taking on debt....

We haven't done it although I have heard that for collateral they rely on the HOA's assessment power, which they lay claim to if you stop making the payments.

Jim,

Odds are that your HOA can't collateralize common property against the loan. So, expect a loan of 7.5% - 8.0% interest w/ the bank agreeing to seize your HOA monthly revenue if there is a default.

My HOA loan arrangement was:

1st loan, I think, was for 6 years at 7% interest - paid for by lowering reserve fund deposits to pay the payment.

4 years into the loan (2008), an unexpected Reserve Fund project occurred. Since we'd diverted reserve funds to make the payment, we had a loan payment and little reserve funds, requiring a fresh refinancing at 7.5% for seven years. Collateral was our monthly cash flow and obtaining a loan backed by our property would trigger near-impossible petition requirements.

Our HOA raised dues annually by the inflation rate, held expenses in check, and diverted 99% (literally) of the new revenue from these dues increases to Reserve Funds between 2008-2013. Two years ago, we dug into Reserves and paid off the loan early, then diverted the former loan payment towards additional Reserve Fund deposits.

Taking out a loan solves the first project. If a second, unexpected crisis hits - and the HOA still hasn't raised revenue - then you're stuck with a loan and very unsavory options for paying for the second project. If you have the cash....do not carry a loan in order to preserve the cash.

Pay the cash...then carry the loan on the second "crisis" when the cash is weak....or assess. Loans=Assessment only the loan will make the property suffer instead of dues payer wallets.

My HOA has suffered under two such loans, the situation being that we didn't save money adequately enough to pay cash for our repairs for a pool, which were compounded by emergency clubhouse repairs that were unexpected.

CORRECTED:

A HOA is ONLY funded by it's owners/members FOR it's members. Which means if ya need to raise extra money then it is best to do it by having a special assessment or raising dues. Acquiring a loan should be the LAST option to ever use. The power to raise money and manage the HOA lies within NOT outside. Plus remember you are a non-profit. Your to spend as much money as you collect. If what your collecting is not making the bills, then you get the money amongst yourselves. Putting everyone in debt and then forcing to pay it off, is a bit offsetting.

Absolute nonsense everywhere except in Melissaville. The TX statute at Sec. 209.0051(h)(9) acknowledges a board's ability to borrow money and Sec. 209.0064(e) says that payments from homeowners can be used as collateral for a loan.


What's involved here is a financial analysis, not a moralistic sermonizing.

Jim appears to have a good handle on what lays before his HOA. He is talking about an expense that comes up every 20 years and will cost $1+ Million this round and will eat nearly half of their reserves. It's probably the biggest decision his HOA will make.

If it wasn't legally acceptable practice, it wouldn't be in the statute. If the statute makes it an option, Jim would be breaching his fiduciary responsibility if he didn't explore it.

Jim is doing his due diligence as he should. End of story.

NPS can you spend a little less time attacking other's opinions and advice? It's NOT about your hatred for me. The reason for this community website is to keep it positive and offer lessons learned from our own experiences. So Yes I do live in "Melissaville" as it is where I learned to be a better board, officer, and HOA member. I am not perfect but I still can offer up a helpful opinion from lessons I have learned.

Getting a little tired of people losing site of the real purpose... Which is to encourage and educate those involved in a HOA to be better. Like or don't like my advise. I do not care. Just don't distract from the original poster. It's not even cool anymore to hate me.

While I do not have all the details, a former HOA (175 townhouses and single families in MA) had an assessment of $30K per unit (varied some on size of unit) for a total of about $5 million. They got a local bank to finance the loan and each owner had several repayment plans to choose from. The plans went from pay now to pay over 5 years.

Before some ask, 2/3rds had to approve such an undertaking and close to 90% did.

Sounds to me like it's a simple cash flow analysis. While borrowing money wouldn't be my first or second choice, going through the analysis puts Jim in a stronger position to help the community reach consensus - Thoroughness counts - Sometimes it's easier when you can compare things against a least favored option.

Ultimately, it will come down to what $ amount or % of increase will be most desirable. If that increase won't generate enough cash in time for the roof replacements, then financing is an option.

Hi Tim - good thinking...and i would think the same thing if i didn't have the actual numbers to analyze.

I have written a paper which i will be presenting at our next board meeting so others can have more information about where we stand. I'd be glad to share this paper with you so u can see the actual numbers if you'd like.

I'd be very appreciative of others taking a look at the paper and letting me know what they think. If you'll give me an email address, i'll be glad to send it to you.

Thanks!

oljim, in texas

I'd be willing to take a look and give comment.

[email protected]

What sort of obligation passes to the new owners after a sale? Does it? It seems as though it should, but in that case why would anyone pay the entire thing up front?

[email protected]

That sort of makes sense. So it's the obligation of the homeowners at the time of the loan? For example, let's say I own a home at the time the HOA obtains financing for a project and I agree to pay $1,000 a year for 5 years. Are these payments made to the lender directly or to the HOA? And if I sell after a year then I am still responsible for the remaining 4 years' worth of payments? That does seem to be how it should work although everything is negotiable and a seller and buyer should also be able to negotiate it if needed.

On the other hand if the lender's agreement is with the HOA corporation, wouldn't that make settlement at closing a matter for the HOA to set straight with the seller? It seems like it should be straightforward.

Luck of the draw. Whoever the owner is when the fee is assessed eats the cost.

Don't see why HOA should get in the middle of a closing. However it's set up (owner pays HOA or owner pays bank), result is still the same. Either buyer or seller is going to take a hit at closing.

Sums it up nicely.

Thanks to all of you for your help and advice on this topic. You (and this discussion board) are awesome!

oljim, in texas