Village Palos Verdes
Homeowners Association
August 19, 2008
Dear VPV Homeowner:
This communication is offered to update the VPV Homeowners on the status of financing options for the upcoming Exterior Renovation. Last summer, The VPV Board of Directors requested volunteers from the community to serve as a Finance Committee to investigate the various financing options for the renovation project. At the HOA special meeting on September 6th last year, the Board announced that they planned to have the project ready for presentation to the homeowners within the year and to be holding the assessment vote before the next Annual Meeting. That presentation is now scheduled for Thursday, August 28th, at 7 p.m.
This is a sizeable and comprehensive project, and the estimated budget accurately reflects the full magnitude of work required to repair and restore VPV, at today’s market value. Financing is the most sensitive issue for this project and is compounded by the fact that throughout the 180 individual homeowners, there is a vast array of personal situations with respect to financial liquidity. The VPV Board, counseled by the professional construction consultants, is aware of the need to provide financing alternatives for those incapable of managing this monetary burden.
On July 28th, the VPV Board of Directors, members of the Exterior Renovation Committee, the VPV Renovation Finance Committee, and Joanne Pena of Horizon Management, held meetings with two financial institutions regarding the possibility of obtaining a loan for the HOA to finance a portion of the Exterior Renovation Project. Both firms have divisions which specialize specifically in HOA financing for projects such as ours. Their representatives had visited our property and been made aware of the upcoming scope of work for renovation re-construction repairs. Both understood the need for the proposed repairs and appreciated the investment value of implementing such a project. Both offered to lend the VPV HOA the balance of the required project funding for which those homeowners who are unable to obtain financing will them become responsible within a structured repayment plan.
The selected lender provided the most flexibility in structuring the loan, offering to re-amortize the remaining balance at the conclusion of construction as well as other aspects which are being considered. The underwriting process has been initiated and the loan administration and re-payment process is being diligently reviewed to ensure this option can effectively be offered to those who require it while adequately protecting the HOA. The Board is meeting with the Lender again this week to work through the details of the definitive loan structure. Once completed, this structure will be communicated to the HOA by both the Lender and the HOA attorney. In the meantime, a letter is enclosed from the VPV Exterior Renovation Finance Committee which provides more detail concerning the HOA financing being pursued by the Association.
The following general overview is offered to help homeowners identify which finance option may be the best suited for your own individual financial circumstances.
Financing the Renovation - The Basics
We are required to have funding secured for the full value of the project prior to commencing construction. The HOA loan is needed in order for the Association to offer deferred payment options to homeowners.
In accordance with the VPV CC&R’s, every homeowner is responsible for an equal share of the assessment at the time the vote is passed. Each homeowner will be required to finance their portion of the assessment either through a lump-sum payment, a payment plan of two partial payments, or through a longer term monthly payment plan.
If a property is sold at a point in time following the approved vote, the homeowner of record at the time of the vote passing, continues to be responsible for the full value of the assessment. The remaining assessment balance may be negotiated in the sale price of the property but is due in full from the selling party during the transfer of property in the escrow process.
Financing Option #1 - Individual Financing – Pre-Planned for Commitment at Time of Assessment
Individual homeowners are encouraged to obtain their own individual financing for the assessment. This will reduce the amount of the HOA Loan and accordingly, provide the least amount of risk to the Association. Each homeowner is strongly encouraged to seek financial consultation and tax advice on which option may best suit their own individual needs: Options may include:
Equity line of credit
Refinance of existing mortgage with cash out for improvements
Reverse mortgage (for those who may qualify)
Cash payment
Note that the first three of these selections may include the benefit of a tax write-off for interest incurred.
Financing Option #2 - Payment Plan Option
To assist homeowners by potentially reducing tax implications incurred by liquidating accounts to accumulate the full value of the assessment within a single tax year, the flexibility to pay half of the assessment up front and the second half due in the first quarter of 2009 will be offered. The second half of the assessment will incur interest, calculated at the same rate established for the HOA Loan, and will not incur any pre-payment penalty.
