By April L Ahrendsen, VP, Mutual of Omaha Bank
If you are experiencing leaky pipes, aging roofs, or degrading asphalt, you may be one of the many communities facing major repairs. Finding money from homeowners is often a very difficult and painful process. Homeowners may come to meetings angry or combative, but it’s important to understand this anger is often based on fear and misunderstanding.
Who are these homeowners? They may be retirees on fixed incomes concerned about depleting their savings, first time buyers who may have financed their down payment, or people living paycheck to paycheck with no backup plan. The reality is these homeowners are not in a position to afford a one-time special assessment, and will most likely vote no to any project, regardless of its merits, because they do not have the funds. The higher percentage this group makes up of your community, the greater probability that your vote will fail or that a recall election may be held.
But what happens when your community must make these major repairs? How do you offer solutions for your neighbors in order to help keep them in their homes and reduce the fear?
Provide them options:
- Pay cash – some homeowners may have money for the entire special assessment. They may be able to tap into investments (discuss with financial advisor), credit cards (special promotional rates), or savings accounts.
- Borrow funds that are secured on real property – such as a second mortgage or equity line of credit on your home.
- Pay the special assessment over time – because the board of directors provides a commercial loan for the community, interest rates are reasonable and can be fixed over the term of the loan. No personal information is required, no liens are placed on the homeowners’ property, and there is no impact to their credit score.
What are the advantages of borrowing?
a.Downward slide of property values slowed or eliminated. Structural problems, which must be disclosed to potential buyers, will make it difficult to sell homes and lead to falling home prices. Getting construction done quickly and improving the appearance and/or eliminating structural integrity problems can slow or eliminate falling home values.
b.Needed repairs/improvements completed quickly. By borrowing the money, total needed funds become available for use much faster than through the traditional special assessment process. Passing a special assessment will give the board of directors the power to collect the money. There is still the difficulty of collecting from those homeowners who do not have the ability to pay.
c.Reduced financial impact on homeowners - By participating in the loan, homeowners avoid having to make a lump sum special assessment payment. Homeowners can pay their share over time to reduce the impact on their personal finances.
What are the disadvantages of borrowing?
- May increase monthly assessments - A special or increased assessment may be implemented to support the loan. Sometimes there are budget items or reserve contributions that can offset some or all of the increase.
Don’t let a major repair get your community down! Homeowners that are informed and given options make better decisions for the community.
Contact the CAI-RMC to get a list of banks that provide loans to Community Associations. In particular, look for banks that will send someone to your meetings and work with your homeowners face to face.
The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the views of Mutual of Omaha Bank.