RESERVE FUND PROVIDED BY BUILDER?

We are a 200 home subdivision in Texas. Our HOA is controlled by the builder but will transition to the residents in a year or so. Is the builder required to provide any money in a reserve fund when we transition? We always thought we would inherit something in a reserve fund but the HOA management company tells us the builder will pay for a reserve study but nothing else. This is a major, national builder.

Thank You

Larry,

The Declarant (builder/developer) should turn over all funds that belong to the Association. However, depending on the rate of Assessments and the amount of expenses, there may not be any Reserves.

Developers tend to artificially keep assessments low by paying for a lot of the expenses themselves. They do this to attract buyers. Unfortunately, when this happens, the membership has a fight by having to raise assessments enough to cover all expenses and, if supported by the membership, to fund the Reserves. This may be the situation you have found yourself in.

My suggestion is to go back and look at your Association financial statements (typically given during the annual meetings) and see if any funds were being placed into Reserves or not.

It's good that the Declarant is willing to pay for a Reserve Study. Just make sure that the members pick the company to do the study. A professional reserve study could cost $3-5 thousand.

Thanks to all for your replies. I appreciate you folks taking the time to answer.
I agree that the answer is NO. The builder is not required to provide a reserve fund in transition if nothing exists in the fund. My most recent yearly budget report underscores that:

There was an operating net income loss of X
There was a Reserve fund homeowner contribution of Y
The combined Fund net income loss was X minus Y

The builder, on a yearly basis, uses all income to decrease his losses. At transition the total in the Reserve Fund will be a big fat goose egg. In the big scheme of things this will be but a minor problem compared to some others we will face.

Larry

As I understand it you are a 200 standalone, private home association. If each homeowner is responsible for their own home/land maintenance then the reserves are for down the road replacement/repairs of common grounds/amenities like entrance ways, pools, tennis courts, etc.

Day to day operation of these amenities should be covered by association dues as they are Operational Expenses. Like your personal Operational Expenses of utility bill, mortgage, food, lawn maintenance, etc. versus setting aside money (Reserve Fund) to re-roof your home in 25 years.

If your association dues are not even covering Operational Expenses then you have more of an issue then a Reserve Fund. If this is the issue, basically your association is going broke.

Typically in a HOA Budget you need to cover 3 things. Operational Expenses which are day to day costs. Reserve Funding for repairs/replacements down the road with as long out as 25 years like re-roofing the Community Clubhouse. Also helps to have an Emergency/Maintenance Fund for stuff that pops up like toilets plugging at the Community Clubhouse and they need fixing now.

We are transitioning from Declarant to owner control on 01/01/2015. Our Declarant was always setting aside Reserve Funds as shown in our Annual Financial Statement. That money is being turned over to us and even then we may have to raise dues to assure we have what we need further down the road.

In working with a Management Company during our transition they said the 2 major problems they see when owners take over from the Declarant are:

1. There is no Reserve Fund and dues need to be raised to build such.

2. The roads, if not private, have not been approved/accepted by the town/county.

You are seeing one of the two. Be sure the road issue is not also lurking.

Hope this helps.

Kerry

Unless I am misunderstanding, the OP is in an HOA with standalone, private, not connected in any way homes. As such, any issue one has is their issue with the builder/contractor versus defects in a shared multi unit condo building such as the elevator, parking lot, the roof over all, etc. Now participating in a class action against a common builder/contractor might be an alternative.

Even in a standalone, private homes, not connected in any way homes, the association may go after shared common area defects like the shared pools, tennis courts, etc.

In my standalone, private, not connected in any way homes, we had 3 contractor builders thus if A Company built my home I would not be joining those going after B Company who built their home.