NimishS
Posts: 12
Posts: 12
Posted:
Is there any way to lock reserve funds to be used only for the specific components they have been accumulated for ?
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Is there any way to lock reserve funds
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TimB4 (Tennessee)
Posts: 21,059
Posts: 21,059
Posted:
Nimish,
The answer is perhaps. However, it will depend on the integrity of the individuals you elect to your Board.
Davis Stirling.com webpage on Reserves gives additional information.
Per that site Except for temporary borrowing, boards may not expend funds designated as reserve funds for any purpose other than the repair, restoration, replacement, or maintenance of, or litigation involving the repair, restoration, replacement, or maintenance of, major components that the association is obligated to repair, restore, replace, or maintain and for which the reserve fund was established. Civil Code §1365.5(c)(1).
Therefore, CA law specifies that the Reserve funds must be spent on Reserve items. However, the Board may borrow from those funds for other things. The key word here is Borrow.
Not knowing your specifics, you might want to ask your Board how spending xyz is complying with Civil Code §1365.5(c)(1)? If they say that they are borrowing the funds, ask them how they plan to pay it back.
Hope this helps,
Tim
The answer is perhaps. However, it will depend on the integrity of the individuals you elect to your Board.
Davis Stirling.com webpage on Reserves gives additional information.
Per that site Except for temporary borrowing, boards may not expend funds designated as reserve funds for any purpose other than the repair, restoration, replacement, or maintenance of, or litigation involving the repair, restoration, replacement, or maintenance of, major components that the association is obligated to repair, restore, replace, or maintain and for which the reserve fund was established. Civil Code §1365.5(c)(1).
Therefore, CA law specifies that the Reserve funds must be spent on Reserve items. However, the Board may borrow from those funds for other things. The key word here is Borrow.
Not knowing your specifics, you might want to ask your Board how spending xyz is complying with Civil Code §1365.5(c)(1)? If they say that they are borrowing the funds, ask them how they plan to pay it back.
Hope this helps,
Tim
NimishS
Posts: 12
Posts: 12
Posted:
The bigger issue is that some boards may decide to spend money allocated for item abc, on item xyz, where both abc and xyz are reserve items.
TimB4 (Tennessee)
Posts: 21,059
Posts: 21,059
Posted:
Yep. Some Boards see the Reserves as one big pot of money and others see it as individual line items. Providing that the money for abc is available when needed, spending it on xyz might be a gray area.
Check out the links I provided and see if they address the issue.
Check out the links I provided and see if they address the issue.
NimishS
Posts: 12
Posts: 12
Posted:
yea, it was tough to find any information for this particular issue. i want to see if there's a way that funds earmarked for component abc can be spent only on abc when the time comes, unless by a majority vote of the association to agree to spend on xyz.
Is this something we can work our way into the bylaws ?
Is this something we can work our way into the bylaws ?
TimB4 (Tennessee)
Posts: 21,059
Posts: 21,059
Posted:
They way I'm interpreting Civil Code §1365.5(c)(1), the law sees the Reserve Funds as one big pot of money. However, they also defer to the Associations governing documents when they specify what the Board may or may not do.
Therefore, the only way to keep funds for abc to be used only for abc then you will need rally support and amend your governing documents. Amending your Bylaws should work. Your Bylaws should specify on how they may be amended.
Tim
Therefore, the only way to keep funds for abc to be used only for abc then you will need rally support and amend your governing documents. Amending your Bylaws should work. Your Bylaws should specify on how they may be amended.
Tim
DavidW5 (North Carolina)
Posts: 565
Posts: 565
Posted:
Why would you want to do that? Reserve studies, by their nature, are only a best guess on WHEN an element of common property may need to be replaced and how much that replacement might COST. Since both of these parameters will vary, depending on real world variables, locking yourself into the exact amount in the study for a particular item, is, in my opinion, not a good idea.
The methodology used to develop the recommended reserve contributions contained in the study is predicated on flexibility in applying the funds when needed. The calculation of a "minimum recommended balance" is for an amount, in aggregate, that will insure that sufficient funds are always available.
