Take It To The Board with Donna DiMaggio Berger
Take It To The Board with Donna DiMaggio Berger
What a Bank Loan Can and Cannot Do For Your Association
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The hardest part of running a community association right now is that the bills are getting bigger while the margin for error is getting smaller. Insurance costs keep climbing, buildings are aging, milestone inspections and reserve funding expectations persist, and boards are being asked to approve projects that can cost millions of dollars. So how do you fund critical repairs without triggering financial chaos for owners or inviting fraud and mismanagement?
In this week’s episode of Take It To The Board, host Donna DiMaggio Berger sits down with Meghan Hallinan, Executive Vice President and Managing Director of National HOA and Property Management Banking at BankUnited, to get a lender’s view of community association financing. Donna and Meghan walk through how community association loans really work when there is no physical collateral, why incoming assessments and the community’s financial track record matter so much, and what red flags can stop a deal in its tracks. They also explain why banks look beyond a single project and want to understand your reserve study, your upcoming capital plan, and whether your owners can absorb the budgetary increase.
They also dig into the operational side: draw schedules on construction-style funding, the role of project managers and inspections, and how boards can avoid common breakdowns when leadership changes mid-project. Then Donna and Meghan shift to risk and controls, including the difference between a term loan and a line of credit for HOAs on balanced budgets, how litigation can affect lending decisions, what to know about the Fannie Mae's “blacklist,” and the fraud prevention tools every association should treat as non-negotiable, including positive pay and ACH controls.
If you serve on a board, manage communities, or advise associations, this conversation will help you build a realistic financing plan and protect your funds at the same time.
Conversation Highlights:
- How banks’ views of community associations have shifted—and what’s driving the change
- What lenders evaluate first—before the numbers even come into play
- The biggest misconceptions boards have about borrowing—and why they matter
- Common deal breakers: delinquencies, underfunded reserves, governance issues, and deferred maintenance
- The Fannie Mae Blacklist explained—and what it really means for your community
- Loan vs. line of credit: how to choose the right financing tool
- Why reserve funding is under increased scrutiny—and how it impacts borrowing
- What a “financially responsible” board looks like from a lender’s perspective
- The most common fraud red flags banks are seeing in community associations
- Internal controls every association should have—and where boards often fall short
- How banks can partner with associations to help prevent fraud
- Non-negotiable best practices to safeguard association funds
- What boards should be doing now to become more attractive borrowers
- The mindset shift every board needs when it comes to financial decision-making
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Welcome And The Capital Crunch
SPEAKER_00Hi everyone, I'm attorney Donna DiMaggio Berger, and this is Take It to the Board, where we speak condo and HOA. In today's episode of Take It to the Board, we are diving into a topic every condominium, HOA, and co-op board is thinking about right now. Money, access to capital, and how associations can responsibly finance their future. I'm joined by Megan Halanan, Executive Vice President and Managing Director of National HOA and Property Management Banking at Bank United. Megan works with community associations and management companies across the country, helping them navigate loans, lines of credit, reserves, and fraud prevention in a rapidly changing financial environment. With rising insurance costs, deferred maintenance, milestone inspections, and reserve funding now front and center, boards are being asked to make financial decisions that are bigger and riskier than ever before. Megan brings a lender's perspective on what banks are really looking for, where boards often stumble, and how associations can position themselves for success. So if you've ever wondered whether your association is a bank ready, what red flags lenders see, or how boards can protect themselves from financial fraud, this is an episode you won't want to miss. So with that, Megan, welcome to Take It to the Board. Thank you, Donna. Happy to be here. You know, we explored the banking industry. I think it was season one or season two of Take It to the Board, but it's been a couple of years. And this episode, Megan, is long overdue because so much has happened legislatively in Florida. And this is true, you know, we have a national audience. Actually, we have an international audience. I posted that recently. But this is true for every association. They need capital and they want to be responsible when it comes to the capital they have on hand for projects. So I wanted to start out and ask from your vantage point, what's changed most dramatically in how banks view community associations like over the last five years?
Surfside Fallout And Bank Expectations
SPEAKER_01Sure. Um, well, look, I think everyone knows what happened at Surfside, right? I think there was a, you know, the silver lining there is that I think all boards, right, realize that they're responsible, right? They're responsible for ensuring that the building is safe, that they're keeping up with their projects, right? And that their building can last for a long time, right? Um, and so I think for us it's been actually really great because people are moving forward with projects, they're engaging reserve studies engineers, you know, professionals to say, hey, you know, let's look at the next 10 years. What does that look like for my property, you know, for my homeowners? You know, what do we need to reserve for in the short term, in the long term? And so banks are really looking at the asset, they're looking at what the boards have done in the past financially, they're looking at the membership. You know, we really want to see, can you withstand the increase, right? Can you withstand the increase to take out a loan? Do you have history of repaying or, you know, consistently putting money into reserves? And so I would say we look at the whole picture, and that's really how we've been looking at it all along. But obviously, with Surfside and all the legislation that has come down, it's been really nice to see boards, you know, and property managers and banks and everyone kind of come together and really help everyone look. Let's look 10 years out, and how do we take that piece by piece?
