wants to do that? I hope everyone's suggestions have helped you.

GloriaM (North Carolina)
Posts: 829

Posted:

Adam:

This is one good reason for having professional management, to assist in these types of ongoing day-to-day issues. Nonetheless, I would ask first what are the Owners obligations in your governing documents? In condo's documents (of course all differ, especially state to state)generally the doors, windows and even light fixtures are the Owners obligation. In general anything that solely services the unit is the Owners responsibility. If this is the case, then some of your costs are already reduced. The second suggestion is to do the improvements, building by building (one at a time) starting with the oldest on to the newest. The third suggestion would be to remove the blinders off of the "old" way of repairing and think about maintenance free repairs. By replacing what is there with the same means, will only result in having to do it again in the future. What I mean by that is instead of replacing with stucco again, why not vynil siding or another maintenance free product. I did a old condo repair in Long Branch, NJ 42 condo's, and worked a deal with the contractor to do the job in phases and to pay him as he completed the job, building by building. Instead of replacing the wooden sofit's, we boxed and wrapped them with vynil and even today 10 years later its still working. As for banks, the only way to secure a loan is signing over your annual assessments as collertal, by who wants to do that? I hope everyone's suggestions have helped you.

GloriaM (North Carolina)
Posts: 829

Posted:

Adam:

This is one good reason for having professional management, to assist in these types of ongoing day-to-day issues. Nonetheless, I would ask first what are the Owners obligations in your governing documents? In condo's documents (of course all differ, especially state to state)generally the doors, windows and even light fixtures are the Owners obligation. In general anything that solely services the unit is the Owners responsibility. If this is the case, then some of your costs are already reduced. The second suggestion is to do the improvements, building by building (one at a time) starting with the oldest on to the newest. The third suggestion would be to remove the blinders off of the "old" way of repairing and think about maintenance free repairs. By replacing what is there with the same means, will only result in having to do it again in the future. What I mean by that is instead of replacing with stucco again, why not vynil siding or another maintenance free product. I did a old condo repair in Long Branch, NJ 42 condo's, and worked a deal with the contractor to do the job in phases and to pay him as he completed the job, building by building. Instead of replacing the wooden sofit's, we boxed and wrapped them with vynil and even today 10 years later its still working. As for banks, the only way to secure a loan is signing over your annual assessments as collertal, by who wants to do that? I hope everyone's suggestions have helped you.