Even if your board chooses to follow the Component Funding method rather than the Cash Flow funding method, this is just a different way of calculating how much to contribute to the reserves. It is not intended to limit you to a specific dollar amount for the replacement of a particular item.
It sounds like you may have some other issue going on which leads you to want to limit the amount the board can spend on a particular replacement item. Whatever that issue is, there is probably a better way to address it than to lock in a component by component amount.
The methodology used to develop the recommended reserve contributions contained in the study is predicated on flexibility in applying the funds when needed. The calculation of a "minimum recommended balance" is for an amount, in aggregate, that will insure that sufficient funds are always available.
Even if your board chooses to follow the Component Funding method rather than the Cash Flow funding method, this is just a different way of calculating how much to contribute to the reserves. It is not intended to limit you to a specific dollar amount for the replacement of a particular item.
It sounds like you may have some other issue going on which leads you to want to limit the amount the board can spend on a particular replacement item. Whatever that issue is, there is probably a better way to address it than to lock in a component by component amount.
NimishS
Posts: 12
Posts: 12
Posted:
Some homeowners are concerned that the reserve monies may be used on reserve study components that those were not meant for. They want to limit the ability of future boards to determine which components they want to fix. There have been prior instances where 500% of the budgeted money has been spent on a particular component, just because ...
Homeowners want to restrict ability of the board to spend any money that is not allocated as per reserve study for that year, without getting majority approval of 75% owners.
Also another question, let's say we have an annual meeting on October 1. The annual meeting is adjourned to October 15 due to lack of quorum. Is the existing board as of September 29, still a board with all rights and responsibilities of the board, until October 15 now ?
Homeowners want to restrict ability of the board to spend any money that is not allocated as per reserve study for that year, without getting majority approval of 75% owners.
Also another question, let's say we have an annual meeting on October 1. The annual meeting is adjourned to October 15 due to lack of quorum. Is the existing board as of September 29, still a board with all rights and responsibilities of the board, until October 15 now ?
NimishS
Posts: 12
Posts: 12
Posted:
I should have also specified our election meeting is on the same date as annual meeting, if that helps.
TimB4 (Tennessee)
Posts: 21,059
Posts: 21,059
Posted:
Quote:
Posted By NimishS on 09/30/2011 11:15 AM
Also another question, let's say we have an annual meeting on October 1. The annual meeting is adjourned to October 15 due to lack of quorum. Is the existing board as of September 29, still a board with all rights and responsibilities of the board, until October 15 now ?
Also another question, let's say we have an annual meeting on October 1. The annual meeting is adjourned to October 15 due to lack of quorum. Is the existing board as of September 29, still a board with all rights and responsibilities of the board, until October 15 now ?
Typically Yes, unless they resign.
DavidW5 (North Carolina)
Posts: 565
Posts: 565
Posted:
Quote:
Posted By NimishS on 09/30/2011 11:15 AM
Some homeowners are concerned that the reserve monies may be used on reserve study components that those were not meant for. They want to limit the ability of future boards to determine which components they want to fix. There have been prior instances where 500% of the budgeted money has been spent on a particular component, just because ...
Homeowners want to restrict ability of the board to spend any money that is not allocated as per reserve study for that year, without getting majority approval of 75% owners.
Also another question, let's say we have an annual meeting on October 1. The annual meeting is adjourned to October 15 due to lack of quorum. Is the existing board as of September 29, still a board with all rights and responsibilities of the board, until October 15 now ?
Some homeowners are concerned that the reserve monies may be used on reserve study components that those were not meant for. They want to limit the ability of future boards to determine which components they want to fix. There have been prior instances where 500% of the budgeted money has been spent on a particular component, just because ...
Homeowners want to restrict ability of the board to spend any money that is not allocated as per reserve study for that year, without getting majority approval of 75% owners.
Also another question, let's say we have an annual meeting on October 1. The annual meeting is adjourned to October 15 due to lack of quorum. Is the existing board as of September 29, still a board with all rights and responsibilities of the board, until October 15 now ?