SPEAKER_00So, for our listeners who are not in Florida, even those who may not have followed the coverage regarding the surfside issue that Megan references, that references Champlain Tower South, which was a multifamily building, an older one in Miami Dade in Surfside, and tragically collapsed. It was a partial collapse years ago, and there were a lot of factors that went into it. But certainly the result of that tragedy legislatively was the Florida legislature requires now for buildings to have periodic engineering inspections and to fund structural integrity reserves. So there was a lot that came out of that in terms of the legislature wanting to inject a framework, I would say, when it comes to association governance. I wanted to ask you, Megan, when boards approach you or managers or a combination of the two, what kind of explanation do they give for wanting a loan? Because I know as an association attorney, I hear it. I'm hearing it with regard to, well, maybe we'll take a loan instead of a special assessment because our people right now just cannot afford another special assessment. What are you hearing as the rationale for when an association comes calling for five markets?
SPEAKER_01I think it's they're hit with these big projects, right? They've delayed some of these really big projects. You know, they had, you know, their reserve study done and they find out they need a new roof, right? Or they need, you know, a new boiler or something, right? A new envelope, right? New piping. Um, and so I think some of these really large projects, you know, that's when it makes sense to come to the bank and look for a loan so that, you know, you can, you know, take it easy a little bit on the membership and the increases. Um, but what's gonna happen too is we're gonna not just gonna look at the the one project they're coming to us for, right? We're gonna say, hey, if you have a reserve study, what else did they say is gonna happen during the term of this loan, right? So if you're going for a five, seven, 10-year loan, you know, we want to make sure if we're gonna be lending money, you're either properly reserving for those other projects in addition to the one that we're financing, or we can bundle it together and then tell the membership, hey, we're we're gonna take care of the next five to 10 years worth of projects, you know, in this one loan and we're gonna spread it out over time. Um, but you know, we're covered, right? And we're also making sure our general reserves are being replenished as well.
SPEAKER_00So can I give you an example so maybe we can inject some clarity into the process? So let's say we've got a typical, maybe they're they're approaching their 50-year birthday, 12-story high-rise, they're looking at a$10 million worth of projects. Walk us through that. So, what's first of all, how do you collateralize that loan? They come to you, they want a loan, and they're going to use it for these repair and maintenance projects. What's the collateral you're seeking?
SPEAKER_01So the only collateral that we can seek, and obviously it's a little bit different state by state, is really just those incoming assessments, right? That maintenance, it's really a cash flow loan. We can't, you know, hold anything on the property. There's no physical collateral. Um, that's why banks really, you know, have become specialty lenders in HOA. Not all banks can do this. They don't understand it, or they only want to do loans where they have physical collaterals. So for us, it's really the strength of the membership, right? And the historical payments and the community, the actual property for us is going to decide if we if we want to lend. So yeah, I would say it's a multitude of things, but um, but that's it.
SPEAKER_00So I've heard that associations make wonderful bank customers because they really don't default. There's always an influx of people coming in who can pay that assessment. I want to just drill down even a little more. So, in connection with the loan closing, you do require the board to assess to pass a special assessment.
SPEAKER_01Correct. Unless they already have it built into their budget, we're gonna require that they special assessed. And depending on the bylaws, as you know, it may require a majority vote from the membership or the board can approve it.
SPEAKER_00So, what would be the purpose for the special assessment and how is it applied?
SPEAKER_01So we basically take the amount of money you need, obviously, right? And and say it's a 10-year loan, right? We're gonna take the the principal and interest, and then that's gonna be passed down, right, across, you know, however many units it is. And it'll be divided by, you know, monthly, obviously.
SPEAKER_00And so the savings as opposed to a direct special, because I get asked this question a lot. You may want as well, okay. Well then couldn't the board just pass a special assessment directly, save the loan cost and just have that payable over 10 years?
Loans Special Assessments And Collateral
SPEAKER_01When the special assessment gets above, you know, 10, 20, 30, 40,000,$50,000 per unit, not everyone can come up with that type of cash, right? So depending on your membership, how many units, certainly people can go get a HELOC, people can pull money out. And what they also do is they usually give the membership an option, right? Here's the here's the assessment amount with, you know, amortizing it. And here's it if you want to just write us a check for$50,000 or whatever the amount is.
SPEAKER_00Yeah, we see that a lot. And that that's certainly an incentive for somebody who does have the funds available to avoid all the all the carrying costs associated with that loan. So I'm sure, are you busy? Is your phone ringing off of up these days?
SPEAKER_01We are, absolutely. Um, and obviously we're across the country as well. So yeah, it's been great. You know, we also have great programs for smaller loans to get those done really quickly, right? And then the larger ones, we really want to dig in. We want to understand where is this community located, you know, what has been the history, what projects do they have on the horizon, you know, and what does the membership look like, right? Do we really feel confident that they can repay it? Because as we said before, there is no collateral besides that, you know, that incoming cash, if you will.
SPEAKER_00So this is why I was so excited to have you on the podcast, Megan, because I want you to spill the tea on your underwriting. So you've mentioned a couple of times now, you're looking at the community, which makes sense. That association is going to be your customer. Yep. What are you looking at? Are you are you going into the civil court docket to see how many times they've been sued? Are you looking at collections, how many? Are you looking at whether or not the demographics, if they've got a very uh, if they do short-term rentals, what are you looking at?
