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HOA loan rates for condo associations and HOA's are now at 6.3%.  Final proposed rate depends on the association's creditworthiness.  Loans can be used for construction, construction defect litigation funding and capital improvements.  CondoAssociation.com's community lending netwrok is nationwide, including Hawaii and Alaska.

Q: I bought a condo just over a year ago. It was difficult to get a certificate for the sale, because there was nonoperating HOA. However, when the Realtor finally got it from an interim property manager, everything was clear; there were no encumbrances on the property.

After I bought the property, a new HOA began making decisions. I then found out that there was a large condo association loan that was taken out for repairs on the property several years before I bought my condo. It was initiated and signed by the property manager at the time (who no longer lives there), and there was no HOA approval in writing. The condo association's loan was, in essence, a signature loan between the property manager and the bank.

The property owners have been paying interest only on the condo association loan, and now the principal is due. The HOA is asking each owner to pay his or her portion of the loan.

Am I required to pay my portion of this condo association's loan since I was unaware of its existence when I bought the condo? If I am not required to pay my portion, who is? I have considered going back to the seller, but I doubt if she would be willing to pay off a loan on property she no longer owns. The title company is also not responsible because the property was not used as collateral on the loan.

A: Welcome to the world of community association living. I strongly suggest that you immediately retain counsel to assist and advise you.

There are many parts to my answer. First, does your state require that sellers provide you with certain disclosures about the condition (both financial and physical) of your association? Many states specifically require such disclosures, which would have (should have) disclosed the existence of the loan.

Second, your lawyer - and perhaps the association's attorney - should carefully review the condo association loan documents. It is possible that the condo association loan was not authorized by the association in the first place, and thus could be challenged in a court of law.

Third, was the condo association loan recorded on the land records in the county where the property is located? If so, then your title company should have alerted you to this.

Finally, your lawyer should look at the condo association loan documents to determine if, in fact, you as a new owner are responsible to make any payment at all. The general rule of community association law is that a new owner is bound by all legitimate obligations of the association. In this case, however, the loan documents may not "run with the land" and may not apply to you.

EARLIER this year, Winter & Company Mortgage Services, a Manhattan mortgage broker, arranged a $375,000 mortgage for a 290-unit condominium association in Whitehouse Station, N.J. The loan will be used to replace roofs on 26 of the association's buildings.

If the condominium association had been in New York rather than New Jersey, however, the loan would have been virtually impossible to arrange. ''Residential condominiums in the State of New York are the creature of the state's condominium law,'' said Richard Nardi, a Manhattan real estate lawyer. ''And right now, there isn't anything in the law that says that a condominium board of managers has the right to borrow money.''

While New Jersey, Connecticut and a number of other states have laws that make it possible for condominium associations to borrow money, New York does not. And that, real estate experts say, could be a problem in the making for New York condominiums.

Matthew J. Leeds, a Manhattan real estate lawyer, explained that many condominiums in New York were constructed in the 15 years or so after the adoption of the New York Condominium Act in 1964. Those buildings, he said, are rapidly approaching the point at which things like facades, roofs, heating systems and elevators need major repairs or even replacement.

And while some condominium associations have built reserve funds in anticipation of such potentially significant expenditures, he said, there are many that have not. For those buildings, Mr. Leeds said, there is essentially one course available for raising needed cash: assessing individual unit owners. But when the cash that is needed is for a major repair or capital improvement, he said, the amounts of the individual assessments can be significant.

It is not unusual, he said, for major exterior work like window replacement or facade repointing to cost $1 million or more in larger buildings. In a 200-unit building, he said, that would mean an assessment of $5,000 a unit.

As a result, Mr. Leeds said, a committee of the New York State Bar Association recently drafted an amendment to the state's condominium law that would make it easier for the associations to borrow money and safer for lenders to lend it. He said the amendment, which was sponsored by Senator Roy M. Goodman, Republican of Manhattan, and Assemblyman Daniel L. Feldman, Democrat of Brooklyn, has broad support in the Legislature.

''The idea is to try and head off these issues before they become major problems,'' Mr. Leeds said.

