Underfunded reserves is a chronic problem for community associations. The seeds of financial crisis often begin with developers’ budgets, since their focus is on selling condominiums and townhomes as quickly asthey can, and a low assessment is viewed as a marketing tool. Volunteer Boards often harbor the mistaken belief that their mission is to keep assessments low, and they also know that assessment increases do not engender love and admiration from their friends and neighbors in the association. Owners also play their part by loudly protesting assessment increases, particularly when they exceed the inflation rate, which they perhaps should because of the need to play “catch up.”
Somewhere between 20 and 30 years (and often much sooner for rental conversion properties), some hapless Board is finally forced to face the reality that their association is woefully unprepared to pay for much-needed replacements: roofs, siding, streets, elevators, a major redecorating project, etc.
The Board will probably consider the following options:
1) Postpone the work
2) Increase the annual assessment
3) Levy a special assessment
There is another option...utilize and HIA.
Housing Improvement Area (HIA):
A Housing Improvement Area (HIA) is a defined area within a city where housing improvements to Common Interest Communities, such as townhome associations, are made and the cost of the improvements are paid in whole or in part
from fees imposed on the properties within the area.
• Basically, the Association borrows low interest money from the City;
• Permanent, common area improvements are completed; and
• Unit owners repay the loan through fees imposed on their properties, and collected with property tax payments.
• The City may establish an HIA within a Common Interest Community only at the request of the association.
• Improvements must be common area improvements such as siding, roofs, etc.
• Financing is available as “last resort” option for associations that cannot obtain other financing.
• Over 50% of the owners must sign a petition requesting the City Council hold a public hearing to consider
implementing the HIA.
• Owners may veto the process if 45% of the owner’s object to the ordinance.
• The average market value for units must be at or less than the value of homes in the first time homebuyer programs,
for 2016, this is $307,900 based upon the Minnesota Housing cost limit for homes.
HIA offers a number of advantages:
•The interest rate will be lower than what the association would pay to a bank,
roughly comparable to a first mortgage.
•Individual owners do not need to credit qualify.
•Repayment can be over a period of as long as 20 years, although most associations opt for a shorter time.
•The interest may be deductible by those owners who itemize their personal
•Owners have the option to pay in one upfront payment to avoid the interest
charges, or over the term that is agreed upon with the city.
•The agreement can also be structured to allow owners to pay off the balance
at any time during the term without a prepayment penalty (this can be helpful
•The association gets the money now which means that it can make the
needed replacements/improvements now, rather than having the work drag
on for years.
HIA offers a number of disadvantages:
• Must be disclosed in resale of units.
• Property values are negatively affected when there are fees/loans/etc attached to properties
• Existing owners may not be able to handle the financial burden and foreclosures may occur.
A Housing Improvement Area (HIA) is a defined area within a city where housing improvements to Common