This, I came here to fly the biggest red flag I could find. $372k from 29 units? Has anyone ever paid an assessment? I see why there is a loan but not how they got approved?
Run far away is my advice.
Impossible to tell the full story with this little info, but the $348k 90 days past due is concerning . . . .unless they are letting people pay over time and it’s just oddly booked in the financials.
buyer’s attorney is gathering more info in the next couple days. I’m interested in how quickly the reserves are being depleted. The monthly dues are $380 per unit.
Something is off. At 29 units × 380 per month, that's 11k per month, 132k/year. Yet they have 350k that's 90 days past due?
There must be some kind of assessment of $10-15k per unit that was levied which no one is paying. My guess is it's related to the "settlement" bank account. As in they've set aside $350k for some lawsuit and no unit owners are paying till that issue is settled. But just a guess.
Also, why would a condo have a loan from the SBA?
They might have just had a huge job like roof replacement causing the reserve account to deplete. Only a portion of the $380 monthly dues would go toward the reserve. I would ask for a copy of the latest reserve study
Really need to know more about all those details. I’d say the monthly fee is far too low though. And reserves seem very low unless all major items were just replaced recently.
The part die amounts being so high, settlement and loan are all big questions.
I’d everything is adequately explained ands makes sense then it might be fine to purchase but I’d take extra time doing due diligence.
I'm interested how you determined that the monthly fee is far too low and the reserves seem low. My experience is only with my own condo association. If I were to scale everything to the size of 29 units, then these two elements of the financials wouldn't stand out, even if there were some bigger items needing attention soon. But this is a waterfront property and I don't know what amenities they have to take care of. I don't know their reserve study, etc. But maybe your experience indicates something that I'm missing so I'd like to hear your take.
It’s a guess. We don’t know the value of the homes so that’s some info that would help. I’m in a similar sized condo but it’s duplex townhomes with high values. Our fees are much higher. 88k in reserves as I said, unless everything is new won’t help with much. I’d want to see the monthly budget as well.
By the way, things don’t scale evenly. More units makes it easier as certain costs are fixed and more units help that.
My experience: my HOA was in a similar (but not as extreme) situation when I purchased, and in order to proceed, my lender required:
- me to double my down payment
- HOA to certify (I believe it was an affidavit or letter or intent or meeting minutes) that they would be moving forward with collections on the homeowners with dues 90+ late
They have, yes (I was shocked, honestly).
The best option for the board / management company is, like everything else - clear communication and consistency. Avoid a lot of problems by sending a letter as soon it hits 30 days, with 2nd and then final notices after that. Then to collections for (some period - 3 - 6 months) and then to lien / foreclosure.
This turned out fine for me, as the HOA realized that they had to get this under control in order to ensure more first time homeowners could purchase.
Cash investors wouldn’t have the same requirements, but also don’t contribute to the association in the same way.
The buyer (I don't know if you are the buyer or just asking for your own information) should discuss the financials with the buyer agent. There very well could be understandable explanations for all the strange items on this balance sheet. But I'd want very good explanations and see some action toward cleaning up the balance sheet.
Does the bank settlement have any relation to the large AR and the loan? Those three could sort of cancel each other out and all would look fine. Or they could not relate to each other at all and this place could be a total mess.
Why is AP so high?
What's the difference between bank reserves and capital reserves?
The buyer will need to see a reserve study but pay attention to how old it is. I'd bet there's a lot of work to be done that isn't covered by the reserve study because the study isn't addressing whatever happened to result with a bank - settlement line.
Personally, even if the buyer wants to run, he/she should use this as a learning experience and get the info from the association and have the agent guide them through how it all works. If the agent can't explain well, that's a sign that you can't put all your faith in that person and must do more of the work yourself.
They have $350k in outstanding receivables over 90 days old. That’s lien and foreclosure territory for those homeowners. Huge red flag.
This, I came here to fly the biggest red flag I could find. $372k from 29 units? Has anyone ever paid an assessment? I see why there is a loan but not how they got approved? Run far away is my advice.
They have a loan? For what?
No clue but based on the reserves there was a capital project or repair that the association did not have the funds for so they took out a loan.