There are two problems that need to be addressed for lenders to feel comfortable about lending money to New York condominiums. Mr. Nardi, a past president of the Mortgage Bankers Association of New York, explained that the first concerns the authority of the condominium board to sign for a loan on behalf of the condominium association.

While there is nothing in the existing law that would prohibit such an action, he said, there is no specific provision in the law that permits it. And lawyers who represent lenders, Mr. Nardi said, are likely to tell their clients that the absence of such specific permission places the lender on dangerous ground when making a loan to a condominium association.

It is conceivable, for example, Mr. Nardi said, for a unit owner to challenge the right of a board to sign for a loan that results in an increase in monthly maintenance charges if the board has no specific statutory authority to do so. And that, he said, makes lenders hesitant to take chances in such situations.

At the same time, Mr. Nardi said, even if it was clear that the condominium's board could bind the association to a mortgage, there is usually nothing that the board can pledge as security for such a loan that would satisfy a lender.

Indeed, Mr. Nardi said, about the only ''property'' that most New York condominium associations own are the building elements that are most likely to cause problems in the first place.

As a result, the bar committee has included in its proposed amendment to the condominium law a provision that specifically provides condominium boards with the right to borrow money on behalf of the association, along with a method for providing lenders with the security they require.

Joel E. Miller, a Queens lawyer who participated in the drafting of the amendment, said that under the proposal, the power of condominium boards to borrow money on behalf of the association will ultimately remain subject to the desires of the association itself. In buildings that already have bylaws that permit the board to borrow for the association, the amendment would merely provide statutory authority for such borrowing. In buildings in which the bylaws or declaration of condominium expressly prohibits the board from borrowing money, those prohibitions remain in place.

In buildings in which the issue is not addressed, however, Mr. Miller said, the proposed legislation would automatically provide boards with the authority to borrow on behalf of unit owners, subject to certain limitations. For example, he said, the amendment would empower boards to borrow only for specific purposes such as necessary repairs or replacements. In addition, he said, the total amount that could be borrowed by any condominium board without the approval of a majority of unit owners could not exceed $5,000 multiplied by the number of units in the building.

Finally, Mr. Miller said, the automatic authority of the board to borrow would not come into existence until the condominium had been in operation for a minimum of five years.

In addition to providing statutory authority for board members to borrow money, the proposed amendment creates a way for boards to provide lenders with security for their loans. Mr. Leeds explained that if it is adopted, the amendment will authorize a condominium board to increase common charges to the extent necessary to make the required payments for the loan to the lender, and to assign to the lender its rights to future income, including the common charges it will be become entitled to collect from the unit owners as the result of the loan.

''Essentially, it allows the board of managers to pledge to the lender the board's right to collect common charges,'' Mr. Leeds said, adding that the proposed amendment would not result in a lender obtaining liens on individual condominium units.

Greg Winter, president of Winter & Company Mortgage Services, said that passage of the amendment would benefit residents in nearly 1,500 condominium buildings in the New York City area by enabling boards to amortize the money needed for capital improvements and repairs over a period of years rather than by imposing immediate assessments against unit owners.

Andrea Scheff, president of the Association of Co-op and Condominium Managers in Manhattan, agreed.

''This is really a big issue, and it hasn't gotten a lot of attention until now,'' Ms. Scheff said, adding that the difficulty experienced by condominiums that need to borrow money has a direct impact on the quality of life in such buildings.

''The trick to good management is preventive maintenance,'' Ms. Scheff said. ''But how can you do preventive maintenance when you don't have a reserve fund and you can't borrow money?''

When the San Tan Heights Homeowners Association switched from developer control to homeowner-elected leaders in August, its new board members and management company learned that the HOA was practically DOA.

Its problems included nearly $1.6 million in unpaid dues that the previous HOA board in the Queen Creek-area community had made no effort to collect.

The biggest individual delinquencies belong to bankrupt home builders.

Developer abandonment is likely to become a serious issue in the coming year for as many as 200 of the more than 10,000 Arizona communities under HOA control, both opponents and supporters of Arizona's HOA policies say.

Partially completed subdivisions and newer communities more prone to home foreclosures are the ones most likely to suffer, experts say, while well-established HOAs in older neighborhoods may not have any trouble at all.