SPEAKER_01So we do. We have criteria, right? So there's, you know, usually a number of uh minimum number of units, right? We don't want to see delinquencies over 10%. We want to make sure, you know, majority of the building is owner occupied. That's also requirement for Fannie and Freddie, as you know, 51%. We want to dig in, right? Are these, is it a snowbird, you know, place? Is it professionals in there? Is this a 55 and over community, right? Are there are there people on a fixed income? Things like that, right? Like what do we think that this community can handle? Um, so there's a lot of different factors that we look at. But yeah, I would say minimum unit count, ours is 25, every bank is a little bit different, but you want to be able to spread that risk over a larger number of units. Delinquencies are a big one, right? If you have a problem with delinquencies, it's gonna be very difficult for you to get a loan from a bank.
SPEAKER_00You know, it's interesting. The 55 and over communities during the big recession back in 06 and 07, those communities actually did they they handled that downturn better, in my opinion, than many other communities. So I know we always think about fixed incomes, but sometimes I think maybe the the 55 and over communities, those people, the greatest generation, maybe they've they have saved and they're maybe a more attractive bank customer than you would, you know, think at first blush.
SPEAKER_01Yeah, I think it all depends on the percentage of increase, right? If you're doubling, tripling, right? If you're if those maintenance fees that they've had for the last 10 years are now gonna double or triple, you don't really know if they can handle it, right? And and we and we'll never know, right? You it's not like we're digging in and finding out who lives where, right? It's you know, the banks aren't doing that, you know, but they're just looking, you know, is it located near, you know, um a bustling area, right? Is there a hospital nearby? Is there, right, like is this a place where people you're gonna and also you can look at recent sales, right? Are there people coming in and out of the building, right? Or is everybody staying put? You know, what do we think that the membership can handle? Um, because the last thing we want to do is put a loan in place and you know, everyone wants to put their for sale sign up and leave the community, right? Because we, you know, that's the last thing that we want.
SPEAKER_00Of course. And listen, on the estoppel certificates, it's going to reflect whether or not there's a special assessment in place to repay a loan or a line of credit. Um, have you ever attended or had any of your people at Bank United attend a board meeting ahead of time before making a final decision on a loan?
SPEAKER_01Absolutely. Absolutely. We're always in, you know, usually it starts with the property manager or broker, someone that's like on behalf of the board. Sometimes the boards reach out directly to us, but we are always open to going to board meetings, especially if they say, look, this is definitely what we want to do. We might have provided a term sheet and the membership or the board wants you to present and help us understand, you know, what does this look like? What are the different options? Why should we go with this loan? Um, so we're all about education. We're part of obviously in the United States, a ton of community association institute chapters. Um, we do training on fraud. And so we're always open to come to board members. Jessica Marvel, who runs our HOA and condo lending for the bank, she's speaking to board members all day long. So yeah, it's a very big part of the process. We want people to feel comfortable. You know, a lot of times people come and they're like, is this like a mortgage? You know, it's like, no, it's a little bit different. Oh, well, I thought it worked this way. So there is a lot of education, especially for board members that are new to the board, you know, don't have a finance background. We're always looking to educate them and explain how the process works and how to look at it.
SPEAKER_00You know, you said that question in such a nice voice. And I'm wondering if Jessica has ever been at a meeting where it wasn't a nice voice. And she left that meeting and said, Oh my goodness, you can't believe the meeting I just went to. Has that ever? I mean, I I guess the question I'm really asking is, does dysfunction on a board play a role? Because we've seen our fair share of dysfunction. Not everybody, depending on the board size, too, is the sometimes the larger the board gets, the more dysfunction you have. If everybody's not on the same page about pursuing a loan or a line of credit, does that factor into whether or not you want to extend financing and become a partner with that community?
SPEAKER_01You know, we know the board's gonna change every year or two. So for us, it's not necessarily about the board, it's about the underlying financials, right? The financial health and the physical health of the community, right? That's really what we're looking at because that board member that's, you know, giving everyone some trouble could be off next year, right? And we're gonna do a 10-year loan. So um, yeah, we rarely look at the boards, but we certainly look at, hey, you know, have you been reserving? What have you done? We certainly love when we see boards who are like, hey, we've done all the right things, but this huge project came out of nowhere. It came out of left field, and now we need all this money, and we just don't want to, we wanna give our membership options, right? If they can't come up with a lump sum. Um, and so it's always great, obviously, when we have good boards, but we all know there's always drama and things that are happening. So a lot of times the the talking that's going around even has nothing to do with the bank, you know.
SPEAKER_00No, that's true. That's true. Although I would imagine continuity on the board for these long-term projects and even with the loan in place, that helped that has to help, as opposed to having a board changing every year.
SPEAKER_01Yeah, because you know, for the larger deals, you know, when you get into your larger amounts, you know, over two, three, four million dollars, we're actually monitoring the work, right? The bank's not gonna just give you the money and say, you know, we hope that you do the roof. You know, they're gonna actually put the money into a reserve account and say, okay, you know, we need a professional to go out and inspect and make sure the work was done and we're gonna draw the money down slowly so that um depending on the project, right? And sometimes it's just, you know, there's an upfront fee or a deposit, and then the work gets done, and we'll release the rest of the funds once the project is done. So we do a decent amount of monitoring, and usually either the you know, the project manager or the property manager or board members that contact. So it definitely helps to have continuity.
SPEAKER_00Well, let's talk about that. That's so important. You're talking about a construction loan that's being used to fund a major project, let's take concrete restoration, which many of our associations right now, these are very pricey projects. They go on for months and months, depending on the size of the community. Where does this go off the rails, Megan, in terms of getting the draws from the loan to pay the vendors? Where are the trouble spots we need to pay for?
