CAI-NJ Nov. 2019(w)

FINANCING... from page 26.

of the unit is a test that most lenders perform. Financial institutions have different tolerance levels in this area. Consult with your banking represen- tative to determine that institution’s tolerance level in this category. RENTAL RATIO The bank will want to determine the number of units that are owner occupied, how many units are rented, and how many are second homes. It will also be determined if there is a concentration of ownership or multiple units owned by one entity. Concentration of ownership is the ultimate “no-no” in community asso- ciation lending, because it creates additional risk for the lender. The management firm generates a document entitled the unit owner roster, reflecting the mailing address

of the owners. The financial institution will utilize this report to aid in deter- mining the rental ratio. The prevailing view here is that an owner will show a greater caring for the unit and common elements than a renter because the owner has a vested interest in the property maintaining its value. IMPACTOF DEBT SERVICE TOMONTHLY MAINTENANCE Debt service is defined as a series of payments of interest and principal required to pay off a debt over a period of time. The bank will want to evaluate if the monthly debt service will affect the ability of the unit owners to make their regular payments. A high increase in the maintenance payments, to accommodate debt service, could lead to more delinquencies. When arrears increase there may also be corresponding problems in maintaining the property. SIZE OF THE ASSOCIATION A small association represents greater risk, as each unit has greater relevance to the overall budget of the association. While this number may vary, generally associations under 20 units would not be considered for this type of lending. DEVELOPER CONTROLLED ASSOCIATIONS Developer controlled associations are generally not considered for this The bank will want to see an updated reserve study. Additionally, engineering specifications for the project should be prepared by the same engineering firm. The reserve study will indicate other future projects not included in the loan type of lending. RESERVE STUDY

aged-delinquency report. These differ in style, but generally identify the unit owner and the amount in arrears. The arrears data is broken down into 30 day increments. Financial institutions have different tolerance levels for the percentage of delinquency. Some financial institutions may also look at the number of delinquent units. The association should consult with their banker to determine what those tol- erance levels are. In some instances, other mitigating factors can aid in overcoming above average delin- quency levels. LOAN TO VALUE A reasonable ratio of the amount being loaned to the market value

A Community Association Management Firm

Management Services for Condominium, Homeowner and Community Associations Since 1991 Courtyards At Smithville 28 S. New York Road, Suite B6 • Galloway, NJ 08205 609-652-8793 • DPM-NJ.com

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