Homeowners in neighborhoods with underfunded HOAs have seen their association fees increase at the same time amenities and services are being reduced or eliminated.

They fear the worsening conditions will further hurt their property values and quality of life.

San Tan Heights is one of several boom-era subdivisions Valley developers have abandoned before completion during the past year.

Homeowners in some other communities have been unable to wrest control of their association from developers, who usually are among the HOA's principal debtors.

Ricky Doxie, owner of a condominium at Village at Rio Paseo, said that developers Engle Homes and Sunbelt Holdings still control the Goodyear community's destitute HOA despite the demise of their joint development venture, which produced 27 of 144 planned units.

Meanwhile, homeowners in the community have been forced to fend off worsening blight, angry creditors and interruption of essential services, he said.

San Tan Heights HOA board members say the association will go bankrupt in 2009 unless homeowners each agree to pay an extra one-time $750 assessment, which many residents say they can't afford.

The board also accused developer Miller Holdings of tapping the association's reserve fund to pay operating expenses.

However, owner Larry Miller said he simply did whatever he could to pay the HOA's bills while member delinquencies mounted, adding that it would have been a waste of money to go after bankrupt HOA debtors who had no money to give.

Miller said the HOA is suffering because San Tan Heights, like scores of other communities in the Valley, provided homes to entry-level buyers, many working in the construction industry, at or near the housing-market peak.

"Every one of those subdivisions is having the same problems," he said.

Advocates for HOA reform say lawmakers could have prevented problems caused by the housing-market downturn by passing tougher restrictions on what critics describe as a developer-friendly system that often treats homeowner rights like an afterthought.

"Unfortunately, I think we've dug ourselves into a big hole here," said Clint Goodman, Mesa attorney and homeowner advocate.

The HOA age

Homeowners associations have become ubiquitous in recent decades, as local governments have sought to limit the impact of population growth on the demand for municipal services.

Development standards have evolved to the point where developers are required to include large parks and open spaces in each new community - recreational amenities once provided almost exclusively by the public sector.

"Cities like it because they don't have to maintain certain areas," said Goodman, president of the Homeowners Institute.

Fast-growing Arizona cities and towns such as Gilbert require all new residential development to be under HOA control.

Another requirement, which Reed Porter, president of T2 Homes, said has become a challenge, is that the developer must finance and construct those amenities in each new community before selling a single home.

Porter knows firsthand how amenities can become cash-sucking monsters in a half-empty community where the developer has gone out of business.

"Now, there's 500 residents living in a community with amenities for 1,000 residents, and then they see the community start to deteriorate," he said.

Porter, also the former president of bankrupt builder Trend Homes, abandoned one Gilbert subdivision fitting that general description early this year.

Cooley Station North in east Gilbert is one of seven communities Trend Homes was building before filing for Chapter 11 bankruptcy protection in January.

Porter later joined Najafi Cos., a private-equity firm, to start a new company, incorporated as T2 Homes but operating under the Trend Homes name.

Still, T2 is not planning to build or sell any more homes in Cooley Station North and is not liable for the original Trend's unpaid HOA subsidies, Porter said.

Trend built about 280 homes inside the community, which contains 865 subdivided lots.

Nor is the community's principal landowner, Trend Homes' former - also bankrupt - land bank Taro Properties Arizona, responsible for cleaning up the acres of weed-infested vacant land inside Cooley Station, he said.

"The problem is, bankruptcy protects you from all that," Porter said.

His choice of the word "problem" seems less ironic when one learns that Porter served as the board president of the Cooley Station HOA until earlier this month.

That's when Taro agreed to release its nearly 500 mortgaged lots to Bank of America, the jilted lender. BofA will become the community's sole institutional landowner.

It has been an ordeal that required board members to make tough decisions such as closing two of the community's three swimming pools, he said.

Like it or not, Porter said, municipalities will have to change their standards to allow incremental development in the wake of so many failed subdivision projects.

"The developer gets these huge HOA loans to build all these parks and amenities," he said. "I'm sure that the next go-round, banks won't lend on all that stuff up front."

