Condo Association Management Blog

There's not enough information for a qualified answer. The amount an Association transfers into a Reserve Account should be determined when an annual budget is made. The amount would be based on the remaining time of certain warranties like roof, elevator, etc. and then them amounts to replace/repair them. Once Owners approve the budget, the matter per unit is settled.

It is not immediately clear who you are referring too by somebody else. If you are asking if you still need to have a reserve study done, then the answer to probably yes. The reserve study may be required by your bylaws and many lenders will want to see the reserve study to ensure that your reserve fund is fully funded, or close to fully funded. 
 
Having said that, the reserve study is a suggested amount. For example, the board may decide that you are not going to paint the condo this year so you may withhold a lesser amount than indicated in the study.  
 
At the end of the day, the board must determine how much to put into reserves when they set their annual budget.

First and foremost, for the most part you have NO CHOICE. You really need to have a minimum of 10% of your operating Budget in the reserve fund. i.e. if your annual budget is $100K, your reserve must be at least $10K. This started as an FHA requirement, but pretty much is a Fannie Mae and Freddie Mac requirement, so if you have less than 10% you may have trouble selling or refinancing. Even there, you still will get questions if you are not contributing 10% annually as well. Long and short, you eant to have a fair amount in reserve of at least 10%, more than likely you want 15% or more.

This is important and requires a professional answer. Fully funded or partially funded? Advantages of each?  
I wish that a professional would take the time to answer this important question.

I assume you live in a condo, the easiest way to get a very good idea as to what to put into reserves is to have contractors give you a replacement estimate on whatever item, roof, painting, parking lot and sealing, utilities and so on. Of course use a larger contractor that would give you possibly a high bid, this will help you cover the bases without costing the Association any monies. 
Now if you have Owner documents or association documents that specify that a Reserve Study be done, then you must do that, Florida for example states every 5 years. 
 
On on the other hand, if you live in a home owners association in separate houses, the by all means use a Reserve Study specialist who can give an accurate figure on replacement cost for all "common elements, ie...clubhouse, pools, parking areas and such as these items tend to be scattered throughout a development.

Get a reserve study. This will tell you what the replacement costs for each major expense will be over the years and as a result you can determine how much money in reserve you need by when. Put this information against current cashflow and you can determine if a raise in your assessment or a special assessment is in order.

David The FHA standard you cite is only the minimum acceoptable ammount the FDA will use in approving a mortgage application. It has no relationship to the amount of the reserve fund which is, in well managed associations, peerformed by a qualified contractor. It is based upon the remnaining usefull life of major components of the condominium such as heating and air conditioning,n roof, windows and doors, walkways, oparking lots, other common areas. It is not determined as a per centage of the budget and shiould not be manipulated by the board because doing so will evently result in insufficient funds in the reserves when they are required and then an assessment has to be levied.

On Januay 5th, 2012 we (not me) elected a new board for our association. They immediately raised the monthly association fee from $95 to $140 per month..that's a 47% increase.  
 
We have only lived here for one year. Prior to that, there was serious mismanagement of the monthly association fees, and the association owes $8000 to the gulf course. This happen over a 10 year period. We I requested to see the records of what was received and what was paid, they told me that it's all on paper and not readable and it's not complete. But we have to pay..PERIOD.  
 
I don't think it's fair that my wife and I have to pay for something that happen prior to use living here, plus their not documentation what was received and what was paid. This totally fair. 
 
I'm retired military and we live on my pension alone.  
 
Could someone give me good advise on this please.  
 
Thanks 
 
Dave 
 

re you looking not to pay increased fees or just taking a poll re fairness. Not sure of your question. 
 
You say you have been there a year already, why now the questioning? Did you not know what you were getting into?

