Silvercreek’s Thoughts on HOA’s and Loans
Your HOA has a sterling reputation for maintaining a budget, however, it is still in a bind, why? Unforeseen events can arise that require immediate monetary attention, such as repairs after a storm, new legislation, or other issues. In other situations, HOAs don’t have the funds on hand to handle the problem. Consideration for taking a loan could become a viable option for an HOA so that they can help get your community back into proper working order.
Loans often come with a great deal of skepticism by community members, who may be reluctant to commit to high-interest rates and higher dues in the long run. It is essential to communicate what the reason for the loan, payment options, and the forecast for the future. When a loan for HOA is requested, they require specific materials for the application package. For example, the Pacific HOA Fund, which serves much of Southern California, claims these documents for review:
• Application
• Two years’ tax returns
• Two fiscal year-end financial statements
• Current balance sheet and profit and loss statement
• Delinquency report
• Articles of Incorporation
• Bylaws
• CC&Rs
• Minutes appointing officers
• Copy of 6 most recent board meeting minutes
• Proof of insurance
• Current year budget
• Most recent reserve study
• Project cost breakdown, if applicable
• Copy of association’s current collection policy
This information will allow the HOA and the loan company to draft the terms of the agreement. It is in your best interest to make sure that all of these materials are accurate, and show that your HOA is well-governed, as it will help to set fair rates and move the process along.
What you need from your HOA when taking out a Loan
Most loan payments will be covered by the operating budget – not the reserves or by a unique payment plan. A special assessment is usually a move of last resort, and often, the loan is meant to help cover immediate expenses that cannot wait until an assessment takes effect. Though it is not the best idea to take out a loan to cover costs, it is also a common practice. Unexpected events happen, and there should be infrastructure in place to help HOAs cover their costs through loans. If your HOA is considering or pursuing a loan, the best way to relieve your concerns is to speak directly with the board members and encourage transparency.
You have a right to know the details of the loan, and it is important to stay involved. Most governing documents detail the policy about loans, so as long as you familiarize yourself with your HOA’s rights, responsibilities, and goals, then you can rest easy knowing you’re in good hands.
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