The Importance of Choosing a Lender – Strong Relationships Go a Long Way
By Hans G. Huessy, Esq.
[Published in Condo Media magazine – October 2019 Issue]
Most associations open bank accounts with local lenders without considering whether that institution will agree to loan the association money, if necessary, in the future. Many banks are leery of making loans to condominium associations that are secured primarily by the association’s right to collect assessments. This is not an issue in good times, but can be very important if and when a significant construction issue is discovered that requires immediate attention.
There are a number of financial institutions that specialize in such loans (many of them advertise their services in this publication) and it is a good idea for a project manager to be familiar with those institutions and perhaps even establish an ongoing relationship with them by opening an account. It is also good to have a working understanding of what the lenders will be looking for if and when an emergency loan application is made.
Delinquency rates are a prime example. Lenders will almost always insist that no more than a minimal percentage of members be delinquent at the time the loan is issued and during the term of the loan agreement. Lenders will also want to see evidence of a written collection policy and evidence that the policy is adhered to. This is one more reason why aggressively pursuing delinquent members can be very important. If you wait until a loan is needed, it may take quite some time to reduce the delinquency rate to the mandated percentage, thereby stalling the repair process.
A good project manager should have at least general knowledge about whether the association’s lender makes such loans, in what amounts, and on what conditions. This does not take a lot of time and effort. Simply call your lender and posit an emergency repair and ask if your lender would be able to assist you under those circumstances. A client of mine recently discovered that some of its floor trusses had failed mandating a multi-million-dollar repair. The repair work was delayed by several months while the association searched for a lender willing to finance the repair.
This process could likely have been shortened if the association had a previously-established relationship with a lender willing to make such loans.