Wednesday, 26th June 2019

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weetbix
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Last seen: 2 years 27 weeks ago
Joined: 07/04/2011

Hi there
Sorry for cross posting. We have been asked to pay $15000 per unit (in a block of 52) in special levy for urgent repairs. EC is not keen on strata finanace loan and given the reason below.

FAQ - Why can’t the Strata take out a loan?

 all owners (even those who pay up front) will be encumbered with a long term loan that will impact on any future sales of units as the sinking fund will show a deficit
 it may require additional charges for insurances to cover any risk if owners do not pay
 The additional cost to each owner estimated on a 10% loan (monthly payments):
• over 3 years is $121,214 in interest or $2,331 per unit
• over 5 years is $206,117 in interest or $3,963 per unit
• over 10 years is $341,948 interest or $6,575 per unit
Banks do not provide the loan and the interest rate will be higher than banks because owner’s corporations cannot mortgage the common property, any loan to an owner’s corporation is on an unsecured basis, which usually falls outside the banks', lending criteria. Due to recent legislative changes in the Credit Act we are informed that only
one agency (Lancock) provides loans, the variable loan is above 12%, with fixed interest rate above13% 3-5 years. Therefore due to the additional cost this is not a viable option for owners.

How valid are their points? especially about impacting on future sales?
Any independent advice would be welcomed as I can not only rely on info provided by the finance companies themselves.

Thanks Weetbix

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owner1
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Last seen: 7 years 43 weeks ago
Joined: 24/03/2010

Hi Weetbix

We had a similar problem in our building and we didn't hesitate at taking a strata loan. They are a terrific option. Two people have sold in our building since we got the loan with no issue at all. At your AGM you are going to have a lot of resistance from owners to pay $15,000 in one go. Trust me, you will not be alone.

You keep saying you want independent advice but to a degree you have to rely on info provided to you by the finance companies. I noticed that you have reposted about something that Cindy has already come back and told you. Macquarie Bank is a bank and Macquarie Bank provide these loans. Sure, Lannock do a lot of these loans but they are not the only ones.

I am not going into the personal agreement we have with our loan because it is confidential to our building but this is not a decision that your EC can make. You are a member of the owners corporation like everyone else in you building. Majority rules not the EC. If you want to go to them with the facts then you have to talk to the finance companies. They really are the only ones who can give you the facts/advice to take to your meeting.

Members here can help you but you must seek you own independent advice. The other confusing thing you have said above is "all owners (even those who pay up front) will be encoumbered etc etc.

1. The loan is for the entire building. No one will/can pay up front.
2. Our sinking fund does not show a deficit because we have the loan separately. We have a totally separate agreement for the increase in levies to cover it and it has nothing to do with our sinking fund.
3. We have not taken out insurance to cover risk. It is an unsecured loan.
4. Guaranteed if you pass a special levy of $15,000 per unit you will have defaults on payment. That results in really messy retrieval if people can't pay it and when buyers do a strata search they are going to be far more concerned about payment defaults by owners of the $15,000 than they will be about a minimal additional cost on their levies to cover a loan.

I would be asking where your EC obtained their "facts" from because they are very hazy at best as to the working of these strata loans.

stratachick
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Last seen: 2 years 13 weeks ago
Joined: 29/03/2011

Your committee is making it a lot more difficult than it needs to be. Strata loans are unsecured and pretty straight forward. Members on here and strata managers can not give you independent advice - you need to get the facts from the finance companies who do these loans. Sure, they are trying to sell their product but these loans are the best safety net in situations where the special levy is considerable.

Most buildings would entertain that option these days rather than coming up with the funds themselves. As Owner1 said - there will be a lot of people who will not/cant pay that special levy. I know I couldn't because I have a number of investment properties and if they all had special levies going I would be broke.

Do your homework with the companies that offer strata loans. That is the best advice I can give you. They are the experts. Trying to get information from elsewhere will lead to the receipt of conflicting information.

jerryR
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Last seen: 7 years 44 weeks ago
Joined: 18/08/2011

Oops..
I am so sorry but It seems that I can't understand your question and I don't have more experiences like that but I hope some people can help you about this. It is really awful if you are illiterate when it comes to finance. I can't even answer your question. Good thing that there would be a new added course so that I can understand more the world of finance. Financial literacy will be on the agenda for Virginia high school students this fall. USA Today states that incoming freshmen will be required to take classes in financial literacy. This makes Virginia one of the few states - along with Missouri, Utah and TN - that currently require aimed financial literacy training. Source of article: More state educational facilities are requiring financial literacy courses