Aging Infrastructure and Rising Costs: Should HOAs Finance Repairs Through Loans?
A growing financial dilemma is facing Homeowners Associations (HOAs) across the country: as buildings age and maintenance costs soar, boards must decide whether to levy massive one-time special assessments or take out commercial loans to fund critical repairs. With new safety regulations forcing accelerated timelines for structural work, the debate over “borrowing vs. assessing” has become a central issue for community management.
The Financial Dilemma: Cash Now or Debt Later?
When reserve funds are insufficient to cover major capital projects—such as roof replacements, concrete restoration, or road stabilization—associations are left with two primary options. The first is a special assessment, requiring every homeowner to pay a lump sum that can range from $5,000 to over $50,000 within a short window. The second is obtaining a commercial loan, where the association borrows the necessary funds and repays the debt over a period of 5 to 15 years through increased monthly dues.
Financial experts suggest that the decision often hinges on the demographics of the community. For associations with many residents on fixed incomes, a sudden five-figure bill can lead to defaults and foreclosures. In these scenarios, a loan acts as a lifeline, allowing the cost of repairs to be amortized over time. This concept, often referred to as “intergenerational equity,” argues that because a new roof or elevator benefits the building for decades, the cost should be shared by the owners living there over that period, rather than falling entirely on those who happen to own the unit the month the bill comes due.
Objections to Borrowing: The Cost of Interest
Despite the immediate relief loans provide, there is significant opposition to the practice. The primary objection is the long-term cost. With commercial interest rates fluctuating, an HOA loan significantly increases the total price of the project. A $1 million repair project could cost the community $1.5 million or more by the time the loan is serviced, meaning homeowners ultimately pay far more than the sticker price of the repairs.
Furthermore, real estate agents warn that heavy association debt can deter potential buyers. When a unit is listed for sale in an HOA with a large outstanding loan, the monthly dues are often higher to cover the debt service. Savvy buyers may view the high monthly fees and the community’s lack of cash reserves as a sign of financial mismanagement or instability, potentially lowering property values.
Background: Regulatory Pressures and Deferred Maintenance
The urgency of this debate has been amplified by recent legislative changes. Following high-profile building failures, such as the Champlain Towers South collapse, states like Florida have enacted stricter laws requiring fully funded reserves and mandatory structural inspections for aging condos. These regulations have effectively outlawed the practice of “kicking the can down the road,” forcing boards to address decades of deferred maintenance immediately.
For many communities, the math simply does not add up without external financing. Associations that historically kept dues artificially low to appease residents now find themselves with zero reserves and millions in mandatory repairs. In such cases, banks have stepped in with specialized assessment-backed loans. Unlike traditional mortgages, these loans do not use the land as collateral but rather the association’s legal right to collect future assessments.
Balancing Solvency and Affordability
Community law experts emphasize that there is no one-size-fits-all solution. While debt aversion is common, the alternative—a special assessment that residents cannot pay—remains a quicker path to community insolvency. Boards are increasingly advised to conduct thorough reserve studies and poll their membership to gauge the financial resilience of the owners before committing to a long-term note.
Ultimately, the choice forces a difficult reconciliation between the desire for low monthly payments and the necessity of safe, insurable housing. As infrastructure continues to age, the question is no longer if the repairs will be funded, but how.
aspm-sandiego.com
communityassociations.law
miamiherald.com
hoaloanservices.com
hoa.org.uk
cmacommunities.com
