View Our Webinar Replays for CAM-ICB Credit

Creative Financing for HOAs

So, you have deferred maintenance, sharply rising costs, and the coffers are bare…

By Caroline McCormick, CAMEx, CCAM

Civil Code requires that HOAs disclose deferred maintenance, but many do not. Boards try to "save money" by waiting to perform maintenance or make needed repairs. This mentality, coupled with inflation, post-COVID19 labor and material price increases, and the notion that maintaining assessments artificially low is a benefit to the community, has created funding challenges for many associations.


Robert W. Browning, PCAM, RS, and owner of Browning Reserve Group, believes that reserve studies are essential to the strategic planning of any community. "Having a professional study that’s reviewed annually just makes good business sense," says Browning. Start nine months before the fiscal year end by examining in detail the reserve study component list and funding scenario to make sure it is reasonable for your community. Make sure any work the community plans to do next year is funded to spend in the next fiscal year. Ask your reserve study provider for options to fund reserves and reserve shortfalls. Just because the study says you need a 100 percent increase to reserve transfer next year, followed by 3 percent increases for 30 years, doesn’t mean you have to do that. Think creatively; what if the 100 percent was spread out over several years or offset by a special assessment?


It used to be that the phrase "special assessment" held a negative connotation, meant failure, or that the HOA was not viable. Now more than ever homeowners understand that assessments rarely go down. A one-time special assessment is preferable to increasing monthly assessments. A one-time assessment, even if broken up into monthly installments over time, allows your association to fund common area maintenance and repairs quickly in today’s dollars, rather than waiting for funds to accumulate through regular reserve transfers. Work with legal counsel to prepare balloting materials for a member vote or consider advising your board about a 5 percent annual operating budget special assessment, which can be assessed by the board without a member vote.


"HOA loans and lines of credit allow your association to fund common area maintenance and repairs quickly in today’s dollars," says Blair Fox, senior vice president at Alliance Association Bank (AAB). Fox says that a non-revolving line of credit is used during the construction phase (typically 6 to 24 months long), with interest-only payments required. This line converts to a term loan once the project is complete, typically in five to 15 years. The loan is secured by future assessments and not property liens.

To gauge credit risk, Fox gathers information about:

  •  Number of delinquencies and the amount of money involved.
  •  Liquidity (the amount of cash as a percentage of annual assessments and annual debt service).
  •  Number of housing units and how many are owner-occupied.
  •  Whether monthly assessments will need to increase to pay for the loan.
  •  HOA officers’ management and capital planning experience.

Finally, run the bank loan through the reserve study during this process. The reserve specialist can be helpful to ensure the loan and payback are optimal for the situation.


Creative thinkers will consider a hybrid option, a combination of special assessment, use of reserve funds, and/or future assessment increases. One manager had a projected $40,000 per unit special assessment to replace T-111 siding with a cementitious product and realized that the new product would require significantly less future repair and painting maintenance. The funding was structured by: a $10,000 per homeowner special assessment; $10,000 per homeowner borrowed by the HOA; $10,000 used from existing reserve funds; and $10,000 by reducing the reserve liability and phasing the work over four years. The HOA successfully completed the project and paid off the loan two years early.


By spreading large projects such as roof replacement or dry rot repairs and painting over several years, your annual cash outflow is reduced. It costs a bit more to do a smaller project annually, but it allows for reserve replenishment annually to fund needed repairs.

When confronting several large projects simultaneously, consider a design professional to provide a cohesive plan for color selection, materials, and other aesthetics. Roofing and painting are two components that may only sync together every 25 to 40 years. Why not bring that 1970s ranch style community into the new millennium? It costs the same to paint or re-roof with the correct or wrong color palette. Additionally, upgraded products can minimize maintenance and lengthen the life of a component, lessening the funding need.

If you manage funding-challenged associations, remember that it is part of the community association manager’s job to let the board know what they did and did not budget for before and after publication and to encourage the treasurer to continually check the budget – both operating and reserves – to make sure that any projects being considered are funded. If unfunded operating projects are approved, your community runs the risk of reducing cash below a viable threshold and then deferring reserve transfers or borrowing from reserves, further exacerbating funding challenges. Managing to budget and budgeting to fund adequately is key to avoiding funding surprises.


Caroline McCormick, CAMEx, CCAM, is the internal auditor of Client Services for OMNI Community Management, LLC, ACMC, and has been certified through CACM since 1993.


Please make your nominations no later than October 1st.