Underwriting Red Flags And Borrower Readiness
SPEAKER_01If we don't have good a good primary contact. So if that board member that was responsible for you know coordinating the commun the communication between your contractors and the bank and what's happening, if that person leaves and is not replaced, we've seen that. People have finished projects and just taken it out of their operating budget and then said, wait a minute, we have all this money sitting here. And it's like, well, we've been waiting for drawdowns. We didn't know what happened, you know. Um, so we have seen that, you know, and that's where it is important to hire professionals, right? If you have a really large project, you want a project manager on there, whether it's through your management company or you know, individually, it's worth the money to make sure the work gets done appropriately, your drawdowns happen as scheduled. Um, so definitely bring in the professionals, especially for some of these really large projects.
SPEAKER_00Don't you require having a project manager as a condition of under the loan documents?
SPEAKER_01Or in some cases, yes. Yep, absolutely. You know, if they have a professional managing agent that has that built in, right? And we also we definitely hire our own engineers as well. We will go out and inspect. We will have our own engineer go out and make sure that the work is being done, in addition to, you know, if they've hired one again, depending on the size of the project.
SPEAKER_00What about cost overruns? They asked for 10, now they need 15. How do you handle that?
SPEAKER_01Yeah, I mean, look, we do 12 to 24 month drawdowns. You know, a lot of times we'll have to term it out. And if in a year or two from that we have to re you know, something happens and we need to refinance, we can always look at that. Believe it or not, it doesn't happen often. They're also usually putting additional reserves away anyway. So it's rare that we have to go recast the whole loan. Not to mention what'll happen is a$15 million loan becomes an$8 million loan because of prepays and other different things. So it's rare we have to refinance in the first year or two of a deal, but certainly it could happen. Usually if you've done all your due diligence, you put in a little bit of a percentage, right? Usually you put in an extra 10% of just normal inflation and overruns, you know, and that usually covers it.
SPEAKER_00Is there any typically any penalty for early satisfaction of the loan?
SPEAKER_01So if you assess internally, like if you if all your membership just says, hey, we all want to cut a check, we want to be done with this loan and pay it off, you can always pay off your loan without pre- uh prepayment penalty with internal funds. But if you're gonna go refinance it with another institution, then obviously there'll be a you know um a penalty there.
SPEAKER_00Okay, that that makes sense. I want to get back to the financial health of the association because that obviously that's the whole base of your little of your little pyramid where you're looking at whether or not this association is going to ultimately become uh, you know, a customer of yours. Yeah. I'm finding, Megan, more and more associations that they want to keep the operating budgets as low as possible, again, because they really hate the increases. They believe, and I and I think rightfully so, that it can impact resale value. But what do you do when you see a budget that you know is under budget? And what they're doing is they are imposing, the board's imposing a series of special assessments, whether it's for projects, but definitely they're imposing it even for recurring expenses because they want to keep that monthly budget low, that monthly assessment low. Do you ever dig into that? That this budget cannot possibly be a realistic operating budget.
SPEAKER_01Yeah, I mean, if you're gonna look for the larger deals, you're looking at three years financials, right? So you want to look over the last three years. Where were they? Where was their cash position, right? Where were they according to their budget? Were they close? Were they on par? And so something like that would crop up in the financials naturally, right? Where they're constantly kind of missing, you know, missing the boat. And then, yeah, I would say, you know, we really want to make sure that the membership, again, understands, you know, between inflation and everything else, right? The cost of everything going up, the the building is also now aging, right? How are you preparing? To me, it's always, you know, you should have the, you should have a 10-year plan always, right? And then every couple of years, you got to refine it, right? Um, and that's where reserve studies and professionals can come in and say, look, we've we've looked at all the major equipment, we looked at the roof, the siding, we know, whatever the case is, right? Whatever the common elements are depending on that community association, you can really have a professional say, look, this is what we think is going to go wrong when, based on the age of all of these mechanicals, right? Or, or the roof or what have you, you know, and this is kind of what we're budgeting, um, and use that as your guide, right? In addition to the normal general maintenance, right, that we all know is going to tick up a little bit every year.
SPEAKER_00So even though reserves, at least in Florida, cannot be used to collateralize a loan, you're still really looking at that to make sure they have healthy reserves.
SPEAKER_01Absolutely. Absolutely.
SPEAKER_00What about deadlines for in again in Florida for the milestone inspections and the structural integrity reserve study? If a client comes to you and they've missed, they've blown through these deadlines, does that give you pause?
SPEAKER_01It does. Yeah. So if they're nowhere near getting where they need to be, then, you know, we probably would not do the loan until those are done, right? Because that's going to give us valuable information as to what could go wrong in the next 10, 20, 30 years, which again, for us, usually it's a 10-year term, right? So we're always looking 10 years out or whatever term we're looking at, if it's five years, right? Where do we think we're going to be in five years? Um, and and that's, yeah, I would say definitely would give us pause because you want as much information as you can, right? There's a lot of states that don't require reserve studies, right? So our thing is if you have it, if you've done it, great, please provide it. If it's not required, we're gonna use all the other tools we have at our disposal with asking questions, digging into the financials, understanding the area and the membership to make a credit decision.
SPEAKER_00So now I have to ask you about what your conditions for default. So I'm not sure how much and how closely boards read the fine print. That's where attorneys like me, actually, more like my partner, Mark Friedman, who's been on the podcast before, but he was talking about 55 and over when he came on the pod. But Mark does a lot of our loan closings here at Becker. The conditions for default. Can you run through some of the conditions for default that might surprise a volunteer board of directors?