Defeated purpose

Garin Groff, spokesman for the town of Gilbert, said that the reason town officials require developers to complete parks and other amenities in advance is to protect home buyers from the unfulfilled promises of developers.

However, he said Gilbert has been working to accommodate recent requests for more incremental development.

"The town is flexible and will work with developers to phase certain elements," Groff said.

He added that residents of Cooley Station can file complaints with the code-enforcement department in Gilbert about the weeds, which some residents believe are a fire hazard in addition to being unsightly.

The town's enforcement staff will contact the landowner, in most cases a bank, to pressure for a cleanup of the area, Groff said.

Porter said bank repossession of developer land is usually beneficial to struggling HOAs, because banks generally resume payment of fees and clean up vacant land to prepare it for resale.

In the meantime, some communities have formed homeowner cleanup crews to tackle vegetation, trash and construction debris on developer- or bank-owned vacant lots. Groff said, though, residents should obtain permission from landowners so they don't risk being accused of trespassing.

Doxie said he and his neighbors confronted a similar problem earlier this year, when tumbleweeds took over the vacant lots in Rio Paseo.

They had a lawyer send letters to the HOA demanding removal of the weeds, which were cleared out soon afterward.

In general, Rio Paseo residents have learned by experience to take an active approach to dealing with problems in the mostly empty community.

At one point, a landscaping contractor who claimed he was owed money by the developer-controlled HOA had his attorney get liens placed on every homeowner's property.

On another occasion, residents received notice that the community's water service, paid through their $165-a-month association fee, was scheduled to be shut off the next day for non-payment.

By getting involved, the homeowners were able to get the liens removed and keep the water running, Doxie said.

Still, he said that some HOA services have been eliminated without input from homeowners and that the association has not provided any update about its financial situation since a year ago.

"Nobody has contacted us to this day with any information about what is happening here," Doxie said.

Richard LaPorta is board treasurer of the San Tan Heights HOA. He said the community's previous HOA board had a policy of limiting homeowner access to financial information, forbidding residents to copy any documents or remove them from the management office.

Goodman said such policies are commonplace but illegal.

"I sue homeowners associations all the time because they don't disclose financial records," he said.

Lack of accountability and a widespread lack of interest in tougher HOA laws have turned associations that could benefit both home builder and homeowner into "a setup that's ripe for fraud" and financial shenanigans, Goodman said.

"It seems like the main purpose of HOAs has backfired," he said.

One solution for HOAs to complete projects or sue the developer is the use of condo association loans that can be paid back over time.

You could ask the homeowners association to apply for FHA approval and change their bylaws, but if there is little or no chance of them making the effort, then you could try an FHA spot loan.

FHA created the spot loan provision specifically for such an occasion. Of course, there are still many guidelines that determine if a condominium project will qualify for an FHA spot loan:

• The homeowners association cannot have a right of first refusal restriction on sales.
• Condominiums must provide undivided ownership of common areas by unit owners.
• The condominium project cannot be subject to additional phasing or annexation.
• No special assessments or legal action can be pending against the association.
• Common areas must be under the condo association's control for at least one year.
• At least 90 percent of the total units in the condo project have to be sold.
• At least 51 percent of the total units in the project must be owner-occupied.
• No adverse environmental factors affecting the project or units are allowed.
• No single entity can own more than 10 percent of the total units in the condo project.
• The units must be owned in fee simple or held under a lease hold acceptable to FHA.
• For projects over 30 units, no more than 10 percent of the units can have FHA loans, and for projects of 30 units or less, no more than 20 percent of the units can have FHA loans.

The FHA spot loan program is designed to provide you with an opportunity to purchase a unit in a non-approved condominium project where FHA involvement is limited. It's not to be used to try and circumvent the general requirement that a condominium project be approved before a mortgage on a unit can be insured for an FHA loan.

You are not expected to research all the items listed above for compliance. It's the job of an FHA approved lender to make sure all the program requirements are satisfied to fund a spot loan.

A Homeowner's Association (HOA) is a non profit association that takes care of the common areas of a housing development area. The job of a Homeowner's Association is to take care of the upkeep and improvements of a property and they need the money to conduct repairs and improvements.

