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• Approval based on a number of factors including average unit value, percent of rental units, percent of delinquent assessments and total units. Special assessment to cover debt payment should be shown as a separate line item in the financial statements.


Along with financing will come expectations to be met by the HOA. Depending on the size of the project and complexity, the contractor must be known to be capable of completing the repair correctly and on time. On large projects a building envelop engineer may be required which protects the HOA and the bank and ensures work is being done correctly at all times. A legal review of the HOA’s organization documents will be necessary to assure the HOA has the ability to enter into financing.


Reserve studies must be current with an


updated reserve study completed after conclusion of a major project. Annual reporting will include fiscal year-end financial statements, assessment aging report, annual tax returns and the following year’s budget.


Special Assessment to Individual Homeowners


• No assurance as to timing of funds while owners get loans or liquidate assets


• May cause project delay as reserve funds build to pay construction costs


• Homeowners must obtain individual loans – typically HELOCs


• Individual loan applications • Individual appraisals and closing costs


• Uncertainty of approval for all homeowners


• New law may limit the amount of interest that is deductible for HELOCs obtained after 12/31/2017. Please consult the IRS.


• Lien on residences


Should the association determine that financing is the best solution for funding the project, there are steps to take now to prepare. It is important to conserve reserves. Many times HOAs come to the bank after depleting reserves in the middle of a project. The association should maintain sufficient reserves to cover contingencies, one year principal and interest payments on bank debt along with sufficient funds to cover capital improvements budgeted in the reserve study for the next 10 years (or the length of the term loan if less).


Collect delinquent assessments as a high rate of past-due payments indicates to the bank that there may be difficulty in meeting debt payments if homeowners are consistently late paying their monthly assessments.


Keep the reserve study current and maintain adequate reserves to perform necessary maintenance when due.


At the end of the day, a well-run HOA will spend a good deal of time evaluating the right borrowing posture to take and to plan accordingly for the lead up to a loan. After all, smartly and prudently determining the right way to fund a project is a real value provided by a great HOA.


www.wscai.org 27


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