refunding reserve funds?

Our current board has already moved $25,000 (reserve fund) out of the reserve fund account, claiming it was "illegally set up" even though it was established by the developer about 10 years ago and has been added to by subsequent boards over the years. All is documented in past minutes. Now the board has decided to put a question to homeowners (100 properties) as to what to do with this money. The board wants to refund it to the current owners by giving each one $250! How do we, a group of concerned homeowners, determine if this is even legal for the board to do? We believe it is very important for us to continue with this reserve fund. We are a beachfront neighborhood and own a beach gazebo/walkover that needs yearly maintenance. This gives us a private entrance to the beach, a very valuable asset here in Florida. Your suggestions?

Melissa's correct. An illegally established Reserve Fund is like an "illegally" established savings account....really? Your HOA board thinks it's profit. It's interpreting reserve fund philosophy incorrectly and tragically for many of your neighbors who won't have liquid cash to pay a surprise assessement.

But, if the HOA board is hell-bent on draining its reserves, then they should hold the account whole and allow the regular HOA budget to creep up by not raising the dues rate over several years or however long it takes. But, this is highly irresponsible.

Your board may think they're doing the right thing, but this tells me they don't have the first idea as to what the reserve is even for. Suggest they read up on this and look at the minutes from previous boards to get an idea on what's been done and why.

You should also think long and hard about getting a new Board - this type of behavior is what gets lots of HOAs into trouble. The board starts spending the money inappropriately and when it's needed for a major repair, nothing's available and that leads to special assessments and even more drama.

I'm surprised that no one looked at FL statutes.

FL 720.303 (6) specifies [emphasis added]:

(d) An association is deemed to have provided for reserve accounts if reserve accounts have been initially established by the developer or if the membership of the association affirmatively elects to provide for reserves. . . .

Once established as provided in this subsection, the reserve accounts must be funded or maintained or have their funding waived in the manner provided in paragraph (f)....

(f) After one or more reserve accounts are established, the membership of the association, upon a majority vote at a meeting at which a quorum is present, may provide for no reserves or less reserves than required by this section. If a meeting of the unit owners has been called to determine whether to waive or reduce the funding of reserves and such result is not achieved or a quorum is not present, the reserves as included in the budget go into effect. . . .

I have the impression that your Board is actually trying to do away with the Reserves at this meeting they are calling. Based on your posting, you understand what the Reserves are for. I would strongly suggest you start providing information to your neighbors (only verifiable facts, no embellishment).

Remind them that with the new lending rules caused by the housing bubble, lenders are looking at the financial health of the Association. If there are no reserves, it's likely the lender will not loan the money to potential buyers.

Here is a link to the those lending rules:

All HUD Mortgagee Letters

Mortgagee Letter 2012-25 Revised Requirements for Project Capital Needs Assessments, Estimated Reserves for Replacements and Remedies for Accessibility Deficiencies (pdf document) Scroll down to page 6 of this document.

Again, it appears that you need to get the correct information out to the membership either through meetings or newsletters. Again, let the facts speak for themselves. Don't embellish and don't blame. Since the law appears to allow the membership to not fund the Reserves, it's their choice and majority wins. Your goal should be to provide information so the members can make an informed decision.

Hope this helps,

Tim

Karen

The real question is are there sufficient funds in your reserves to meet anticipated, expected, planned or even jump up and bite you expenses on down the road?

As others have said, a reserve is not just extra money to be used for refunds.

Many believe that about 15 to 20% of yearly dues should be set aside in reseves each and every year. While this amount can vary, most agree it is a reasonable target.

100 units, $120 dues per month per unit is $144,000 dues per year so $21,750 to $28,800 of that should be set aside in reserves each and every year.

Hope this helps.