Be careful what you wish for ... I think you would find it difficult if not impossible to get 75% of the owners to agree to spend reserve funds on ANYTHING. Such a restriction would very likely lead to the deterioration of your common elements.
While a 500% increase in the replacement cost of an item over what was in the reserve study is very unusual, it is not impossible. Picture a situation in which a 4 year old reserve study projects an amount to repave a road. Then throw in a an extended period of oil price increases. For oil based products such as asphalt this would translate directly into higher costs. On top of that, imagine an OPEC action to restrict the supply of oil or a war in the middle east that reduces supplies. Your road is full of pot holes, but you can't get a 75% vote. Now what do you do?
If you can't trust your board to do what is best for your community, then get a new board. Don't try to tie their hands when it comes to the price of replacements that cannot be accurately forecast.
NimishS
Posts: 12
Posts: 12
Posted:
Most homeowners are in fact considerate of unforeseen elements. What they have a hard time being considerate with, is the fact that money is being wasted on a certain community asset/amenity that a few homeowners who are also board members love to maintain for their own use, although the majority of the community does not use it much.
NimishS
Posts: 12
Posts: 12
Posted:
Also, can someone point me to the civil code or state law or davis-stirling statute that does mention that a board is indeed a board between the duration of an inquorate election meeting and an election meeting where quorum was obtained?
TimB4 (Tennessee)
Posts: 21,059
Posts: 21,059
Posted:
It's not in David Stirling. It's in CORPORATIONS CODE
SECTION 5220 which states [emphasis added]:
(b) Unless the articles or bylaws otherwise provide, each
director, including a director elected to fill a vacancy, shall hold
office until the expiration of the term for which elected and until a
successor has been elected and qualified, unless the director has
been removed from office.
It's a conditional statement. A Director is no longer a Director once the term has expired and upon the election of their successor. If only the term expired, the Director still holds the office until a new Director has been elected.
If you think about it, this makes sense. The business of the Association still has to be done. If there were no directors, the business of calling a meeting, sending notices, etc. could not be accomplished.
SECTION 5220 which states [emphasis added]:
(b) Unless the articles or bylaws otherwise provide, each
director, including a director elected to fill a vacancy, shall hold
office until the expiration of the term for which elected and until a
successor has been elected and qualified, unless the director has
been removed from office.
It's a conditional statement. A Director is no longer a Director once the term has expired and upon the election of their successor. If only the term expired, the Director still holds the office until a new Director has been elected.
If you think about it, this makes sense. The business of the Association still has to be done. If there were no directors, the business of calling a meeting, sending notices, etc. could not be accomplished.
TimB4 (Tennessee)
Posts: 21,059
Posts: 21,059
Posted:
err davis-stirling
DavidW5 (North Carolina)
Posts: 565
Posts: 565
Posted:
Quote:
Posted By NimishS on 09/30/2011 3:13 PM
Most homeowners are in fact considerate of unforeseen elements. What they have a hard time being considerate with, is the fact that money is being wasted on a certain community asset/amenity that a few homeowners who are also board members love to maintain for their own use, although the majority of the community does not use it much.
Most homeowners are in fact considerate of unforeseen elements. What they have a hard time being considerate with, is the fact that money is being wasted on a certain community asset/amenity that a few homeowners who are also board members love to maintain for their own use, although the majority of the community does not use it much.
Well, I know that in my HOA a majority of the members don't use the swimming pools. A majority of the members does not use the tennis courts. A majority of the members do not use the walking trails. A majority of the members do not use the billiard tables. A majority of the members do not use the .... fill in any amenity covered by our reserve study. Yet all of those items will eventually be replaced.
You said that the board is maintaining an amenity "for their own use". Do you mean that nobody else is being allowed to use that amenity? If that is not the case, then remember that board members are also members of the association and are entitled to expect that an amenity owned by the association will be maintained and kept available for use by all of the members.
If you have an issue with "money being wasted", please define what you mean. Is more being spent on a replacement than is necessary to restore the economic useful life of the item? Is more being paid for a replacement than the going market rate? If so, this could be a neglect of their fiduciary duty and perhaps you should consult an attorney. Or is it that the board is replacing an amenity that you personally don't use and don't want to pay for?
