A Condominium Corporation Loan is also known as condo corporation financing or a condo corp loan. This product helps condominiums receive money to complete repairs to their building. A loan is usually the best option. It helps keep a healthy reserve fund and prevents the unit owners from going through a special assessment.
It is a challenge for the Condo Boards, and their property managers to find borrowing solutions. Most of the major banks and financial institutions in Canada are not willing or able to provide a loan. This is because you cannot put up common property as collateral. Our mortgage brokerage has over a dozen lenders, from banks to private lenders, ready to work with you. We are highly trained with years of experience.
Why Would the Condominium Need or Want to Borrow?
Condo corporations generally need money when they need repairs to the common property. In most cases, there is not enough in the reserve fund to cover the costs. Most of the time a property is over 20 years old and in need of repairs and upgrades. However in some cases properties built less than 10 years ago need corrections to construction defects. Condo corporations can take out a loan and amortize it over 5 , 10, or even 20 years. This helps keep the reserve plentiful and the condominium financials healthy.
Condo Board's Obligations
Condo Boards are required by law to repair common property when necessary and have to make the necessary repairs. For this, they either need to have the money in their reserve fund or get it from the unit owners. If they do not have the money in the reserve, the Condo Boards, and the property managers have to approve a Special Assessment. In this case, each owner pays their share of the total repair cost. If the unit owner is not able to pay the portion of any special assessments they risk the same consequences they would suffer if they neglected to pay the common element fees. To avoid this scenario, our mortgage brokerage provides condo corporation financing. This is generally the best solution. It eliminates the need for the owners pay a large lump sum of money at once.
Challenges of the Special Assessment Model
Some of the unit owners cannot obtain the funds within the timelines of the Special Assessment. The Condo Board is then not able to sign contracts to complete the work. One of the benefits of borrowing through the Condominium Corporation is that it offers immediate relief for Condo Boards and owners. A loan eliminates the anxiety for the owners who cannot raise the funds and also takes the stress away from the Condo Boards that need the work to be completed.
The Process of a Condominium Corporation Loan
Condominium corporation financing places the loan against the corporation itself. Our brokerage will present a funding package to our approved lenders. Each lender has different lending criteria and requirements for documentation. Documents we may need include the year-end financials, 2 years of audited financials, bylaws, minutes, financial performance, construction budget and any architectural plans. Once the lender approves the loan, the condo’s lawyer reviews and present the package to the board for signing. The process takes roughly 2 months to complete. The condo corp receives the funds right away or in stages. Once construction is complete, we assist you in converting the construction loan segment into an amortized loan that works best with the condo financials.
