Budget - reserve funds

Started by BellaM2 • 11 replies • 1452 views

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BellaM2 (Florida)
Posts: 61

Posted:

Bella
For Roof Reserves @ HOA usually $1500. per month deposited for over 2yrs. CAM/PM Budget for 2014 shows $8000. per month. Who and what would cause this increase without Board approval, done by CAM? Is this possible?

TimB4 (Tennessee)
Posts: 21,059

Posted:

Bella,

The budget should be approved by the Board.
If you are on the Board, could it have been done at a meeting you missed?
If you are not on the Board, have you asked them when the budget was approved?

As for the actual increase, perhaps the roof didn't last as long as expected and it needs to be replaced earlier.

BellaM2 (Florida)
Posts: 61

Posted:

Hi Tim
Never missed a Board meeting, These were built in 2006. PM made this decision, a very large increase. I asked for input from the Attorney, was told to keep my questions to a minimal for the lawyer. This creates great discomfort for me. I am covered by my HO3 insurance policy for a roof, so I am not sure what's going on and where to turn? Bella

DavidW5 (North Carolina)
Posts: 565

Posted:

It is hard to see how this budget line item could be increased by over 500% without an increase in the monthly dues. Does the budget assume a dues increase? If not, what line items are being drastically reduced to accommodate this increased reserve contribution? When was your reserve study last updated?

BellaM2 (Florida)
Posts: 61

Posted:

Thanks for your response. No monthly increase in Assoc dues. no recent reserve study. That's why I am Alarmed??

TimB4 (Tennessee)
Posts: 21,059

Posted:

It could be a typo. It could be paying back what was borrowed to complete something else. You should compare the budgets and see what else changed. If there was no increase in assessments, that increase had to have resulted in a decrease somewhere else.

Regardless of why it was done or how it was done, Budgets are typically approved by majority vote of the Board of Directors.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

Bella,

You need some clarity but I'd not worry too much as along your Reserve Funds, overall, remain funded at a healthy clip. The shift from $1,500 to $8,000 may be a "paper decision," where your roof is nearing replacement and the board is transparently saying it will focus on the roof, then return towards the other projects listed in the reserve fund.

If the cash being deposited into Reserves, overall, is still stable, I'd not worry about it too much. If other items in the Reserve Fund are now "suffering" or, more importantly, are permanently under-funded by the shift towards the roof, then your Reserves are under-funded and your dues rate should be increased.

Your board could explain the reserve fund re-focus better than an attorney as the board passes budgets. My board of directors, did this same Reserve Fund "paper shift" two years ago, using reserve fund deposits to pay off an old loan caused by an underfunding of Reserves. As long as reserves aren't being removed to fund operations of the HOA, I don't see a problem based on your report.

BellaM2 (Florida)
Posts: 61

Posted:

I don't understand the large increase for Roof reserve, we do not owe any debts. Roofs should only be maintained, not replacement(HO3 policy)what could be the tax ramification?. We have nothing underfunded. I am very unclear. Bella

JonD1
Posts: 2,350

Posted:

Think you need a lot more information before you can make conclusions.

I also doubt the lawyer played much of a role in preparing the budget.

Asking them for budget clarifications could be a waste of time and money.

Simply pose the question to the PM, Treasurer, or Board.

What is your total operating budget?

How many units?

No hard to settle this with some basic answers from those involved.

Are the roofs common property?

Would the owners be responsible for roof replacements under your documents?

Condos? Town houses? Single family homes?

JohnC46 (South Carolina)
Posts: 14,265

Posted:

Bella

HO3 – Special Form Homeowner Policy
The typical, most comprehensive form used for single-family homes. The policy provides "all risk" coverage on the home with some perils excluded, such as earthquake and flood. Contents are covered on a named peril basis. (Note: "All Risk" is poorly termed as it is essentially named exclusions (ie, if it is not specifically excluded, it is covered)

HO3 does not replace roofs due to normal wear and tear. It replaces roofs due to damage. If your docs call for the association to replace roofs as part of normal maintenance then one would have to have quite a large reserve to do so when needed.

We are 113 standalone patio homes and outside maintenance (including roof replacement) is done by the HOA. We expect the cost to be about $2,000.00 per roof and commence in about 20 years. This means we will need $226,000.00 in 20 years. Thus we must set aside in our Reserves for the roofs, $11,300.00 per year. We know this amount will have to be adjusted at a later time as the cost of things rarely goes down.

Could this be what is happening in your association?

KellyM3 (North Carolina)
Posts: 2,239

Posted:

The reserve fund will pay for the replacement of the roof and will not pay for maintenance. Roofs will be replaced and will be expensive.

If the Reserves for roof replacement jumped, the reserves for other property amenity replacement has been reduced. Find what those are. You say your reserves are steady, dues rate is steady and operating budget is normal. This appears to be an "on paper" prioritization.

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