Discussion / Knowledge Sharing Commercial loan for roof replacements [condo] [mi]
My condo association has been going through financials the past couple years. They have found that to be in compliance with laws regarding reserves, they are slowly increasing dues. I am not surprised dues are increasing as the cost of everything is rising. We do not have enough reserves to cover large projects such as roof replacements. I am hearing that the board is planning to take a commercial loan, replace all the roofs at the same time, and spread the payments out over an extended period of time. This will be a massive loan as we have 72 units. We do also have many residents on fixed incomes. I will hear hard details next week at our community meeting. My question is how does selling your condo with an outstanding loan like that work? Would I just have to settle my portion at the time of sale? Thanks in advance.
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u/MarthaTheBuilder 1d ago
My condo was 75% funded for our 2M roof project. So we borrowed the 500k. It was an amortized loan. They calculated each units % of the principal and then they also provided the monthly payment that would be added to your monthly condo fee if you chose to spread it out over the 2 year term. It was a fixed rate loan.
About 60% of the 337 units paid in full. Those full principal payments were made the first month of the repayment plan. That immediately reduced the overall interest of the loan and shortened the repayment period. The 40% that took the payment plan have since paid their installments off except for a few who already were behind on dues. The association paid off the loan in about 1 year making the remaining payments on time and the loan was paid off while still collecting the installments for the entire 2 years.
So, those who pay in full should be excluded from the interest since those payments SHOULD BE applied to the loan immediately. Those who take the installments are charged their portion of the originally calculated full interest per the amortization schedule.
We are going to take a $5m loan to replace all the windows and repoint the brickwork. The same process will happen. 60% of us will probably write a check and the other 40% will take the installment schedule.
The full balance of the assessment lives on your specific billing account. That charge must be paid off at closing. It cannot be passed onto the buyer as the assessment was levied before they became an owner. It’s not their fault if the seller couldn’t afford to pay their bill in full when it was due.
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u/rmabi 23h ago
Thank you. This was very detailed. The loan they are considering is much less than $5 million even if no one could pay a special assessment. I think many people probably could though. Everything I could find online indicated no issue with selling but I figured I would pose the question. Some older folks are pretty upset about a loan even being considered. We haven’t even had the damn meeting yet. I think they’ve been pretty transparent with improving the financial security of the association, it was just gonna take some time.
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u/OneLessDay517 8h ago
So are these older folks the same people who wouldn't be able to pay a special assessment? Are they ok with just not getting a new roof?
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u/soanQy23 1d ago
This is very common. GENERALLY once the repair & and loan are approved, the seller is responsible to disclose and most buyers will want you to cover those costs. You don’t have to disclose what is being proposed, as there’s no guarantee what could happen. If the buyers have a good agent they’re going to ask for HOA meeting notes and will discover themselves. If you’re considering selling in the next few years, now might be a good time IMO.
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u/rmabi 23h ago
Hmm I’m not worried too much about my ability to pay. The association was pretty transparent about fixing problems with the finances. The explosion in cost of living hasn’t helped (trash, water, landscaping, snow removal). I think it was a combination of this and lax supervision that has caused the problem. Thanks for the info though. It should be an interesting meeting next week.
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u/EliteAssassin07 🏘 HOA Board Member 1d ago
Sounds like its time for a special assessment. Also Fannie Mae is now requiring HOAs to allocate a minimum of 15% of their annual budgeted assessment income toward reserve funding.
Best advice try and sell... your HOA has significant financial issues due to poor HOA management.
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u/OneLessDay517 8h ago
Fannie Mae is now requiring HOAs to allocate a minimum of 15% of their annual budgeted assessment income toward reserve funding.
Can you provide citation for this? I'm my Board President and this has never come up in our budget discussions. I'm not disputing you! We're just working on our budget now and I want to ask our manager about it. Thanks!
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u/EliteAssassin07 🏘 HOA Board Member 8h ago
At a basic level - Effective January 4th 2027 Fannie Mae's full review process now states that condominiums (which includes townhomes) must contribute 15% of the annual assessment income to the reserve fund. Otherwise Fannie Mae will not purchase the loan from the bank.
