Financing Work in Condos New Law Brings Relief At Last

You live in a condo, and the building has come of age. The facade needs a little work here and there, and

the windows should be replaced. Up until recently you would have had only three optionsall of which were sure to be unpopular with unit owners. You could dig into the reserve fund, raise the common charges or tack on a special assessment to the unit owners.

Condominiums are restricted by law from taking underlying mortgages, the traditional source of funding used in co-ops. But on August 28 condos got the long-awaited relief they have been seeking. Governor George Pataki signed into law an amendment to the 1964 Condominium Act that now allows condominium boards to seek loans from financial institutions.

It's the Law

The Condo Loan Law provides assistance to condo buildings that need to borrow funds for capital improvements by permitting lenders to secure loans through liens on common charges in the event of default. The legislation protects unit owners through safe harbor provisions, allowing them to amend condo by-laws to prohibit such borrowing, limit the per-unit borrowing to a total of $5,000 and/or delay borrowing under this section until five years after the first conversion of a condominium unit. If the amount exceeds $5,000 per unit, the debt must be approved by a majority of the unit owners. The law is designed so that a unit owner's share of the debt would be less burdensome than a direct assessment.

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3 Comments

  • excellent artcle
  • Why would a corporation (board) get involved with borrowing when the cost would be much higher for everyone. The Corporation should not get into financing, it should be the responsibility of the individual owner to sort out the finances. as an example, We need to finance garage repairs in the tune of $1.8M. If we borrow it at 6% over 10 years, we would pay out $2.6M. Instead of the assessment being $13,000 per unit owner, it would increase to about $17,000 to pay off the interest, plus like added for administration. It still has to be paid, maybe smaller amount but over a longer period of time. What happens to the unit title, if a neighbour defaults? Not a recommended route
  • I applied and received a FHA approval for our condo. did all the filing and papaer work at the very last econd board for reason unknown to decide to inform the lender that the reserve for 2011-12 would be suspended FHA withdrew did not get my reverse Mortgage - can they do this