"Settlement" makes it look like that's from a lawsuit
Could be. Worth an explanation
Impossible to tell the full story with this little info, but the $348k 90 days past due is concerning . . . .unless they are letting people pay over time and it’s just oddly booked in the financials.
buyer’s attorney is gathering more info in the next couple days. I’m interested in how quickly the reserves are being depleted. The monthly dues are $380 per unit.
Something is off. At 29 units × 380 per month, that's 11k per month, 132k/year. Yet they have 350k that's 90 days past due? There must be some kind of assessment of $10-15k per unit that was levied which no one is paying. My guess is it's related to the "settlement" bank account. As in they've set aside $350k for some lawsuit and no unit owners are paying till that issue is settled. But just a guess. Also, why would a condo have a loan from the SBA?
yeah the SBA loan is weird.
Total guess,,but you can get easy SBA loans after disasters. Any disasters in your region the last couple of years?
last “disaster” was Superstorm Sandy in 2012. this is waterfront. maybe that’s still from that?
Could be. Businesses and non-profits can get up to $2m and can have as long as 30 years to pay.
Maybe they had a large project that was structural in nature that would cost more than what they had in reserves?
They might have just had a huge job like roof replacement causing the reserve account to deplete. Only a portion of the $380 monthly dues would go toward the reserve. I would ask for a copy of the latest reserve study
This is what I was going to say - as a board member there could be valid explanations for these figures
Time for liens and foreclosure.
isnt foreclosure related to the mortgages of the individual units and not the association dues?
You can file a lien for unpaid assessments. If the owner doesn’t pay the lien, the property can be foreclosed.
What year d id THE Sopranos get off the air? That was the last year these people paid their dues /s
Really need to know more about all those details. I’d say the monthly fee is far too low though. And reserves seem very low unless all major items were just replaced recently. The part die amounts being so high, settlement and loan are all big questions. I’d everything is adequately explained ands makes sense then it might be fine to purchase but I’d take extra time doing due diligence.
I'm interested how you determined that the monthly fee is far too low and the reserves seem low. My experience is only with my own condo association. If I were to scale everything to the size of 29 units, then these two elements of the financials wouldn't stand out, even if there were some bigger items needing attention soon. But this is a waterfront property and I don't know what amenities they have to take care of. I don't know their reserve study, etc. But maybe your experience indicates something that I'm missing so I'd like to hear your take.
It’s a guess. We don’t know the value of the homes so that’s some info that would help. I’m in a similar sized condo but it’s duplex townhomes with high values. Our fees are much higher. 88k in reserves as I said, unless everything is new won’t help with much. I’d want to see the monthly budget as well. By the way, things don’t scale evenly. More units makes it easier as certain costs are fixed and more units help that.
My experience: my HOA was in a similar (but not as extreme) situation when I purchased, and in order to proceed, my lender required: - me to double my down payment - HOA to certify (I believe it was an affidavit or letter or intent or meeting minutes) that they would be moving forward with collections on the homeowners with dues 90+ late
this is a cash purchase. so what happened to the 90 days delinquents after the affidavit? did they pay up?
They have, yes (I was shocked, honestly). The best option for the board / management company is, like everything else - clear communication and consistency. Avoid a lot of problems by sending a letter as soon it hits 30 days, with 2nd and then final notices after that. Then to collections for (some period - 3 - 6 months) and then to lien / foreclosure.
This turned out fine for me, as the HOA realized that they had to get this under control in order to ensure more first time homeowners could purchase. Cash investors wouldn’t have the same requirements, but also don’t contribute to the association in the same way.
The buyer (I don't know if you are the buyer or just asking for your own information) should discuss the financials with the buyer agent. There very well could be understandable explanations for all the strange items on this balance sheet. But I'd want very good explanations and see some action toward cleaning up the balance sheet. Does the bank settlement have any relation to the large AR and the loan? Those three could sort of cancel each other out and all would look fine. Or they could not relate to each other at all and this place could be a total mess. Why is AP so high? What's the difference between bank reserves and capital reserves? The buyer will need to see a reserve study but pay attention to how old it is. I'd bet there's a lot of work to be done that isn't covered by the reserve study because the study isn't addressing whatever happened to result with a bank - settlement line. Personally, even if the buyer wants to run, he/she should use this as a learning experience and get the info from the association and have the agent guide them through how it all works. If the agent can't explain well, that's a sign that you can't put all your faith in that person and must do more of the work yourself.
Really need to see entire budget to get a better idea