While the associations do have reserves some major improvements or repairs may over tax these reserves and end up in depleting all of them.

In case of charging a special assessment on the members for raising this amount may lead to delays and non conformance from all the members and in some cases after getting the approvals the association may find it difficult to get the money from the members which may stall the work half way through.

Homeowner's Associations can take out condo association loans from banks and can quickly start work on the pending up gradations or repairs without significantly burdening its association members.

The benefits for the members are that their individual credit worthiness has nothing to do with condo association loans and they don't have to worry about anything but choosing the right repayment plan. Additionally there are some HOA friendly banks with divisions specifically dealing with HOAs that makes it a tad easier for them to get the condo association loans.

That does not however mean that the HOAs can get money in a jiffy. Most community banks require them to go through a rigorous application process wherein the banks study their reserves, cash flows, delinquency, and other financials and in some cases the banks may also require the Association to be managed by a Certified Common Interest Development Manager.

Normally the banks will provide condo association loans to a Homeowner's Association to carry out improvement to facilities such as pools, saunas, playgrounds etc. or to carry out repair work on sidewalks, roofs, parking spaces etc.

Once the Homeowner's Association decides for itself the amounts of the HOA loan they can get the same appraised by a bank and then choose from a host of options for repayment. Since the whole condo association is borrowing the money individuals are not required to give out their personal information and they can choose the repayment plan that suits them the most.

So in effect while the whole condo association is borrowing money, all the members need not repay the money in the same manner. Each individual can choose from the various re payment options that the bank presents them with depending on his situation.

The various repayment options include getting into a special condo assessment with the bank where the individuals will have the option repaying the condo association loan over a fixed term with reasonable interest rates. A special assessment is nothing but an improvement or repair that has been done on a property and for which bonds are issued to repay the cost that has been incurred.

The amount of this HOA loan can generally vary from anywhere from $50000 to $10 million with a repayment period of one to seven years.

If on the other hand an individual can arrange cash there is no need to take any condo association loan and they can straight away pay cash.
One can also take another loan by means of an equity loan or equitiy line of credit generally advised if there is some tax benefit to be derived out of it.

The least preferable means is by taking an advance on the credit card, this will entail a very high rate of interest and is only advised when there is something like airfare points or other reward programs attached with it.

Normally for collateral the Bank will not take anything from the individuals rather they will take an assignment on any special assessment related with the repayment of the association loan and the association's lien rights and assessment rights which they have over the individuals.

While an individual may not have much choice in deciding whether they need that new gym or not at least they have the independence of deciding what repayment plan they choose, be sure to go through the fine print and check with your tax advisor before finally settling on any repayment plan.

EARLIER this year, Winter & Company Mortgage Services, a Manhattan mortgage broker, arranged a $375,000 mortgage for a 290-unit condominium association in Whitehouse Station, N.J. The loan will be used to replace roofs on 26 of the association's buildings.

If the condominium had been in New York rather than New Jersey, however, the loan would have been virtually impossible to arrange. ''Residential condominiums in the State of New York are the creature of the state's condominium law,'' said Richard Nardi, a Manhattan real estate lawyer. ''And right now, there isn't anything in the law that says that a condominium board of managers has the right to borrow money.''

While New Jersey, Connecticut and a number of other states have laws that make it possible for condominium associations to borrow money, New York does not. And that, real estate experts say, could be a problem in the making for New York condominiums.

Matthew J. Leeds, a Manhattan real estate lawyer, explained that many condominiums in New York were constructed in the 15 years or so after the adoption of the New York Condominium Act in 1964. Those buildings, he said, are rapidly approaching the point at which things like facades, roofs, heating systems and elevators need major repairs or even replacement.

And while some condominium associations have built reserve funds in anticipation of such potentially significant expenditures, he said, there are many that have not. For those buildings, Mr. Leeds said, there is essentially one course available for raising needed cash: assessing individual unit owners. But when the cash that is needed is for a major repair or capital improvement, he said, the amounts of the individual assessments can be significant.

