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Housing Improvement Area Loan Q and A


Greensboro completed an exterior renovation in the fall of 2012.


Greensboro had (at least) two major problems: The first problem was that our property was aging, looking outdated, and was in need of repair, the second problem was how to pay for fixing the first problem.  The Housing Improvement Area loan (HIA) which is a loan from the City of St. Louis Park, resolved both problems with probably the least pain.


The following is a recap of the questions and answers offered at the November 10, 2010 meeting at City Hall, presented by Kathy Larsen, the Housing Programs Coordinator for the City of Saint Louis Park.  If you weren’t able to make it or even if you did, it is worth reviewing!


Q. What is an HIA?

A.  It is a financial tool allowing homeowners’ associations to borrow funds for common area and limited common area improvements.  Owners repay the HIA loan through an additional fee collected with their property tax.   The Greensboro HIA would be paid back exclusively by Greensboro owners (it is not city wide).  The fees can be included with your mortgage escrow.


Q. Why does St. Louis Park offer the HIA Program?

A. To assist townhome and condo associations with making improvements to homes.  The City Council takes the quality of housing stock in St. Louis Park very seriously.  Townhomes and condos in St. Louis Park are aging and have deferred maintenance needs.  The city sees this as a way to offer low cost financing to townhome and condo associations so they can repair and update their properties.  A homeowner would probably take out a second mortgage; this is impractical for an association.


Q. What other associations have used the HIA.

A. There are 5 in St. Louis Park including: Cedar Trails, Sunset Ridge, Westmorland Hills, and Wolf Lake.


Q.  What rules do the HIA need to follow to offer these funds?

A. The HIA is required to follow the rules set out in Minnesota State Statute:   The homeowners’ association must initiate the process, they must approach the City of St. Louis Park.  The HIA requires the Association to perform a Reserve Study to determine how much money the Association needs to hold in reserve funds for future repairs to the property.  Over 50% of the owners must sign a Petition to the City requesting the HIA loan.  Two public hearings are required before the City Council can approve the HIA loan.   Once the loan is approved there is a 45 day Veto Period where 45% of the home owners can petition in writing to cancel the HIA loan.    The increased fee, paid when you pay your taxes, is calculated on an individual basis taking into consideration percentage of ownership (the way your dues are calculated) and additional improvements to the limited common areas of your unit (eg. Garage, deck, patios, windows, etc) which are the responsibility of each homeowner.  In addition, if your area, say condos, gets a new boiler, the owners in your building will be the only ones assessed for that boiler expense.


Q.  Why borrow from the city?

A.  There are several reasons that make sense for Associations to borrow from the City:

  • o   Associations usually don’t have enough collateral.
  • o   It is “last resort financing”.
  • o   The risk to the city is low because it is paid through property tax (only owners pay , it is not city-wide).
  • o   It is a more affordable payment for owners as it can be spread over 20 years at a very low interest rate (usually less than 6%).


Q.  Can I prepay so that I don’t owe anything to the City?

A.  Yes.  A period between January 19, 2012 and Feburary 16, 2012 will be set up as a prepayment period, you must prepay by the end of the period or pay additional interest.


Q.   What happens if I sell my unit, will I have to pay off the assessment?           

A.  No, the new owner will be responsible for the payments until the HIA loan is paid off.


Q.  I am retired on a fixed income, is there any way I can postpone the increase in my tax assessment?

A.  Possibly. If you are over 65 and fit within the “low income” category or if you are permanently disabled and fit within the “low income” category you may postpone paying the fee, and interest, until you sell your Greensboro unit.  You will have to apply for the deferment by filling out a Hardship Application and submit it to the City for approval.  For the purposes of the HIA loan your household income must be at or below $28,950 for a single person household and $33,100 or less for a two person household.  There is no deferment for your regular taxes.

 

Q.  I am 65 but my partner and co-owner of the unit is not yet 65.  Can we still qualify for postponing the increase in the tax assessment?

A.  You should be able to qualify if you meet the 2 person income guidelines, too.


Q.  I am not yet 65, but I will turn 65 before the tax fee is paid off.  Will I be able to qualify for postponing the increased tax assessment at that time?

