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Community Living: Mortgage lenders consider condo associations' fiscal health

Q: Are there lenders who will deny a mortgage based on the failure of a condominium association to maintain a reserve? How about based on the number of rentals in a condominium as opposed to owner-occupied apartments? Where can I find rules on these two issues?

A: It is more of a policy rather than rules or laws. To comply with lenders requirements, some lenders use a HUD policy that requires adequate reserves and an occupancy-rental ratio higher than 70 percent to 30 percent to qualify. Keep in mind that the lender will look to the quality of the borrower, the value of the property and the operations of the association. The lender want to assure that future operations will maintain the values. An association that does not have provide proper reserves or has a high rental ratio is seen as more of a risk.

Don't dally with delinquency

Q: Our association has two residents who have been habitual delinquents for years. We are foreclosing on them, but our association is suffering from these delinquencies and the attorney fees that go along with a foreclosure. What would happen if one of the residents files bankruptcy? What should we do if this happens?

A: In any delinquent matter, the association may lose money. Consider how much less you can lose and how you can limit your losses and speed up collections. I always recommend fast collections policies — and the assistance of an attorney. Turn the collection matter over to the attorney within 60 days or less. The statutes and your documents provide the best solution for collections: foreclose on delinquent accounts. If an owner declares bankruptcy, your collections will be delayed in that you cannot proceed with any legal action except to answer the bankruptcy complaint. Above all, seek guidance from your attorney to establish your collection policy.

Documents and director removal

Q: I live in a homeowners association, and our bylaws give the board members the right to remove a director who misses three consecutive meetings. My assumption was that the bylaws are in addition to state statutes and are enforceable, as long as the bylaws were not less than the statute requirements. Is this assumption correct?

A: Yes, in this case your documents can be used to remove a director. This would allow the other directors to remove a director who becomes ill and is unable to perform his or her board duties (or, maybe, a director who is just too busy to attend meetings). Most homeowner associations do not have this document requirement and would be out of luck.

On, off, then back on board?

Q: If a board member resigns, can he come back on the board in the same year or does he have to wait until the year has finished?

A: The board must appoint/elect a new director immediately to fill the resigned member's spot. Now if another vacancy comes up later in the year and this former director is willing to serve, the board can appoint/elect him to fill the vacancy. It is possible that the director who resigns could immediately ask to be reinstated as a director if someone else is not appointed to fill the vacancy. It would then be the decision of the board to approve or deny the request.

Richard White is a licensed community associations manager. Write to him at 6039 Cypress Gardens Blvd., No. 201, Winter Haven, FL 33884-4115 or send an e-mail to him at Please include your name and city.

Community Living: Mortgage lenders consider condo associations' fiscal health 06/12/09 [Last modified: Thursday, June 18, 2009 5:58pm]
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