It is not unusual, he said, for major exterior work like window replacement or facade repointing to cost $1 million or more in larger buildings. In a 200-unit building, he said, that would mean an assessment of $5,000 a unit.

As a result, Mr. Leeds said, a committee of the New York State Bar Association recently drafted an amendment to the state's condominium law that would make it easier for the associations to borrow money and safer for lenders to lend it. He said the amendment, which was sponsored by Senator Roy M. Goodman, Republican of Manhattan, and Assemblyman Daniel L. Feldman, Democrat of Brooklyn, has broad support in the Legislature.

''The idea is to try and head off these issues before they become major problems,'' Mr. Leeds said.

There are two problems that need to be addressed for lenders to feel comfortable about lending money to New York condominiums. Mr. Nardi, a past president of the Mortgage Bankers Association of New York, explained that the first concerns the authority of the condominium board to sign for a loan on behalf of the condominium association.

While there is nothing in the existing law that would prohibit such an action, he said, there is no specific provision in the law that permits it. And lawyers who represent lenders, Mr. Nardi said, are likely to tell their clients that the absence of such specific permission places the lender on dangerous ground when making a loan to a condominium association.

It is conceivable, for example, Mr. Nardi said, for a unit owner to challenge the right of a board to sign for a loan that results in an increase in monthly maintenance charges if the board has no specific statutory authority to do so. And that, he said, makes lenders hesitant to take chances in such situations.

At the same time, Mr. Nardi said, even if it was clear that the condominium's board could bind the association to a mortgage, there is usually nothing that the board can pledge as security for such a loan that would satisfy a lender.

Indeed, Mr. Nardi said, about the only ''property'' that most New York condominium associations own are the building elements that are most likely to cause problems in the first place.

As a result, the bar committee has included in its proposed amendment to the condominium law a provision that specifically provides condominium boards with the right to borrow money on behalf of the association, along with a method for providing lenders with the security they require.

Joel E. Miller, a Queens lawyer who participated in the drafting of the amendment, said that under the proposal, the power of condominium boards to borrow money on behalf of the association will ultimately remain subject to the desires of the association itself. In buildings that already have bylaws that permit the board to borrow for the association, the amendment would merely provide statutory authority for such borrowing. In buildings in which the bylaws or declaration of condominium expressly prohibits the board from borrowing money, those prohibitions remain in place.

In buildings in which the issue is not addressed, however, Mr. Miller said, the proposed legislation would automatically provide boards with the authority to borrow on behalf of unit owners, subject to certain limitations. For example, he said, the amendment would empower boards to borrow only for specific purposes such as necessary repairs or replacements. In addition, he said, the total amount that could be borrowed by any condominium board without the approval of a majority of unit owners could not exceed $5,000 multiplied by the number of units in the building.

Finally, Mr. Miller said, the automatic authority of the board to borrow would not come into existence until the condominium had been in operation for a minimum of five years.

In addition to providing statutory authority for board members to borrow money, the proposed amendment creates a way for boards to provide lenders with security for their loans. Mr. Leeds explained that if it is adopted, the amendment will authorize a condominium board to increase common charges to the extent necessary to make the required payments for the loan to the lender, and to assign to the lender its rights to future income, including the common charges it will be become entitled to collect from the unit owners as the result of the loan.

''Essentially, it allows the board of managers to pledge to the lender the board's right to collect common charges,'' Mr. Leeds said, adding that the proposed amendment would not result in a lender obtaining liens on individual condominium units.

Greg Winter, president of Winter & Company Mortgage Services, said that passage of the amendment would benefit residents in nearly 1,500 condominium buildings in the New York City area by enabling boards to amortize the money needed for capital improvements and repairs over a period of years rather than by imposing immediate assessments against unit owners.

Andrea Scheff, president of the Association of Co-op and Condominium Managers in Manhattan, agreed.

''This is really a big issue, and it hasn't gotten a lot of attention until now,'' Ms. Scheff said, adding that the difficulty experienced by condominiums that need to borrow money has a direct impact on the quality of life in such buildings.

''The trick to good management is preventive maintenance,'' Ms. Scheff said. ''But how can you do preventive maintenance when you don't have a reserve fund and you can't borrow money?''