SPEAKER_01Yeah, I mean, you have to keep your insurance up to date, right? Like read your loan documents. Make sure that you have your attorney or someone reading your loan documents to know. Um, for us, depending on the size again and how much monitoring we're doing, right? It's gonna come down to if your delinquencies shoot up out of nowhere, right? Your insurance certificates are not current, you're not making the loan payment. I would say those are probably the top three, right? That that could trigger something. What if the board gets recalled? Is that a condition of default typically or no? No, no, as long as they, you know, vote in a new board and they understand what they've signed up for, essentially. No, that's not a reason for default.
SPEAKER_00Although I would assume having fewer than three directors, which sometimes we see, nobody wants to serve on the board. If you don't have a functioning board, that might be a condition of default, no?
SPEAKER_01Uh yes, absolutely. Yep.
SPEAKER_00The other one would be you mentioned insurance. So over the years, it's calmed down a little bit lately. But over the years, I've had clients pop up and say, we're gonna go bare. We're not getting windstorm, it's too expensive. Everybody agrees, everybody thinks about the lenders for the individual units. But if that community has an outstanding line of credit or a loan, also that's a that's a no-go.
SPEAKER_01Yep, absolutely. And and again, all of that should be listed in the loan documents, what insurance coverage you're required to carry.
SPEAKER_00Do you do like an annual check-in? If you must say it's a 10, 15 year loan, we especially if the board changes hands, Megan, do you do an annual check-in and remind them of, you know, terms of the loan, things like that?
SPEAKER_01Yeah, I mean, we obviously send notices, right? But a lot of times it goes care of their managing agent, right? So it depends. We will send notices to whatever contact information we have in the file. We're we always reach out for updated insurance certificates once a year. And depending on the loan, we might also obviously require at any time updated financial information. So depending if we're working directly with the board or through a management, you know, a management firm, um, we'll reach out to those contacts absolutely once a year at a minimum.
SPEAKER_00I've been throwing around loan and line of credit. Can you explain the difference between the two?
Funding Construction Draws Without Chaos
SPEAKER_01Yeah. So I mean, look, a traditional line of credit is really supposed to be a revolver, right? Where you, you know, you you have the ability to pay it down once a year at a minimum. And usually it's for payroll and other things like that. I will tell you, HOAs and condos, you know, they say line of credit, but you're on a balanced budget, right? You're it's not like you're a company with a personal guarantee and all other things where, hey, we're just gonna let you go up to this amount. Um, I would say any lines of credit out there, there's disaster recovery lines of credit. They're really just mini term loans that have drawdowns, right? And they just keep extending that drawdown. So I would say that having a line of credit is not even for the, you know, call it the disaster recovery, right? That's for insurance, right? That's to fund you up front while you get your insurance money. There certainly is that product out there, but it's still like a 12 or 24 month. We want to make sure if you're on a balanced budget, a fixed budget, you can't really have an open line of credit that you just draw down whenever you want because then you won't know how much you need to pay back, right? And what those interest and finance charges are. So I like to say people love to throw around line of credit, but you really should just have a term loan for your big projects, right? Like it's it's their capital improvement loans, is what they are. And then obviously, if you need like an insurance, right, to pay whether it's to pay your insurance bill, you can have um insurance premium financing, right? Like that's kind of what that's for. Um, but I would say we don't really do a lot of just open-ended lines of credit for, you know, for HOAs and condos. We want to say, what are you using this money for so that we could tie it to your budget? We can tie it to a percentage of increase for your special assessment. And that, you know, again, if it's a really large project, we will allow you to draw down 12 or 24 months. If the project's gonna go for two years, you want, you know, you could do a drawdown or go straight to PI. You know, you you'd be surprised over the term of the loan. Sometimes you're better off just going straight to PI, but people don't, in their mind, they think I'm gonna pay less because I'm drawing it down over, you know, 12 or 24 months.
SPEAKER_00I think some people think a line of credit that is just open and hanging out there is like a credit card. Yeah. Doesn't, yeah, it doesn't really work.
SPEAKER_01The bank's gonna want to know how why you're using it, for what purpose. They're gonna need lots of documentation that might need updated financials. They're not, it's not something you just call up, you know, put it in place and three years later call up and want, you know, it's it's gonna be a 12-month revolver, maybe 24 months, and they're gonna have to renew that for you, and there's gonna have to be a purpose and it's gonna have to be built into your budget.
SPEAKER_00So, you know, the legislature changed the law over the last couple of years with regard to SERS, and now all associations have the ability who are impacted by SERS, because not every association is impacted by SERS, but for those who are, they now have the opportunity to utilize a line of credit as opposed to funding the SERS reserves through the budget. How do you structure that, Megan?
