SBA Assistance Offered to Unit Owners
QUESTION: Our condominium association needs more information about the Small Business Administration(SBA) loans that are available for the association or for our individual unit owners. Must the association determine whether to apply for an association loan or levy an emergency assessment and allow the owners to apply for their own individual loans if they need assistance?
ANSWER: The SBA will not approve an association loan and then fund the individual owners’ applications also.
Your association must move quickly because the filing deadline for SBA loan applications for physical damage to homes, personal property and businesses is March 18.
The SBA’s “Unit Owner’s Fact Sheet” about disaster loans for condominiums and other common-interest developments includes the following information:
Special Eligibility Rules for Developments
Eligibility rules for developments are different from the rules for other forms of real estate, because the association generally has the responsibility to maintain and repair the common elements, and it determines how the repairs will be financed. To fund the repairs, an association may use its own maintenance fund, or borrow funds from the SBA. An association may also choose to pass a “one-time” assessment (due in one payment) against all unit owners for their proportional shares of the common element damage.
Unit owners can apply to SBA for home loan funds up to $200,000 to cover individual unit repairs and “one-time” assessments, which are for disaster repairs only and which do not duplicate SBA loans to the association.
If the common element damage exceeds SBA’s maximum business loan amount of $1.5 million, the association may apply to borrow $1.5 million from SBA and pass a one-time assessment against the owners for the rest of the funds needed to repair the damage.
Unit Owner Loan Eligibility
Unit owners may apply to the SBA for funds up to $240,000 to cover:
1--Uncompensated damage to personal property ($40,000 maximum);
2--Uncompensated damage to the unit, excluding common elements, which are the responsibility of the association ($200,000 maximum);
3--”One-time” assessments passed by the association for damage to the common elements (also included in the $200,000 maximum).
All loans are subject to the SBA’s lending limits. Insurance and other compensation for your loss will be deducted from the loan after the compensation is received. SBA will require a mortgage or deed of trust on your unit, if your loan exceeds $10,000.
To Obtain Funds to Restore the Common Elements
If SBA loan funds are needed too pay for the restoration of your development’s common elements, there are two different ways to obtain the funds:
1--Association Loans. Your association may apply for a loan to restore the common elements, even if it doesn’t own them, because the governing documents give it the responsibility to restore the common elements damaged by the disaster.
To repay SBA, your association will generally be required to levy a special monthly assessment against all the units in your development. (SBA prefers that disaster-related assessments be kept separate from general improvement or other assessments.) SBA generally requires an assignment of the proceeds of the special assessment as collateral for SBA’s loan. If your association actually owns the common area, SBA may require a deed of trust or mortgage against the common area as additional collateral.
In addition, your local financial institution may be able to supply a “bridge loan” until the SBA funds are received. The California Trade and Commerce Agency is providing state loan guarantees to financial institutions that provide loans to businesses so that they can continue to operate until the SBA loan is funded.
For further information about the California Trade and Commerce Agency’s guaranteed loan program, contact your local financial institution or:
Hancock Regional Development Corp.
President: Sam Kim
3600 Wilshire Blvd., Suite No. 926
Los Angeles, Calif. 90010
Phone (213) 382-4200
or
Pacific Coast Regional Development Corp.
President: R.D. Lottie Jr.
3255 Wilshire Blvd., Suite No. 1501
Los Angeles, Calif. 90010
Phone (213) 739-2999
2--Unit Owner Loans. Your association may decide not to apply for an SBA loan. Instead, the association may decide to levy a one-time special assessment against each unit. As a unit owner, you may be eligible to borrow the funds to pay for the one-time assessment, subject to SBA’s loan limits.
Special conditions may be required prior to commencement of repairs, to ensure that all the funds necessary to complete the project are available and to facilitate orderly disbursement of construction funds.
Details Needed About Your Project
SBA can quickly process your loan application for funds to repair or replace your uncompensated personal property losses. However, before SBA can determine your loan amount for unit repairs and common element assessments, if any, SBA must know the course of action you and your association will take. SBA must know if the structure will be rebuilt or if the owners will relocate. SBA also needs to know the expected total project cost, so that they can determine the viability of the project and confirm that there are enough funds available, from all sources, to complete the project.
Information Needed to Begin Processing Your Loan
1--An SBA Disaster Home Loan Application (form is provided by SBA).
2--A listing of your damaged/destroyed personal property (form provided by SBA).
3--Complete copies of your last two years Federal Income Tax Returns. If they are unavailable, SBA will assist in obtaining them from the IRS.
4--Details of any insurance coverage or claims. A copy of a deed to your property, or a copy of the title policy you obtained when you purchased your property, is not required to file your application, but SBA may request this later.
Information Needed From Your Association
Your association should submit a list of the names and phone numbers of the members of the board of directors and the elected officers, a list of unit owners who are members of the association, a copy of the special assessment resolution (if it has already been passed), and a copy of the face sheet of the association’s insurance policy.
SBA’s Loan May Not Be Used to Upgrade Your Property
SBA’s loans are for disaster related repairs only. SBA’s loans may not be used to upgrade your property or make additions to it. However, SBA’s loan can include assessed costs to comply with building and safety code requirements. Furthermore, your loan can be increased by as much as 20% for mitigation to protect your property from a future disaster of a similar nature.
If Your Development Will Not Be Rebuilt
You, the unit owner, will be viewed by SBA as being forced to relocate. You are eligible for the replacement value of your personal property, your unit and your share of the common area, minus any insurance recovery you have received, subject to SBA loan limitations and your ability to repay the SBA. You should submit a relocation proposal for SBA review when you know where you would like to relocate. All relocation proposals must be approved by the SBA. You should make any purchase contract “subject to SBA approval” to protect yourself if your proposed relocation plan is unacceptable to SBA.
If You Do Not Want to Participate in the Restoration of Your Development
You will be viewed by the SBA as choosing to voluntarily relocate. When you voluntarily relocate, you are only eligible for an amount equal to the uncompensated loss of your personal property plus the cost to repair your unit. You are not eligible to use your proportional share of the cost to repair the common elements of relocation if the association has voted to restore your development.
Current Interest Rates for SBA Loans
Interest rates are determined by formulas set by law. Currently, the applicable interest rates are 3.625% on loans to unit owners and 4% for condominium associations and other common-interest developments.
Hickenbottom is a past president of the Greater Los Angeles chapter of the Community Associations Institute (CAI), a national nonprofit research and educational organization. She welcomes readers’ questions, but cannot answer them individually. Readers with questions or comments can write to her in care of “Condo Q&A;,” Box 5068, Thousand Oaks, Calif. 91360.
