Banking Best Practices


Pre and Post-Loan Closing


The key points below were agreed upon when four professionals with years of experience in the community association industry hashed out the pitfalls and success stories they had experienced.


Key Points for Calculating & Collecting Owners’ Payments


Start collecting special assessment payments as early as possible.


` This allows the association a cushion between when payments are collected and when the first loan payment is due.


` Allow owners to pay in full before closing the loan. This can help reduce the loan amount and loan fee.


— By Colleen Chesbrough, AVP — of Northwest Bank


Contributions by Kevin Ducotey, PCAM, Theresa Torgesen, Esq., and Matthew Anderson, CPA W


hether your project has already started or is still in the planning stages, it’s important to structure the special


assessments correctly and confirm that everyone involved is on the same page. Whether you are a community association manager, board member, or homeowner, you want to know that prepayments and monthly special assessment payments are applied correctly and in a timely manner. Unfortunately, this is not always the case and minor errors can mean significant losses for an association.


Minor errors can mean significant losses for an association.


No two associations, management companies, or banks do things the same way. However, when it comes to how an association’s loan and assessments should be accounted for and monitored there are a few things an accountant, a manager, a lender, and an attorney agree on as best practices.


12 Community Associations Journal | July-August 2022


` Stress testing your owners—if your governing documents allow it, it is recommended to increase the assessments to prepare your owners before obtaining a loan. This “stress test” can prove to the lender and the board that the association can handle the assessment and not suffer a significant increase in delinquencies.


Allowing owners to pay in full before closing the loan can reduce the fee.


Build-in contingency amounts for increased interest rates, delinquencies, and lost interest.


` The association should collect more than the minimum loan payment amount required by the bank by inflating the special assessment budget or increasing the interest charged to the owners.


` If the association is utilizing a “floating” line of credit, the rate does not fix until construction is complete and the loan has been converted to a term loan. A reconciliation should be done monthly until the loan converts to be sure the association does not over- spend or over-borrow.


Loans commonly have a rate change at either 5 or 10 year intervals.


` Loans commonly have a rate change at 5 or 10 year intervals. This should be considered when deciding what interest rate to use for the special assessment.


` Delinquencies are likely to occur so the excess funds collected can be utilized first while steps are being taken to bring owners back to good standing. There will always be a lag time between prepayments being


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