Reserve Study/Funding Woes

Hello…..I am back with another issue related to our recently completed update to the Reserve Study. We are a northern Illinois HOA; the property is 13 years old. Our newly updated Reserve Study states that aluminum siding, fascia & soffits have an effective useful life of 75 years; that gutters & downspouts have an effective useful life of 40 years; and wood trim was not even addressed. The result of this determination by the Reserve Analyst is that the “maintenance & replacement” schedule does not include these components; the “replacement cost table” does not include these components; and therefore the proposed funding plan for our Reserve Fund does not include these components. Our previous versions of the Reserve Study (done by a different firm) indicated that phased replacements of these components could begin as early as 2010, for gutters & downspouts (timing with the phased roof replacement), and phased replacements of the siding could begin as early as 2023 (estimated useful life of 35 years).

First question: does this sound realistic – that siding has an effective useful life of 75 years? We also have single-family homes built by same developer at same time, and many HOs have been replacing their siding over the past few years.

I am concerned about these deficiencies. I am on BOD and brought these deficiencies in the draft Study up with other BOD members at our recent meeting. Two members were not present and the two that were present do not want the Study revised to address these concerns. They indicated a concern that if these components are included, the change in the proposed Reserve funding plan would result in larger HOA monthly assessments. FYI, we also approved a contract for replacement of caulking for which we will need to likely take out a loan to pay for since our Reserve fund is not adequate to cover cost 100%. This was brought up as reason they do not want to revise Reserve Report. HOA assessments will need to be increased to pay for the caulking loan.

Second question: Does anyone have any suggestions on how to deal with this situation?

Two members were not present at the meeting, so have not weighed in. I shared my concerns with them via email, but BOD president “took exception” to my having done so (basically, told me I should not have done that). I am planning to detail my concerns in writing, provide to all BOD members, request any additional questions/comments on Study from members, than ask our PM to forward these to the Reserve Analyst for a response (at BOD meeting there was agreement to ask the Reserve Analyst questions about the Study – but it was also made clear by president that the draft Study would not be revised).

Any help any of you could provide would be much appreciated!

Bonnie, I would ask the reserve analyst for data which supports the 75 year life for that specific siding. If your HOA provided a copy of the previous reserve study I would ask them to comment on any changes which do not seem realistic.

With regard to your second question, ask those BOD who do not want to raise assessments "why waste money on a reserve study if it will not be used to determine assessments?" When your BOD choses to handle discussions via email every Board member should be copied. Your President does not make the final decision, that is the responsibility of the Board. That decision apparently was made and you seem to be unwilling to abide by it. IMO getting answers to questions about the reserve study should be done; meanwhile accept the current BOD decision.

Brad & Roger – thank you both for responding. We have not questioned any contractors re condition of siding and its expected life. The 1st reserve analyst sounded realistic – the latest, not realistic. I will be asking new reserve analyst to provide a basis for their 75-year life expectancy, per Roger’s suggestion. I do not know if our PM provided a copy of the previous reserve study to the new reserve analyst– doubt it – but will ask. My comments and questions will make reference to the previous study; so will ask that a copy also be provided, if it had not been previously.

Roger also said:
”With regard to your second question, ask those BOD who do not want to raise assessments "why waste money on a reserve study if it will not be used to determine assessments?" When your BOD choses to handle discussions via email every Board member should be copied. Your President does not make the final decision, that is the responsibility of the Board.”

I need to provide additional background on our BOD – up until last July I had been BOD president (6 or 7 years?). Until our 2007 budget, I was able to convince BOD members to fully fund Reserve fund per Reserve Study recommended plan for most years. I also was able to convince BOD members to have Study updated, due to age of previous Study (2003) and capital expenditures made over past couple of years (replaced asphalt driveways and parking areas, restored wood decks). I stepped down as pres. and have seen new president able to get enough members (3 of 5) to support her on: a 2007 budget that reduced contributions to reserve fund, and, several other needed O & M items were not included or inadequately funded based on past expenditures (although recommended by our PM).

To answer your 1st question: If the current version of the Reserve Study is accepted as final by a majority of BOD, then I hope that the reserve funding plan will be followed in the future (recommends annual increases of 3%). These 2 BOD members object to having the study revised to include missing components - since the new funding plan would recommend larger increases to the reserve fund. They have continually opposed any assessment increases over past years.

Yes – I agree – all emails should be copied to all BOD members (and I include PM) – I am not sure that all BOD members do this, though. And, yes – the BOD makes the decisions, not the president – but likes to believe that she “rules” the BOD (we have clashed on this over the past 6 months).

Roger also said: “That decision apparently was made and you seem to be unwilling to abide by it. IMO getting answers to questions about the reserve study should be done; meanwhile accept the current BOD decision.”

Actually, there has been no vote/decision as to whether to accept the Study “as is”, or ask it be revised. It was agreed that I would prepare my questions/concerns re Study and provide to PM to send to reserve analyst for response. I expect we will hear back from reserve analyst in a few weeks, and then BOD would make a decision on either to accept the study “as is”, or, to request a revision at next meeting in March.

Thank you, again - Bonnie

BonnieK,

It stands to reason that if the siding for the condos was done by the same LLC/subcontractor of the Developer then earlier than expected siding replacement on the condos may occur.

How are the Board members going to justify funding for siding based upon one study, than not funding for it at all based upon another?

There seems to be an intermingling of Working Capital funds and Reserves. Obviously it was necessary given the shortfall. Perhaps your state allows a one-time working capital contribution from all new owners that is payable to the Association upon close? Mine does and the gov. docs. allow for any lawful use of these funds.

Do your reserve studies forecast replacements based upon the phases of construction? Meaning phase 1 of condo units were finished on X date, phase 2 on x date, so on and so forth. Or, were all units were finished at the same time?

If your community was built in phases spanning several years, update the study to reflect. This will provide you a more realistic time-table of when elements "technically" need to be replaced given normal wear and tear.

GeraldT1
NNJ

Bonnie you wrote: We also have single-family homes built by same developer at same time, and many HOs have been replacing their siding over the past few years.

Do you know why the homeowners replaced it? Was it because it was a defective product? Was there a manufacturer's recall? Or did they not like the look of the siding and wanted the newest latest greatest thing on the market? Don't laugh I've seen people do it, keeping up with the Jones'.

Bonnie one more thought. Half of our buildings have aluminum siding, the rest have vinyl. When I was discussing this with our reserve engineer he said that if we ever wanted to replace the aluminum, we would be better off selling the siding as scrap instead of letting the contractor "dispose of" it for us. Obvious to me but I made sure a note was attached to the report for future BOD's to see.