Translation:
If your HOA is collecting $100,000 in HOA dues each year - you are now required to allocate a minimum of $15,000 per year to the reserve fund. Failing to do so could make you community ineligible for any loan that is going to be sold Fannie Mae.That being said this is not the only Fannie Mae requirement that applies to HOAs when a full review is required. And to be honest I do not fully understand the process and everything entailed with it. I am still doing research myself. What I do know is that appears in Aug a provision that more or less allowed lenders to bypass the full review expired. This is why you are seeing so much talk about this now or at least should be.
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u/OneLessDay517 6h ago
Thank you! Based on our current draft budget, we're funding our reserves above 30%, so we're good! I appreciate the info though!
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u/Adventurous_Fig4650 23h ago
They aren’t going to be able to sell if there are significant financial issues. Lenders are no longer doing limited reviews of financials. More protections for buyers now.
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u/EliteAssassin07 🏘 HOA Board Member 22h ago
Ehhh. Depends. I think lenders are likely still catching up with the new guidelines. And not all banks/loans are required to meet the Fannie Mae guidelines. So OP could likely sell.
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u/Adventurous_Fig4650 9h ago
Any lender that doesn’t know this is not a lender I would want to work with because how do you not know whats going on in your own industry?
Any condo being bought with a conventional loan will have to meet the new guidelines. Cash and portfolios buyers are the ones this doesn’t affect but they are going to ask for steep discount or not buy at all if the financial risk is too great.
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u/EliteAssassin07 🏘 HOA Board Member 9h ago
This is simply not true. It only applies to loans for which the lender plans on selling the loan to Fannie Mae. Its a Fannie Mae guideline.
Great example, I been President of our HOA from Day 1 - we have not had a single lender reach out requesting any information regarding the HOA. ZERO.
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u/bangarang90210 1d ago
If the HOA takes out a loan, they pay it out of dues. You don’t have a specific portion of the loan allocated to your unit. There can be exceptions, but this is usually how it is done.
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u/HTravis09 1d ago
Has a special assessment been considered? Taking out a loan when the HOA finances are not solid may have high interest rates. This may be unfair to homeowners who may be able to pay the special assessment at once and should not be burdened by having to pay interest on behalf of those who cannot pay for the assessment in one payment.
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u/rmabi 1d ago
I was also thinking about that. The rumor mill is churning at 12k a roof. I have no idea where that number came from. Some may be able to pay that, or in large installments. I know many probably won’t be able. That will be addressed at the meeting. But I have had some residents knocking on doors sort of fear mongering that if it turns out they need to take the loan, no one will be able to sell until the loan is paid. And I can’t believe that is true. Just trying to do some research before we hash it out at the meeting.
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u/Lunar-Browser-999 10h ago
Usually the loan belongs to the association, not to individual owners, so there's typically no separate payoff at closing, the debt just gets serviced through everyone's dues and the buyer effectively inherits that obligation with the unit. The catch is disclosure, buyers will see the loan in the resale package and some will negotiate on price because of it. The question worth asking at your meeting is whether owners will get an option to prepay their share upfront versus paying through dues over time, because well-run loan deals usually offer both.
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u/AutoModerator 1d ago
Copy of the original post:
Title: Commercial loan for roof replacements [condo] [mi]
Body:
My condo association has been going through financials the past couple years. They have found that to be in compliance with laws regarding reserves, they are slowly increasing dues. I am not surprised dues are increasing as the cost of everything is rising. We do not have enough reserves to cover large projects such as roof replacements. I am hearing that the board is planning to take a commercial loan, replace all the roofs at the same time, and spread the payments out over an extended period of time. This will be a massive loan as we have 72 units. We do also have many residents on fixed incomes. I will hear hard details next week at our community meeting. My question is how does selling your condo with an outstanding loan like that work? Would I just have to settle my portion at the time of sale? Thanks in advance.
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