Monday, October 30, 2006

How to choose a bank for condo and townhouse HOAs

Most condo and townhouse home owners associations use banks recommended by their management companies, but a fair share no doubt search the market for banks that will give them the best returns on their reserves and good deals on loans.

An HOA's banking needs are relatively simple.

You need a checking account that allows online banking, produces useful monthlly statements and provides access to the certificate of deposit and Treasury bill markets.

HOAs don't speculate in the stock or bond markets with their reserves or other excess cash.

The jobs of HOA directors is to preserve assets, not to grow them.

Thus, it makes pretty much sense to use the bank that an HOA's management company knows and uses so long as there are no conflicts of interest between the bank and the management company or members of the board of directors and basic banking needs are met.

Many HOAs, however, need loans to finance major maintenance and repair projects when their reserves are too low. Some banks specialize in lending to HOAs, and they should be considered by HOA boards.

Why do you need a bank that specializes in lending to HOAs?

The simple answer is that HOAs are run by volunteer boards who need special services and attention when it comes to lending to them. And the assets that HOAs put up as collateral are different than the assets and cash flow statements offered by other borrowers.

Some banks make it a point of being comfortable with lending to condo and townhouse HOAs, and some don't.