NimishS
Posts: 12
Posts: 12
Posted:
I think your points about the usage of the amenity and the eventuality are very valid and accepted too.
What is unacceptable is the replacement cost of the favorite amenity ! It is unacceptable based on the fact that more than the allocated budget is being spent on it.
What that does is, that it reduces the reserves that were collected for another reserve component, finally necessitating special assessments to each homeowner when the other reserve component needs to be repaired/replaced.
What is unacceptable is the replacement cost of the favorite amenity ! It is unacceptable based on the fact that more than the allocated budget is being spent on it.
What that does is, that it reduces the reserves that were collected for another reserve component, finally necessitating special assessments to each homeowner when the other reserve component needs to be repaired/replaced.
DavidW5 (North Carolina)
Posts: 565
Posts: 565
Posted:
Any time there is a major expenditure of reserve funds, especially if the amount spent is more than the last reserve study estimated, the association should have an update of the study conducted. This likely will result in the study showing the need for higher ongoing contributions from the operating account to the reserves each year. If this is not done, then you are right, a special assessment may be needed in the future.
When our HOA develops the operating budget, the first item fully funded is the contribution to the reserves called for in the most recent reserve study. If this number is an increase over the previous year, then some other line or lines in the operating budget has to be reduced to offset the increase.
When our HOA develops the operating budget, the first item fully funded is the contribution to the reserves called for in the most recent reserve study. If this number is an increase over the previous year, then some other line or lines in the operating budget has to be reduced to offset the increase.
PetunkaM (Florida)
Posts: 1,009
Posts: 1,009
Posted:
'Is there any way to lock reserve funds to be used only for the specific components they have been accumulated for ?'
__
Of course there is.
__
Of course there is.
DavidW5 (North Carolina)
Posts: 565
Posts: 565
Posted:
Quote:
Posted By PetunkaM on 09/30/2011 5:33 PM
'Is there any way to lock reserve funds to be used only for the specific components they have been accumulated for ?'
__
Of course there is.
'Is there any way to lock reserve funds to be used only for the specific components they have been accumulated for ?'
__
Of course there is.
Care to elaborate?
PetunkaM (Florida)
Posts: 1,009
Posts: 1,009
Posted:
David,
The OP's question was hypothetical and so was my answer. Unless we know what the By-laws say it is hard to tell what is required. The By-laws should govern âFiscal Managementâ unless state laws prevail.
In Florida, all recreational areas require separate budget and the money cannot be co-mingled between tennis courts and swimming pool for instance. Also, reserves for âReplacementsâ cannot be used for âDeferred Maintenanceâ. Any other reserve funds (Emergency fund, Improvement Fundâ or Special Assessment funds) cannot be used for anything else without the ownersâ consent. But in reality many Boards do not pay much attention to it and use the money as they please, regardless what their docs or state laws require.
So, yes, there is a way to âlock reserve fundsâ and it many instances it may be actually required.
The OP's question was hypothetical and so was my answer. Unless we know what the By-laws say it is hard to tell what is required. The By-laws should govern âFiscal Managementâ unless state laws prevail.
In Florida, all recreational areas require separate budget and the money cannot be co-mingled between tennis courts and swimming pool for instance. Also, reserves for âReplacementsâ cannot be used for âDeferred Maintenanceâ. Any other reserve funds (Emergency fund, Improvement Fundâ or Special Assessment funds) cannot be used for anything else without the ownersâ consent. But in reality many Boards do not pay much attention to it and use the money as they please, regardless what their docs or state laws require.
So, yes, there is a way to âlock reserve fundsâ and it many instances it may be actually required.
DavidW5 (North Carolina)
Posts: 565
Posts: 565
Posted:
Quote:
Posted By PetunkaM on 10/01/2011 7:58 AM
David,
The OP's question was hypothetical and so was my answer. Unless we know what the By-laws say it is hard to tell what is required. The By-laws should govern âFiscal Managementâ unless state laws prevail.
