08/17/23

Potential New Federal Law for Condo Association Loans

There is a current law pending in Congress that can be a real game-changer for condo associations. It’s known as the Making Condos Safer and Affordable Act. Yeah, I know, real catchy. The purpose of the Act, if passed, is to make loans to condominium associations insured by the FHA. This means that a condo association can obtain a loan insured by the FHA just like FHA loans on condo units and homes that individual owners obtain. Probably 40% of all home loans are FHA loans. Since those loans are insured by FHA, the interest rate is substantially lower and the amount of money that the borrower (i.e., the condo association) needs to put down in equity is a lot smaller. Also, that loan can be amortized over 30 years. Meaning the loan payments will be much lower. Making the loan more palatable to the condo association and to the owners.

The condo association can use these loan proceeds for common element work. This is written very broadly. It can finance the cost of rehabilitation, alteration, repair, improvement or replacement of any common element, infrastructure, facility, feature or area serving the condominium. This isn’t just a simple case of using the loan proceeds to patch holes in the wall. You can use the money to install new elevators, put on a new roof, fix the foundation, etc. A lot of that work that you never thought you’d be able to pay for? There’s a real possibility that you can get a loan to do the work. With reasonable loan payments.

There’s another positive aspect to this proposed Act. The FHA will also insure loans to individual unit owners that want to borrow money from a bank to pay a large special assessment that the condo association levied to pay for work on the condominium common elements. Not within the condo unit itself, but to the common elements of the condominium. So, if there’s going to be a large special assessment to pay for common element work, and individual owners can’t afford to pay the entire special assessment upfront, they can obtain a typical home loan in order to pay the special assessment over time.