SPEAKER_01Again, it's very similar. You know, you're you're essentially looking to the bank to front you money that you're gonna end up reserving anyway, right? And at that point, does a line of credit or a term loan just make sense, right? You basically get a loan to fund your reserves. That's what you're doing. So I again, these open lines of credit that people throw around, I think, you know, they forget that you're on a balanced budget. There's no hard collateral here, right? It's not like the bank can say, here's, you know, a$500,000 line of credit, and you know, um, you know, it doesn't have to make sense, you know. I think, you know, are we because we're holding your building, right? Um, so I think it's you really just have to look at how much do we need to reserve for? What is the percentage increase for each homeowner? And does it make sense to just do a one-time increase and put that in place now? Do we have the luxury of waiting, right? Some of these projects have to be done in the next 12 months, you know, and if people can't come up with the money quickly, they have to look to a loan for a bank. But what's nice, as I said before, is, you know, if it comes in of three or five years, people are just, you know, as they sell their units, they want to just, you know, give you all the money, right? And pay it off right then and there. You can always, you know, recast your loan with the bank and pay it down with internal funds at any time. Or at least, I think usually it's once or twice a year. Like each bank is different, you know, depending on the loan and the amount, how many times you can pay with internal funds, and then they'll recast your loan payment.
SPEAKER_00So there is an association that just filed for bankruptcy. I think the bankruptcy was tied to a uh a litigation award. Uh, the association got into a battle with their developer. It made news, it's standing out because we rarely see an association file for bankruptcy protection. Um, it is obviously a restructuring, not a liquidation. But it leads me to ask you have you ever seen an association default on one of these loans?
SPEAKER_01In my 20 years, we had one deal that was close to it, but avoided it. They had to get a whole new board in. You know, the loan was paused for a little bit while the new board came in. They, you know, we had to kind of work on some language and get it kind of recasted. But no, I have in 20 years, I've not seen a loss. And most banks, if there's any litigation, even a hint of litigation, they're not, they're not going to look at your deal. That's another thing everybody should be aware of. If there's outstanding litigation that could negatively impact the association in any way, banks are usually not going to do it, right? Um, just you're a little hesitant.
SPEAKER_00With good with good reason. But that being said, let's say, let's say you did have a default. So that I I've never seen it either, which is why associations make such attractive customers for banks. Um, but let's say it did happen. I guess you would start sending out notices, you would impose special assessments on each of the units, and the owners wouldn't pay the bank.
SPEAKER_01That's a great thing.
SPEAKER_00All right, well, not quite. It hasn't happened yet. Um I have to ask you, Megan, on this episode about the Fannie Mae blacklist. So we hear about that a lot. I I believe it still really impacts Florida Associations condos much more than elsewhere in the country. Can you tell our listeners a little bit about that blacklist, what it means, and whether or not like you're dead in the water if you're on it?
Loan Terms Default Clauses And Credit Lines
SPEAKER_01Sure. So the blacklist for those that don't know is basically Fannie and Freddie has a list of condos and HOAs that they will not lend to. Um, it's really a private list, right? So some of the realtors can get their hands on it. Um, you know, I spoke to my team before this to talk about it, right? Because we we haven't talked about it in a while. Um, I would say, look, we haven't run into it as an issue to date. Um, I would say that when you dig into the financials, you can probably tell who's on the blacklist, right? When we talk about delinquencies, when we talk about percentage of owner occupancy, you know, when you talk about reserves and things like that, you know, the bank can usually find out if it's on the blacklist, but it's not a public, you know. I know this, I know Community Association Institute is fighting to get that list public and help those associations know that they're on it and be able to work towards resolution. Um, but again, I would say it's really more um for us, it's never been a factor because number one, we don't have access to the list, right? So no bank that you go to a low foreign is gonna know. But on on the other side of the coin, if you show up with, you know, you have no reserves, you have, you know, 50% delinquencies, only 30% of the, you know, community is owner occupied, you probably know that that's one of the associations that could be on the list and you wouldn't lend to them anyway, right? So, you know, I think we kind of mitigate it that way.
SPEAKER_00So you're not selling your these association loans on the secondary market. No, these are all balance sheet loans. All balance sheet, okay. And I've told clients that too. I'm like, listen, yes, it sounds scary. Yes, you shouldn't be on there, but there are plenty of banks out there that they're not making these decisions based on Fannie and Freddie. So correct. Exactly right.
SPEAKER_01Yep. Again, the banks wouldn't know unless they went out of their way to try and get their hands on it through a realtor or somewhere else, you know, and kind of dig in. You know, you can also kind of see if like none of the units have sold, right? None of the units have sold in the last three, four years. Why is that? You know, and so there's there's some indicators that can let you know that maybe it's not on a blacklist, but maybe we've got to be concerned for one reason or another.
SPEAKER_00Well, I'm glad we cleared that up because that that spits around a lot and it's still an issue. And it's particularly an issue down here in Florida. I don't know, is there a reason that they've chosen Florida as like their I don't know.
SPEAKER_01I think it's I think probably number one, Florida, I think, is the second largest state in the country with the most amount of condominiums and homeowners associations. So I think just the sheer volume, and then you figure the aging population of both the membership and the and the communities themselves, right, that have been around for a really long time, that could be the reason. If some of them have just gone into disrepair, um, didn't have the right board, if they're smaller communities, right? They're under 25 units, um, that could be the reason for it as well.
SPEAKER_00So I can't end this episode. We've got a few minutes left. I've got to talk about fraud because I teach a fraud component of our board cert classes here at Becker. We know that community associations can be a prime target for fraud taking hold. And, you know, often there's some frustration like, how did this happen? How did they get access to our funds? So tell me, like even at Bank United, what do you have in place to deter and detect fraud?