In Florida, all recreational areas require separate budget and the money cannot be co-mingled between tennis courts and swimming pool for instance. Also, reserves for âReplacementsâ cannot be used for âDeferred Maintenanceâ. Any other reserve funds (Emergency fund, Improvement Fundâ or Special Assessment funds) cannot be used for anything else without the ownersâ consent. But in reality many Boards do not pay much attention to it and use the money as they please, regardless what their docs or state laws require.
So, yes, there is a way to âlock reserve fundsâ and it many instances it may be actually required.
David,
The OP's question was hypothetical and so was my answer. Unless we know what the By-laws say it is hard to tell what is required. The By-laws should govern âFiscal Managementâ unless state laws prevail.
In Florida, all recreational areas require separate budget and the money cannot be co-mingled between tennis courts and swimming pool for instance. Also, reserves for âReplacementsâ cannot be used for âDeferred Maintenanceâ. Any other reserve funds (Emergency fund, Improvement Fundâ or Special Assessment funds) cannot be used for anything else without the ownersâ consent. But in reality many Boards do not pay much attention to it and use the money as they please, regardless what their docs or state laws require.
So, yes, there is a way to âlock reserve fundsâ and it many instances it may be actually required.
Petunka,
I've just finished looking through all of Florida Statute Chapter 720 and I could not find any of the provisions you mentioned above regarding the requirements for separate budgets for each recreational area, or the requirement for owners consent to the use of reserves. Could you please provide the citations?
PetunkaM (Florida)
Posts: 1,009
Posts: 1,009
Posted:
David,
Fiscal Management/Budget is a fairly elaborate law and in some instances state statute prevail in some the By-laws prevail. Nevertheless, here is the quote from Chapter 720 on recreational areas you asked about.
(6)âBUDGETS.â
(a)â---. The budget must set out separately all fees or charges paid for by the association for recreational amenities, whether owned by the association, the developer, or another person.
Fiscal Management/Budget is a fairly elaborate law and in some instances state statute prevail in some the By-laws prevail. Nevertheless, here is the quote from Chapter 720 on recreational areas you asked about.
(6)âBUDGETS.â
(a)â---. The budget must set out separately all fees or charges paid for by the association for recreational amenities, whether owned by the association, the developer, or another person.
KellyM3 (North Carolina)
Posts: 2,239
Posts: 2,239
Posted:
A small hurdle that makes my board think twice is locking 1/2 the Reserves into a CD (easy to break) rather than a liquid cash account. No, a determined free-spending board would break the CD and blow it but it makes our board discuss the need to break the CD before doing so. This occurred recently in order to overhaul our HOA swimming pool.
In terms of overspending on a particular amenity, our HOA sucks a very very high percentage of reserve fund savings when the need arises. Much more than our paved walking trail, which needs "love" as well.
In terms of overspending on a particular amenity, our HOA sucks a very very high percentage of reserve fund savings when the need arises. Much more than our paved walking trail, which needs "love" as well.
DavidW5 (North Carolina)
Posts: 565
Posts: 565
Posted:
Quote:
Posted By KellyM3 on 10/04/2011 6:51 PM
In terms of overspending on a particular amenity, our HOA sucks a very very high percentage of reserve fund savings when the need arises. Much more than our paved walking trail, which needs "love" as well.
In terms of overspending on a particular amenity, our HOA sucks a very very high percentage of reserve fund savings when the need arises. Much more than our paved walking trail, which needs "love" as well.
Without reference to the amount shown in a recent reserve study vs. the amount spent on a specific amenity, this is just idle speculation.
KellyM3 (North Carolina)
Posts: 2,239
Posts: 2,239
Posted:
Sorry David. It's not idle speculation. I look at hard cash flowing out of Reserve Funds. Our pool eats a high percentage of the Reserve Funds every 8 years or so. That said, our HOA, historically, has underfunded its Reserves w/ the pool being the amenity that, when it breaks, must be repaired, creating the "pool eats the Reserve Fund scenario." We're slowly changing that. In contrast to a paved walking path, it slowly cracks and deteriorates, lessening the "feel" that an emergency repair must be done. All amenities are not equal. No majority of any community uses a particular amenity but if a property goes on sale, is the realtor/buyer more worried about asphalt or a non-functioning swimming pool?
