CAI-NJ June 2018 (w)

“The consequences of a financial pitfall can hurt the community’s overall appeal to potential buyers.”

funding their reserve accounts in the past. New community residents would have to equally contribute to the reserve deficit because of inadequate budget planning from the past. The second option would involve a special assessment where the annual association fees are lacking, and addi- tional funds are needed to subsidize or fully finance an expensive community project. Specific rules and proper implementation processes of special assessments are outlined in individual community governing documents, bylaws and/or state statutes. Generally, special assess- ments become the unit owner’s obligation once the board officially adopts the resolution. The unit owners become responsible for paying the special assessment, regardless of the length of their ownership in the community. Again, equitability becomes an issue. Special assessments could lead to litigation cases against the community, resulting in accrued legal expenses and possible project delays. The third option would be to borrow funds from an institutional lender, which of course comes along with an interest charge. Not only would the association be paying for funding the project, but now they would be paying

even more for settling the debt of the interest incurred by the lender. On the other hand, associations would have the possibility of obtaining all the money upfront to fund for the project, the debt can be paid over a time period, and debt obligations can be transferred from unit sellers to unit buyers as unit sales occur. The consequences of a financial pitfall can hurt the com- munity’s overall appeal to potential buyers. For example, the Federal Housing Administration (FHA) has an approval program which supplies prospective unit owners with FHA insurance. This insurance is very beneficial because it makes homeowner loans more attractive to lenders and CONT I NU E S ON PAGE 29

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