Financing Option #3 – Monthly Payment Plan
For those unable to elect either Option 1 or 2, the Association will allow the payment of the assessment over an extended period. This option provides the flexibility for individual homeowners to make monthly renovation installment payments through the HOA, in conjunction with the regular HOA Monthly Dues.
This option offers the flexibility to “finance” a portion of the assessment through the HOA, following an initial down-payment and the remaining balance through the commitment of a longer-term re-payment plan. It is expected that a down payment of approximately 10% of the assessment will be required at initiation.
This option allows for those who maintain property in VPV as an investment, or those who do not plan to remain in their homes for an extended period of time, to gain the increased property value realized through the renovation and to then negotiate re-payment of the remaining assessment value through an upcoming intended re-sale of the property.
The terms of this loan are intended to be based upon the terms of the HOA Loan which are currently being negotiated with the Lender and reviewed by the Association’s Attorney. Until the terms of the loan are known, the specifics on the payment amounts, interest rates and late payment penalties to be offered under Option 3 cannot be identified. Once the Association has been notified of loan approval, the terms will then be communicated in full.
Recognizing Your Investment in this Valuable Renovation
This renovation will improve property values at VPV and once again promote our community as well-maintained, attractive and a desirable place to call home. According to the 2007 Cost vs Value Report released by the National Association of Realtors, our re-construction effort includes items with some of the highest return values for the cost of construction. Below are National averages, with the Western Region of the United States reportedly receiving higher returns on the same replacement materials:
Siding Replacement reported returns averaged 88%
Window Replacement reported returns averaged near 80%
Roof Replacement reported returns averaged near 67%
The proposed Exterior Renovation Project is a necessity to repair original construction deficiencies, replace deteriorated materials, and to implement new improved / higher-efficiency and lower-maintenance materials. The renovation is well planned and will be constructed by licensed professionals specializing in this specific type of work and providing a warranty for their end product. VPV needs to be renovated in a consistent manner so that the community as a whole benefits from an improved exterior. The inability to previously move this project forward has left us exposed to further disrepair, with a patch work quilt appearance where alternate exterior materials were tested. We all deserve for our homes to be repaired responsibly and professionally, improving the entire community, and the quality of life at VPV.
Various aspects of financing this project have been investigated over the last year and VPV received the advice of professionals in this specific line of business, as well as learning through the experience of other HOAs in similar renovation circumstances. VPV homeowners have requested the availability to pay in one lump sum, while others have requested the availability to pay in two separate tax years. Some have stepped forward and requested assistance to make monthly installments. VPV is prepared to address each of these options with a comprehensive plan for the HOA in its entirety. The Board recognizes the contribution from those in the community who have volunteered their time and energy to ensure this aspect of the project is administered responsibly. We encourage you to evaluate your own personal circumstances and to select the program which best suits your needs.
We encourage you to attend the special meeting scheduled for August 28th at 7 p.m. Doors will open at 6:15 p.m. for the availability to view the approved design scheme, specific materials selected for the renovation and to ask your questions first hand. The evening’s agenda will include a presentation by the Construction Contractor speaking about how the construction will be scheduled and managed. A representative from the financial institution loaning the HOA some of the project funds will be available as well as our Attorney who will present the structure of the ballot. The ballot will be administered in accordance with VPV governing documents and with California State Law. As such, ballots will not be distributed the night of the meeting. Rather, they will be mailed to each homeowner who will then in turn have 30 days to respond. Questions are welcomed during this 30-day period as we ensure all homeowners have the accurate information available to make an informed decision.
For those who are unable to attend on the 28th, written materials, and potentially even the availability of a video tape of the evening’s presentations will be made available at specific viewing times at Horizon Management. Those details will be forthcoming. We look forward to sharing this presentation with you and to initiating the work process, returning VPV to a desirable property in the Hollywood Riviera.
Sincerely,
VPV Board of Directors