Reserve Fund studies, when invested in by an HOA, are great tools that outline theoretical situations. But, it by no means demands that you replace perfectly functioning amenities simply because its amortized life cycle is expired. At least, my board doesn't take that strategy with its limited means. There is no substitute for active engagement by board directors on matters of property maintenance and amenity replacement. If the reserve study says the tennis court needs replacing, but it's perfectly maintained, then the reserve study is inaccurate based on reality.
When making capital expenditure decisions, the ultimate factor is the leadership of the HOA board of directors. Its decisions are the ultimate in subject calls. Just look at this forum.
Reserve Fund studies, when invested in by an HOA, are great tools that outline theoretical situations. But, it by no means demands that you replace perfectly functioning amenities simply because its amortized life cycle is expired. At least, my board doesn't take that strategy with its limited means. There is no substitute for active engagement by board directors on matters of property maintenance and amenity replacement. If the reserve study says the tennis court needs replacing, but it's perfectly maintained, then the reserve study is inaccurate based on reality.
When making capital expenditure decisions, the ultimate factor is the leadership of the HOA board of directors. Its decisions are the ultimate in subject calls. Just look at this forum.
KellyM3 (North Carolina)
Posts: 2,239
Posts: 2,239
Posted:
In reference to my vague first post - our POOL eats a high percentage of the Reserve Funds when the need arises......
Quote:
Posted By KellyM3 on 10/05/2011 7:21 AM
Sorry David. It's not idle speculation. I look at hard cash flowing out of Reserve Funds. Our pool eats a high percentage of the Reserve Funds every 8 years or so. That said, our HOA, historically, has underfunded its Reserves w/ the pool being the amenity that, when it breaks, must be repaired, creating the "pool eats the Reserve Fund scenario." We're slowly changing that. In contrast to a paved walking path, it slowly cracks and deteriorates, lessening the "feel" that an emergency repair must be done. All amenities are not equal. No majority of any community uses a particular amenity but if a property goes on sale, is the realtor/buyer more worried about asphalt or a non-functioning swimming pool?
Reserve Fund studies, when invested in by an HOA, are great tools that outline theoretical situations. But, it by no means demands that you replace perfectly functioning amenities simply because its amortized life cycle is expired. At least, my board doesn't take that strategy with its limited means. There is no substitute for active engagement by board directors on matters of property maintenance and amenity replacement. If the reserve study says the tennis court needs replacing, but it's perfectly maintained, then the reserve study is inaccurate based on reality.
When making capital expenditure decisions, the ultimate factor is the leadership of the HOA board of directors. Its decisions are the ultimate in subject calls. Just look at this forum.
Sorry David. It's not idle speculation. I look at hard cash flowing out of Reserve Funds. Our pool eats a high percentage of the Reserve Funds every 8 years or so. That said, our HOA, historically, has underfunded its Reserves w/ the pool being the amenity that, when it breaks, must be repaired, creating the "pool eats the Reserve Fund scenario." We're slowly changing that. In contrast to a paved walking path, it slowly cracks and deteriorates, lessening the "feel" that an emergency repair must be done. All amenities are not equal. No majority of any community uses a particular amenity but if a property goes on sale, is the realtor/buyer more worried about asphalt or a non-functioning swimming pool?
Reserve Fund studies, when invested in by an HOA, are great tools that outline theoretical situations. But, it by no means demands that you replace perfectly functioning amenities simply because its amortized life cycle is expired. At least, my board doesn't take that strategy with its limited means. There is no substitute for active engagement by board directors on matters of property maintenance and amenity replacement. If the reserve study says the tennis court needs replacing, but it's perfectly maintained, then the reserve study is inaccurate based on reality.
When making capital expenditure decisions, the ultimate factor is the leadership of the HOA board of directors. Its decisions are the ultimate in subject calls. Just look at this forum.
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