States vary as to what elements need to have a reserve. In Florida, for example, you must maintain a reserve for roof, parking area, painting of buildings, and pool (if you have one). Another element which is critical: water supply lines in older building with galvanized pipes!!! Further, to reduce the need for any special assessments, it is best to have a reserve for landscaping replacement and public area furnishings and fixtures. Also, to allow yourselves the most flexibility, I believe it best to keep reserve funds in a pooled account rather than individual reserve accounts. This allows the flexibility to use whatever funds are in the one pooled account to be used for any of the various elements for which you collect reserves... Funding for each element still needs to be done based on expected remaining life of each element, but pooling allows you to use the funds needed to repair/replace whatever is necessary without worry that with non-pooled reserves, you might have less funds set aside for that particular element while still having a very sizable reserve fund in total. This would cause a special assessment even though there is a large reserve fund which is not possible to be used for the current need.

Dave, Retired Military: 
Thanks for your service and your sacrifice to our country. 
_______________________________ 
When we purchase a property all debts owed by the previous owners in regard to the property become the obligation of the new owner. Each obligation should have been paid or cleared at the closing. A questionable obligation, like the one you describe should have been disclosed,if not settled. We would call the broker and the attorney who handled the closing.  
 
Boris & Charlie

When we closed on our Condo we were not aware that the association we in debt for $8,000. Don't feel that they should have told us about that. We didn't learn of this until after a year, and now they want us to pay $300 for a "special assessment". That is what they call is. 
 
I call an "special assessment for mismanagement" that went on for 10 years. We were never told about this when we closed on our Condo a year ago. I don't think we should be held responsible to pay this.  
 
I'm a retired military and we live on a fix budget each month. We can't afford a sudden 47% increase on our association fees from $95 to $140, and a $300 "special assessment. 
 
Any body out there that could help a retired VET of Vietnam and Gulf War ???  
 
thanks 
 
Dave 
 

Dave, thank you for your service and dedication to country and HOA. It is frustrating what when you have one expectation and then something else happens. Our HOA recently had a reserve study done by a highly reputable, certified firm in our state. We have been able to quantify that our capital reserve is just 7% funded of what it ideally should be based on our physical plant and future need. We just had to raise dues by 47% a month, with the total of this amount going directly into our cap reserve. Bottom-line, mortgage lenders and prospective buyers are looking for proof of stewardship when it comes to an HOA.

Check your State condominium laws, you may be required to maintain a certain percentage in reserve. For example, in Ohio we are required to have at least 10% of the budget for the year in reserves unless the reserve requirement is waived by a majority of owners yearly. The state legislature wants Associations to avoid special assessments which unfairly place financial hardships on owners. 
 
Dave- I would look at your bylaws-is your Association not required to prepare their budget in December, provide a copy to all owners and give owners proper notice before an increase can start?

It is good to hear that your community is proactively setting aside funding. It is always a good idea to have an independent reserve professional complete a reserve study for your association. Even if you know your community will not make any changes to the $20 per unit; you will know the current status of your reserve fund. You can use the information from the study for next year.

All condo owners (and the professionals who work with them AND the "experts" that share their personal opinion) should consider what happens over a period of years to condominiums and their owners when funds are not set aside for future repairs. 
 
All condos get old - need repairs - and face financial challenges by owners for loss of jobs, reduction in personal savings, medical problems - all using personal funds. The newer condos with shiny new furnaces, elevators, roofs eventually need expensive repairs. At a recent FHA seminar that Andrew Fortin (CAI) and I put on for 70+ board members, one board said "we decided to only put in a limited amount and let everyone arrange for funds when needed." Other condo boards present are dealing with lack of income due to the ever increasing expense for repairs, the inability of older residents to pay more, and delinquent accounts. Facing repairs of over $500,000 for just one item with no extra funds in reserves is not where anybody wants to be or wants the director responsibility of determining how to pay. An earthquake this year (not normal in this area) caused over %250,000 in unplanned repairs.  
 
Owners - please don't let yourself be lulled by the 10% guideline. If your building is more than one year old and reserves not planned - you are already facing the challenge of changing the mindset of the owners. Condo funding challenges are not for timid!  
 
Have a reserve study! Have a disaster plan for unexpected repairs, Then individually set aside (as difficult as it may be) a few dollars regularly for that unplanned special assessment. I'd say "Good Luck," but luck will not solve the problems.