Special Assessment versus Loan Payment in Hawaii
What Leads to Special Assessments and Loans?
These are to pay for large capital expenses. (e.g. Pipe replacement projects, fire safety, spalling etc.) that have been overlooked or deferred fo a number of years.
What are the differences in choosing the Special Assessment or Loan?
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The Special Assessment is a one-time payment for the capital expense. The existing owner has had enjoyment of home ownership without paying for the deferred expenses but doing so now.
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The Loan is the other option for owners who may not be able to payout the amount of the assessment but are able to make long term payments for a number of years.
The "current practice" appears that owners/sellers are forwarding the responsibility of the balance of the loan and now expect the buyer to take over their loan payments. Typically, this is "not accepted in ordinary transactions without renegotiation".
What is wrong with the "current practice"?
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A buyer may unknowingly be taking over the "extra expense of loan payments" thereby overpaying for the condo.
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In comparison there may be owners/sellers in the same building that have paid the "Special Assessment' and are now selling. "having the loan paid out in advance would save thousands of dollars for the buyer" ! Is this fair for the buyer who may not know this information?
How can this be reseolved?
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The usual method in resolving the issue for the buyer is to negotiate the balance of the Loan Payments by adjusting the purchase price.
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This represents ba fair balance for the buyer in completing the sale and this is on of the recommended methods outlined in the Condo First Review Report.
Note: Currently there a a number of projects in Hawaii that leave Loan Payments included in the Maintenance Fees. This method may be misleading for buyers by not knowing what the maintenance fees are.
The best method is to separate the maintenance fees from the loan payments. This demonstrates transparency and informs the
buyers on what they are buying into and what may be expected in the future.
Typically, the long term loans do raise the possibility of another Special Assessment/Loan coming before the first one is paid out.