HOA Detective™ – April 15, 2025: In the world of community associations, certain phrases have become so routine, so reflexive, that they cease to mean anything at all. “Exceptional Association” is one of them. “Amazing management” another.
Recently, this exact phrase, “exceptional Association” was used in a post by a LinkedIn devotee while describing her rewarding career as bank Senior VP who specialized in HOA lending. In announcing her upcoming retirement, the poster summarized her career by saying that she had facilitated more than $150M in loans to more than 80 “exceptional Associations” while at the helm of a major regional HOA lender.
Typical of the public congratulatory arena known as LinkedIn, supporters, and acolytes from the lending and management side of the HOA Industrial Complex (HIC) were quick to chime in with abundant praise for their departing colleague’s tireless devotion to this unique, highly desirable lending niche’ known as “HOA Lending.”
Behind the Applause from the Echo Chamber: Beyond the celebratory language of this typical LinkedIn post lies something far more troubling: a system that incentivizes long-term financial mismanagement and props it up with easy credit and manufactured praise. The true cynics in the crowd may even suggest that this dark side of the HIC is yet another example of disaster capitalisms at work.
Oh’ contraire, Detective, you say to yourself? Then let’s examine the math:
The Math Never Lies: When someone boasts about having facilitated $150 million-plus in loans to more than 80 different HOAs, that works out to about $1.8 to $1.9M million for each Association. A simple math calculation that leads to a more difficult question:
Why do any of these “exceptional” HOAs need to borrow $1.8 million in the first place?
Simple Question. Difficult Answer: The question may be simple, but the answer is difficult, and unfortunately, the answer exposes an ugly reality that you won’t see industry cheerleaders discussing in a forum like LinkedIn, at least not very often. The ugly reality is that despite state laws in CA, OR, WA, NV, HI, and other places – which mandate regular reserve studies and encourage responsible reserve funding plans – many HOAs have ignored the laws and the warning signs of underfunded reserves for years.
Refusing to increase dues to a level that would allow for sufficient reserve funding. Choosing instead, short-term political comfort within the community over long-term financial stability, which leads to anything but an “exceptional HOA.”
20-Years – When the Bill Comes Due: Unfortunately, the bill finally comes due often around 20-25 years of age, which is the point when the roof must be replaced, the siding begins to fail, or the elevators require modernization. When the Association reaches the 20-year tipping point without the money to pay for what could and should have been planned funded expenditures, if was law-abiding HOAs were the norm rather than the exception.
Enter the HOA lending industry, ready to finance what should have been funded all along.
Borrowing is Not Always Bad: The ability to borrow is not inherently bad. But we should be extremely cautious about normalizing debt as the default solution to chronic underfunding of the reserves in the common interest setting. Loans are not free. A 15- or 20-year note at 6% interest may feel like a lifeline in the moment, but it saddles homeowners – many of them already struggling – with a monthly obligation that can make future reserve contributions even harder to afford.
Furthermore, borrowing does not result in lost equity being replaced with cash in the bank as the common elements of the Association depreciate. When the previous generation of owners liquidate their stake in the HOA by selling their home without leaving behind their fair share of reserves, the financial burden for replacement and renewal of the common elements is shifted to the new generation of owners.
This forward liability can and should detract from the value of the homes within the HOA when the amounts are significant. After all, if you are buying a used car with 200K miles on the odometer, and you know full well that a $5K engine replacement is looming in your future if you buy this ragtime load, wouldn’t you expect to pay less for the car?
Asking the Hard Questions: Worse yet, most lenders rarely ask the hard questions of their lucrative HOA clients. Questions like:
- Was there a history of ignoring reserve studies or underfunding of the reserves?
- Are dues artificially low?
- Is the Board communicating the long-term consequences of borrowing?
- What steps are being taken to avoid this cycle repeating itself?
Chorus of Cheerleaders: Instead, what we get is a chorus of LinkedIn cheerleaders – many with the standard alphabet soup of industry certifications, applauding one another for “serving the community” while sidestepping the fact that the industry in which they work often functions more like a confidence game than a profession.
Let’s Be Frank: Most of these folks aren’t financial professionals. They aren’t reserve analysts. They aren’t even fiduciaries in the legal sense. Yet they carry the aura of expertise which is reinforced by some lenders who are more than willing to use them as a lead generation tool for the loan marketing efforts. Everyone plays their part while the show goes on, leaving the “audience” of HOA homeowners footing the bill.
What the HIC Doesn’t Say in Public: As many industry insiders have been pointing out for years, 70% or more of HOAs nationwide are underfunded when it comes to having adequate replacement reserves. Half of these underfunded HOAs are at LEAST 40-years old. In this void of money, an emerging lending ecosystem has blossomed, one that often rewards neglect rather than foresight and responsible governance.
Putting Things in Perspective: If the HOA that borrows $1.8 million is a 100-unit condominium building, that loan becomes a wholesale lending transaction in which the lender conscribes 100 individual owners to an $18,000-$19,000 loan, each of which is cross-collateralized with the other 99 owners guaranteeing each other’s loan. If 10% of those owners’ default, the other 90% are legally bound to make up the difference. It’s the same effect as having your neighbor co-sign your new car loan, but it’s not just one car, it’s an entire fleet of 100 cars. From the HOA lender’s perspective, what’s not to like?
HOA Exceptionalism: So, the next time someone refers to an HOA as “exceptional” because it secured a multi-million-dollar loan, ask yourself:
- Exceptional at what?
- Exceptional at failing to plan and save?
- Exceptional at ignoring their own governing documents or state laws?
- Exceptional at pretending debt is a solution rather than a symptom?
HOAs Can do Better: It starts with being honest about the problem and not mistaking praise for progress. If you are interested in real reform start by asking your HOA board when the most recent reserve study was conducted, and then ask if Association is on track to meet its future obligations without borrowing. If the answer makes you uncomfortable, you’re finally asking the right questions.
Because You’re Buying More Than a Home!
