"This condominium has a high delinquency rate, so the loan application will not be approved": How loan eligibility reflects the quality of management

Why the delinquency rate is directly linked to the asset value of residents: From the front lines of unpaid condominium management fees and repair reserve funds, Part 52

▼Introduction

An inquiry came from a resident who had decided to sell their unit, through a real estate agent.

“The buyer applied for a loan, but the bank said, 'This condominium is difficult to approve for a loan'...”

The board chairman is surprised. “Our condominium, you say?”

“Yes. It seems the delinquency rate exceeds their criteria.” “...There are a few cases of delinquency, but I never imagined it would affect loans.” The sale was called off.

The impact of delinquency
does not stop with the delinquent individual.

It is visible to the outside world as the "creditworthiness" of the entire management association.

Today, I would like to organize that structure.

▼1: "I pay my dues, so it doesn't concern me" | That mindset quietly lowers asset value

There is this feeling among residents.

“The person who is delinquent is that person over there. I pay mine properly. So it has nothing to do with me.”

I understand the sentiment.

However, in the eyes of financial institutions, it is not the individual's payment status that is reflected, but the management status of the entire condominium.

That is read as a signal that "this condominium's financial management is not being handled properly."

As a result,
it is judged that there is a high risk in providing a loan for a unit in that condominium,
which affects the approval or conditions of the loan application.

Residents who are paying properly
lose opportunities to sell or buy due to someone else's delinquency.

That is the first installmentfrom which I have consistently repeated
"Delinquency is not someone else's problem", one of the most realistic forms of it.

▼2: The reason financial institutions look at the "delinquency rate" lies in assessing collateral value

What financial institutions use as collateral for mortgage loans is
not just that specific unit.

Whether the entire condominium is being maintained is also
evaluated as part of the collateral value.

Why is that?

Buildings
deteriorate if they are not properly repaired.

If repair reserve funds are not accumulated as planned,
future large-scale repairs will be delayed.

If the building is damaged, its asset value drops,
and its value as collateral also drops.

Financial institutions see that risk in advance.

The delinquency rate is
one of the indicators showing that "soundness".

Condominiums with low collection rates for management fees and repair reserve funds
are judged to have a high risk of hindering future maintenance.

The second installmentorganized in
the mechanism where "delinquency in repair reserve funds erodes the future of the condominium" is
visualized from the outside in the form of loan screening.

▼3: "Four oversights" that threaten the "we are fine" mindset

Pattern 1: "The number of cases is small, so it's not a problem" | Duration and amount are overlooked

Pattern 2: "It's fine because we are dealing with it" | "Being dealt with" is not visible to outsiders

Pattern 3: "We can think about it when we sell" | You cannot choose the timing of information disclosure

Pattern 4: "We leave it to the management company" | The delinquency rate is not a management company issue, but an association evaluation

▼4: "Four Designs" to Protect Asset Value

① Be conscious of the delinquency rate as an "external indicator"

② Prioritize the early resolution of long-term delinquencies

③ Aim for certification of the management plan

4. Systematize the provision of information to residents planning to sell

▼5: Can you get people to say, "I'm glad I chose our condominium"?

At one condominium,
they made improving the delinquency rate a priority
when they decided to obtain management plan certification.

They proceeded with legal action for two long-term delinquency cases,
and resolved them in half a year.

Since then,
they have maintained a 100% collection rate.

A resident who sold their unit later contacted them with this message:

"The buyer's loan was approved immediately.
They said they were told it was a well-managed condominium."

On the other hand,
in a condominium that continued to ignore delinquencies,
a resident failed to sell their unit twice.

"If I had known it would come to this,
I should have spoken up sooner."

Asset value
is something that all residents must protect together.

▼Summary: The delinquency rate is the "credit score" of the management association

What financial institutions are looking at
is not just an individual's ability to pay.

It is whether the entire condominium
is being managed properly.

The delinquency rate is
the credit score of the management association.

Efforts to lower that number are not just about dealing with delinquent payers,
but are also an act of protecting the asset value of all residents.

▼ Today's One Action

Please check your condominium's
most recent collection rate.

"Is this number
at a level you wouldn't be embarrassed to show a financial institution?"

If you are not confident,
start by putting that number
on the agenda at the next board meeting.

Thank you for reading this far. If you feel like "I wonder if my condominium's asset value is being properly protected," it would encourage me if you could like or share this. I would be happy if you could deliver it to someone who has the same concerns.

I will continue to share useful perspectives from the field. Please follow me if you'd like to stay updated.

For those who want to know more,
please take a look at this as well👀

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[Part 1]

[Part 2]

[Part 21]

[Part 22]

[Part 29]

[Part 30]

[Part 38]