Recreational Leases and Mandatory Memberships

Loans securing units in condo projects with mandatory memberships that require the HOA members to pay dues to a third-party organization (such as a golf course or other recreational facility) are ineligible for a Homium loan. The project must be the sole owner of its amenities, though certain exceptions will be allowed when there is a shared amenities agreement between HOAs.

Projects subject to recreational leases are also not eligible. A recreational lease is a long-term lease between the HOA and a third party for access to certain recreational facilities for a specified time period and payment. In these scenarios, the owner of the facilities is often the project’s developer or has some financial relationship to the developer and the leases often provide ongoing profit to this party for the duration of the lease. The lease may permit the owner of the facilities to lease the amenities to other parties in addition to the HOA . The HOA may have certain financial, insurance, and other legal obligations under the lease that may be burdensome over time. These leases may or may not provide the project long-term access to the amenities beyond the initial lease term.

When an HOA is part of a master association, the underwriter is required to evaluate whether the subject property’s HOA members are required to participate in a mandatory membership that is managed through the master association. Additionally, the master association may not be subject to recreational leases as described above.

Underwriter are required to review the project’s legal documents, sales contract, and budget to identify mandatory memberships and recreational leases. Some red flags that a project may require a mandatory membership, or be a party to a recreational lease, is that the amenities may have some of the following characteristics:

• the amenities have a different name from the residential project and may be recognized as a different legal entity from the HOA,

• owners are required to pay large up-front fees to become a member or have access to the amenities,

• owners are required to pay monthly or periodic dues to the entity that owns or operates the amenities (these dues may be paid directly to the owner or operator or they may be paid to the HOA and passed through to the owner or operator),

• the general public may be able to purchase memberships or access passes for the use of the amenities,

• the amenities can be leased or rented to the public for events not hosted by the HOA or its members, or

• HOA members may be subject to block-out dates or other use restrictions.