SPEAKER_01Sure. So I think first and foremost, all banks have tools, pay E positive pay and ACH positive pay, or the two things, right? Most things have moved towards electronic payments. Having those fraud deals, so pay e positive pay is where you tell the bank who you cut checks to, right? Their name, the date, the amount, the check number. And we're gonna compare any checks that come to us on that list. If it's not on that list, we're gonna send it to a signer, a signatory, right, to approve. So having positive pay for both checks and ACH, I think is just a baseline now, right? If it, you know, because anyone, people also forget, you know, well, how did they get my account number? Well, do you cut checks and put them in the US mail with your routing and account number on the bottom? Yes. Well, there you go. Right? Somebody can take that piece of mail, open it up, use your routing and account number to pay Verizon, to pay whomever, right? And those smaller transactions just don't get caught, right? They're not big enough to warrant. But, you know, obviously with technology and scanning and AI, like it's getting better where banks obviously are reading everything on the check. We're able to actually decipher it, you know, um look at signatures, but now everything's moving electronic, right? So you also want to make sure you're protected on the ACH side. So I would say, you know, pay positive pay, ACH positive pay. And then there's a lot of great um systems out there that will let the boards review all their, you know, checks, all their invoices right before anything goes out the door. Um, I would also say the treasurers, you need to be looking at your monthly financials. You need to be looking at your monthly bank statements, right? If you have a professional managing agent, one of their jobs is to number one, put all these fraud prevention tools in place. Number two, make sure that you're verifying, right, all of the invoices before checks or ACHs are processed. And three, they put together monthly financials with your bank statements together every single month. You should be getting a financial statement, your bank statements every single month and take a peek, right? If you know your budget well, depending on the size of your building, obviously it's very large master association. It's gonna be a little tough to go line by line. But there's community, plenty of communities that have 50, 100 units, you know, and a great board. It's like that treasurer or someone should be just taking a look and making sure that everything looks right. You know, obviously, even when you hire a professional agent, you still want to have someone on the board that's looking, right? You can also get visibility online as well.
SPEAKER_00More than one person. Okay. I know the poor treasurer. Yeah. Everything gets lumped on his or her shoulders, but online banking. So, Megan, what's best practices now? Because I know back in the day I was teaching that you don't ever want an intermediary between you and your bank statements. Those were some of the biggest frauds we ever saw was that somebody would make their own bank statement, you know, and then present it to the board. And that wasn't the real bank statement. Now with online banking, do you recommend, let's say we have a five-member board. Is there any limit to the number of people you can give access to look at?
SPEAKER_01No, you can set up with online banking, even if it's through your managing agent, you can get your own username and login and download your own statements, look at all your own activity, um, pull reports, right? So yeah, we don't limit the amount of users. If you're on a commercial treasury platform, right? Obviously, if you're on some of the small business-free platforms that banks offer, you there might limit you to two or three users. Um, but for us, if we're working through a professional agent, you know, and they have three or five or six board members that want access, you know, they can do that very quickly.
SPEAKER_00Is there any downside to they can't change? That's just viewing rights. So there's no real downside to learning.
Blacklists Fraud Prevention And Account Control
SPEAKER_01There's no downside to have viewing rights. Absolutely. And then know who your you who your bank is, right? Like, you know, we operate, you know, a lot through managing agents, but we also have direct relationships with the board. They know they can call our team and say, hey, you know, I work with XYZ managing agent, but I really like a copy of my statement, or can you explain something to me? You know, that you should always have access to your banking team and your managing agent and have you know online access to your funds or a portal where you can see live real time the information or your monthlies, right? So if you're not gonna log in at all, it's probably not worth doing it. But if you know you have access to the bank, you have obviously trust with your managing agent. Um, and and again, you can pull any statements from your contacts at the bank. Um, I would say that's the best. It's really just getting that information, looking at it, you know, month over month, becoming familiar with it, because you might be able to spot something that your managing agent can't, right? And banks are not perfect. We all know that. Even with all this technology and positive pay, things happen and you just always want to make sure that you're looking. Because what can happen too is someone will come two years later, oh, that was a fraudulent check. I didn't tell you. I can get my money back, right? It's like, oh yeah.
SPEAKER_00No, no, it's possible. Uh well, I want to talk about the major managing agent for a second because I have had issues with with boards where they have changed management companies and only to find out that it's not even their bank account. They're not even listed as a contact. Megan, how does this happen? By the way, it hasn't been your bank. I have had this on more than one instance where there were crucial weeks where the new board could not get any information, they could not get access to their funds because they were told, this is not your account. This is who we have as the as the account signatory and the official account uh contact, and it wasn't anybody on the board. It was a prior management company. How does that happen?
SPEAKER_01Well, it's interesting because you know, obviously I, you know, most of my career has been New York and Florida, right? New York has always been master signature card through the managing agent. That's just how it's always been. Whereas Florida was the opposite, right? We're slowly coming to a different place. I mean, if you are hiring a professional managing agent to cut all of your checks, pay all of your bills, do everything for you, they have to sign on the account, right? It and you know, they have to talk to the bank and verify items, right? They're the ones that are available all day long. For the board, this is a volunteer position. They don't want to be a day-to-day banker or accountant, right? So I definitely see where the managing agent signs. However, the board can always get added, right? You should always be on your reserve accounts. And if you want to be on the operating account, even if you're not signing checks or you're doing it electronically, you should do that, right? But this is where knowing where your funds are, knowing your bank contact information, and that at the end of the day, it is the association's funds. But what happens is you have banks that don't understand the nuance. They're black and white. They're gonna just look at who's a signer on that account. They can only talk to those people. We've even had instances where the whole board left. So it was all board signers, but they're all gone. And then the new board comes in and they're like, this bank won't give me my funds. I'm like, but did you show them your meeting minutes? Did you show them funbiz? Did you show them your license? Like, there's so many ways that, you know, obviously, again, we're a niche business, so we know all the levers to pull. If we have any issues with compliance or we need to get the board access to funds, we can do that quickly, right? As long as you can prove that you're on the board, right, in multiple ways, provide your identification. If you're not a signer, you should always have access to your accounts.
