Reserves

Ruth

The more complex the association is (as in the amenities it has) the more it requires a professional reserve study. Based on your description I would say you will need professional help to prepare a Reserve Study. Basically the study will estimate the life of and the cost to maintain/repair it.

As an example. In our 113 standalone homes association, our association is obligated to replace roofs. If one assumes a roof lasts for 20 years and homes our size cost $3K to roof. That says in 20 years we will need #339K to replace roofs so we must put $339K/20 or $16,950.00 per year aside for when this happens. Now this will have to revisited/updated every few years as we know cost go up so in 20 years the $339K will not cover it.

One additional point. Operating (day to day) costs should not come out of reserves. Let us say you need to clean and repaint your pool every year at a cost of $2K. This is a operating cost and the money should come from the operating budget, not money set aside for future pool work.

Now let us say the life expectancy of a pool interior/liner is 10 years and will cost $8K to replace. This is something that should be set aside under reserves, so in 10 years you have the money available.

When something has to be dealt with and there are no reserves, typically each home will be assessed the amount needed. In my roofing case, $3K per home. Many folks (often elders) fight reserves as their attitude is well I will not be here then so let the new owner deal with it.

Hope this helps.

Would you take out your own appendix? So unless you (or one of your volunteers) are an engineer with experience in evaluating the remaining useful life of structures and equipment and estimating replacement costs, why would you not hire such a professional to prepare your reserve study?

You have a substantial number and type of amenities. If you try to do your own reserve study on the cheap, and later have to impose a special assessment to cover replacement costs you mis-estimated, how will you defend your decision?

Ruth,

The fact that you are still under declarant control may in fact mean that you have underfunded reserves.

This is because Developers typically keep assessments artificially low to entice buyers to purchase. If your developer is keeping assessments low, then it's likely that the Reserves are underfunded (if funded at all).

If this is the case, you may simply have to wait until the Association is turned over to the members to correct the issue and fully fund the Reserves.

In the meantime, you may want to start setting aside additional money into your personal savings in case a special assessment is needed to pay for repairs that the Reserves might not be able to fund.

Hope this helps,

Tim

Tim,

You may be jumping to an unwarranted conclusion. After 27 years it is unlikely that the developer still controls the association.

The CC&R's for my own association allows the developer to annex additional property into the association. The developer continues to do so even though he turned control of the association over to the owners 11 years ago.

One of the problems that might create in the OP's situation is that some capital assets may be significantly older than others. For example, streets in the oldest parts may be overdue for repaving while the newer sections are good for another decade. This may require multiple reserve studies as each unit that has been added will have its own timeline.

Ruth,

Have your HOA hire a professional company that crafts Reserve Fund studies. They will customize your report to your property and tell you how much you should be saving annually. That will be your only easy way to assess your situation where your board understands. Anything less will come up short.

The problem with that attitude is it is very short-sighted.

True, older people may not be around in another 5, 10, or 20 years. So, what happens to their homes? Most likely, they get passed on to their heirs. Here's the problem: Lenders often won't write mortgages for people buying homes in developments that don't have a proper reserve study and properly funded reserves. They don't want the risk of a borrower possibly being faced with a high special assessment later which could make it difficult for them to repay the loan. So, that can make it difficult for the older person to sell the home, or for their heirs to sell the home after the older person is gone.

Janet,

Absolutely, positively the most important lesson I have learned from others on this forum is to never buy into a development that is not 100% sold and never buy into one where the declarant still controls the association. Too much can go wrong with an incomplete development and declarants cannot be trusted.

I will second that one ... especially if someone does not know the state laws to insure their rights are protected!!!