Is it normal to create a CD account to get a loan from the same bank?

Started by EricH8 • 11 replies • 1718 views

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EricH8 (Virginia)
Posts: 116

Posted:

I understand my HOA had to pay $30,000 into a CD account in order to get a million dollar loan. Does that make sense? Is that normal? If I can say the name of the bank, it is Community Association Banc. If not, it is Fred's Bank.

SheliaH (Indiana)
Posts: 6,964

Posted:

Did you ask your HOA board?

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

EricH8 (Virginia)
Posts: 116

Posted:

Yes. The president said that is normal. I'm looking for additional insight.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Not unusual in commercial lending for bank to require more than just a loan relationship. What other collateral is involved?

Sikubali jukumu. Read all posts at your own risk.

EricH8 (Virginia)
Posts: 116

Posted:

My understanding is that nothing specifically is mortgaged. The loan is based on the ability of our HOA to collect HOA dues.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By EricH8 on 10/26/2014 10:23 PM
My understanding is that nothing specifically is mortgaged. The loan is based on the ability of our HOA to collect HOA dues.

$30k CD reasonable under those circumstances.

Sikubali jukumu. Read all posts at your own risk.

NancyG3 (North Carolina)
Posts: 342

Posted:

Eric - What was a million dollar loan for?

EricH8 (Virginia)
Posts: 116

Posted:

new siding and windows

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Is this for a common elelement like a clubhouse or is it a whole building thing? You are not individual homes?

A HOA typically would not have anything to "mortgage" to get a loan. Loans would be based on the HOa ability to collect dues. Sounds like you all did not have enough in reserves for the whole job. I suspect your HOa used it's reserve money for the CD to get the full $1Million.

I see nothing wrong here. However, I do foresee a special assessment or dues raise in the future. A HOA ONLY funded by its members for its members.

Former HOA President

EricH8 (Virginia)
Posts: 116

Posted:

Wouldn't depositing $30,000 to borrow $1,000,000 be the same as borrowing $970,000?

Quote:

Is this for a common elelement like a clubhouse

Yes

Quote:

or is it a whole building thing?

Yes

Quote:

You are not individual homes?

We are condos.

Quote:

Sounds like you all did not have enough in reserves for the whole job.
I do foresee a special assessment or dues raise in the future.

Yes. Yes.

NpS (Pennsylvania)
Posts: 4,216

Posted:

Quote:

Posted By EricH8 on 10/27/2014 7:24 AM
Wouldn't depositing $30,000 to borrow $1,000,000 be the same as borrowing $970,000?

Not really.
The $30K is your money that you would invest with this or another bank anyway. It is getting CD rates of return.
You can still borrow the full $1M.

Sikubali jukumu. Read all posts at your own risk.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

You're fine, Eric. The "small" CD in relation to the loan amount shouldn't cause a sweat and often a bank desires more of a business relationship that it loaning an HOA money with the HOA having nothing on deposit.

A cool million is a lot of money for an HOA.

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