SPEAKER_00100%. I mean, we've had to reach out and say just those things. Here's the minutes, this board is gone. But but again, sometimes, depending on how tight they cut it in terms of um payables, you know, there's a few crucial weeks where things just come to an absolute halt.
SPEAKER_01So the last thing I'll say on the transitions, you know, people also, well, it's my, I'm just gonna keep the same operating account. I'm just gonna move over to this agent, or we're just gonna take it over. Yeah, but your old agent has your routing and account number. It's in their systems, it's in the all of the report, like something could slip through that even the management, not even the managing agent doing a bad thing. It just was, it ran on an automatic ACH through their bank, right? Your account was listed for receivables, right? They're collecting all your maintenance fees, they're paying all your checks. You need to shut that account down. People get very frustrated with that. And I tell them, you want to have a clean break between agents, you know, or or whatever it is, right? Because God forbid, like the bank, you know, if we see an ACH that's been paying for six months and it's$25 and there's money in the account, it's going, right? So um I always recommend if you're transitioning from one managing agent to another, even if you're a signer, just open a fresh new account. I promise it'll be worth it.
SPEAKER_00So if I'm hearing you, it's get involved. There's certain duties that are not delegable. Yes, it's a volunteer position to be on the board. Nobody wants that to be their full-time position. And obviously, you want to work with professionals, but that doesn't mean it's a completely hands-off. You're taking your hands off the steering wheel. Completely, because all these people are your agents. And ultimately, legally speaking, the buck stops with the board. So, with that, let me ask you, Megan, can you give our listeners two non-negotiable best practices to protect their funds?
SPEAKER_01Let's see. Always have fraud protection and access, right? So online access and fraud protection.
SPEAKER_00Wait, what's fraud protection?
SPEAKER_01What do you mean by that? Positive pay and ACH. Okay. Positive pay. Yeah, so positive pay, right? That's a bank product that'll, you know, make sure they're verifying the checks. So protecting your funds, it's making sure that you have access to your bank accounts, right? Whether that's view access online or becoming a signatory and having fraud prevention tools in place and looking at those monthly financials.
SPEAKER_00Perfect. That's great. But it's a good thing. That's okay. That's even better that too. I think I already know the answer to this question. I was gonna ask you what should boards be doing now before they even need financing to make themselves more attractive borrowers, but I think I've heard you. It's maintain your community, embrace healthy financial controls, full reserves, fully funded reserves, uh, realistic budgets. Did I leave anything off? Don't get sued.
SPEAKER_01Bring in the professionals early, right? If you think you might need a loan, you know, if you've just gotten your reserve study or you've just gotten your certain, you're like, wow, I have all these projects coming up. Bring in the professionals and have a tenure plan, right? Sit down and look at all the funds you're gonna need for general operating expenses as well as all the projects through the life of that loan. And then you can go out, right, and look at and talk to different banks and see. And and look, the banks are always gonna, you know, partner with you to say, hey, here's what we might suggest, right? And here's the options. Um, but you wanna make sure that you're you're obviously putting money away in reserves, you're keeping your delinquencies down, but you have a reserve study or you have something that can show, hey, I've done all my due diligence, I know what's gonna happen in the next 10 years, and now we're gonna plan for it and we're gonna be prepared for it.
SPEAKER_00I'm always surprised when I talked, particularly to new boards that I'm meeting with, when I suggest short and long term strategic planning, it's kind of like they've never heard this before. And yet so many of these people come from corporate, you know, backgrounds, and yet you're on a board, but it's all about short and long term strategic planning.
SPEAKER_01Yes, absolutely.
SPEAKER_00So if you could leave board members with a one mindset shift. with regard to money and governance because those are very scary concepts for some people. Yeah. Even though these are big budgets in a lot of these communities. But if you could, if you could leave them with a mindset shift regarding money financing and governance, what would it be?
SPEAKER_01I would say have a plan. Reserve, reserve, reserve. You never know, right? Things are always going up. Um and be an active participant in your banking relationship.
Key Mindset Shift And Farewell
SPEAKER_00I think that's so important. It's really great advice because I do know I've sat in board meetings and I asked a question one time about the insurance deductible. And the response from four out of five board members was, I don't but Barbara knows that. We don't know that. And if you're on that board you're really all kind of you have to know that. Yeah.
SPEAKER_01Everyone needs to level up. You know, like you said, it's not just their treasurer's responsibility. Everyone needs to level up because it's a it's a volunteer position. And what if the treasurer is on vacation in Europe for three weeks and something happens, right?
SPEAKER_00Yeah. So it's a it's a good point. Megan, thank you so much for joining us today. It's been a it's been a real pleasure. Absolutely Donna thanks for having me. Thank you for joining us today. Don't forget to follow and rate us on your favorite podcast platform or visit takeitotheboard.com for more ways to connect