A.  You can apply when you turn 65.  You should be able to qualify if you meet the income guidelines, too.

 

Q.  When will I know how much my fee will be?

A.  Fees were determined in 2012.  If you have questions on an HIA fee, please call the City of Saint Louis Park at 952-924-2500.


Q.  Why are we in this situation where we need to take out a loan to fix Greensboro up? – that is what we pay association dues for!

A.  Unfortunately, previous boards did not raise the dues as they should have to prepare for this day; they were basically just covering day to day operations and a selected number of major replacements.  We have now raised the dues to a point where we can build up our reserves for future repairs 20 years + from now.  It is still possible that dues could increase over time because taxes, utilities, water & sewer, insurance, softener salt, etc. may  increase.


Q.  Who will make the decisions on what improvements are necessary?

A.  The Greensboro Board of Directors, with homeowner input (please contact the Board with suggestions!!), will determine the projects.  The City of St. Louis Park will review the proposed improvements to see if they are consistent with work recommended in the Reserve Study and known building conditions as well as review project specifications and bids.  The City may advise the Association based on the review and the final decision is made by the Association through the Board.


Q.  If we forget something this time, or increase the scope of the improvements, can we go back to the City and ask for more in the future?

A.  No. 


Q.  What control does the City have over the construction phase of the project?

A.  The City enters into a “Development Agreement” with the Greensboro Association.  This   “Development Agreement” specifically outlines what the improvements are to be, what the costs will be, and the terms of the loan.  The Agreement lasts for the life of the loan.  The City oversees the Associations’ reserves to make sure they follow the Reserve Study.  The City has no direct control over the project manager or the Board of Directors.


Q.  Who inspects the work?

A.  There will be many people monitoring the construction.  A Project Manager will be hired to represent Greensboro Condominiums.  He will be directly in charge of the quality of work.  City inspectors will be involved at various stages to confirm that the contractors are performing their work up to City Building Code.  Architects and engineers will be involved with inspections as well.  The Association’s representatives, The Board and City staff will have to sign off on the completed work before the contractors can be paid.


Q.  Who dispenses the money to the contractors?

A.  The funds from the loan are held in escrow at the City.  When the work is complete, and a bill has been submitted by the contractor, and the work is signed off by the Project Manager, the City Inspectors, the Architect, the Engineers, and the Greensboro Board this information is all passed off to the City.  The City will release the appropriate amount of funds and the Greensboro Association will pay the contractor.  The contractors don’t get paid until the work is performed as specified and complete.


Q.  Do we have to indicate that there is a potential assessment pending if we put our unit up for sale?

A.  Yes.  A statement will be included in Greensboro’s Resale Disclosure Statement indicating that we are considering the HIA financing.


Q.  How do we know that the contractors won’t take off with our money like the wallpaper contractor did?

A.  That was before Gassen came on board.  We will require a Performance Bond from the contractor, we will have a Construction Manager overseeing the project daily, we will hire only reputable high rated contractors and the City will approve the construction payment draws.  The contractors don’t get paid until the work is performed as specified and complete.


Q.  How will this project affect property values? 

A.  It will improve the appearance of the property and help you sell your property.  It is difficult to say how it will affect the future property values.


Q.  If units go into foreclosure, who pays for the outstanding taxes on those units? 

A  Taxes are paid off first to the City in a foreclosure on a home.  The loan is calculated at 105% of the project.  The 5% is to allow flexibility for situations such as this.


Q.  After the loan is paid off, where does the 5% go if it is not used?

A.  If there is money left over; it goes back to the Greensboro Association's Reserves.


Q.  What is the Grand Total?

A.  If you have not received a notice of your fee by January 26th please contact Saint Louis Park at  952-924-2500.  The total price tag on the renovation is around $3,800,000.



Q.  Can the loan increase after the petition is signed and the City Council approves it?

A.  No.  The amount cannot be increased after it is approved by the City Council, the amount can be decreased, though.  If there are overruns to the project the loan cannot be increased.


Q.  What can be included in the HIA loan?

A.  All construction costs, salaries for the Construction Supervisor, architectural costs, engineering costs, survey costs, permits, freight, legal fees, interest, labor and materials and the loan origination fee to the City, to name a few.