Reserve Fund, meeting this week, not going to be fun

Marq

It sounds like your first step will be to get them to accept the fact/mandate that 10% must go into a reserve fund and if it has not been done, then the HOA is not complying with the law.

Once this is accepted then raise the issue that 10% is the minimum required and it may well not be enough and the proper way to proceed is to have a Professional Reserves Study done.

One step at a time.

MarqA1(Michigan) : quote "My question, the perfect solution would be 100% funded but with a new sub and building funds are there some general milestones that can be used to kick this off ? Like 10% in 2 years, 50% in 6, etc ? )

"Adequacy" of reserve funding balances ( if such fund ever gets established & maintained )

You might look at the wording from laws & regs in jurisdictions which actually go the step further and specify obtaining a formal professional RSF reserve fund study.

If your community is registered under Michigan's CONDOMINIUM ACT ch 559 (Act 59 of 1978 -559.205 Reserve fund ) the lack of going further to require such RF study, is apparent.

A reclusive Administrative Rule 511 provides more details of such condo fund itself but still does not not specify having a RF Study.

Our jurisdiction legislates the condo citeria "adequacy" - full adequacy of RF balance as the projected breakdown or credible engineering milestones next arrive; it legislates a timeframe ( triggered by receipt of RFS ) without any owner approvals at all and including 3 months to establish a Plan for Future Funding derived by the Board from such RFS.

Is this your state's policing ? : “ The Department of Licensing & Regulatory Affairs has NO authority to enforce or regulate any provisions of the Act or the bylaws of condominium developments”

The cruel realities of the marketplace may be the only policing unless owners & auditors raise a fuss. It is false to think that new complexes & conversions will never occur; these newer versions will be competition for anyone trying to sell dragging a huge backlog of under-funded capital items.

1-Wonder if MarqA1's co-owners are thinking ? :

'No big deal. Every condo in the state is Reserve under-funded, some even catastrophically. State couldn't care less. As long as everyone else is doing the same - slope-shouldering current owner's obligations onto whomever may be around in coming decades - then why should resale values suffer ? Better not to know either. Who cares about an RFS ?'

Problem with that thinking is that as the complex ages, newer competitors are arriving. Even if those oncoming arrivals apply the same warped thinking their day of reckoning will be further ahead in the future than MarqA's. Further, if my jurisdiction is typical, consumers are somewhat smartening up about under-funded reserve funds too.

2- Can't be driven by worst case scenarios that hit the media.

But imagine hoping to sell out of the following building after condo owners got this news :

with only $200K in the fund, professional RFS identified a $15.3 M requirement for 275 unit 40 year old highrise. Owners facing special assessments $40K to $66K Jan 15/14 Citizen “$15.3M repair estimate leaves owners of Ottawa high-rise condo in shock” http://www.ottawacitizen.com/business/Hugh+Adami+repair+estimate+leaves+owners+Ottawa+high+rise/9391434/story.html

Read up on it so that you understand what "fully funded" means. As an example, if you have, say, a clubhouse roof that will need replacement in 10 years at a cost of $10,000 then you need to be setting aside $1,000 a year for it. If you are doing that every year then your pool reserve is considered "fully funded". You don't need all of it right now. Being fully funded means you're on schedule to have enough for the various expenditures as they come due.

You can find a good Reserve Study sample here. Please note that I am not affiliated in any way with that company. We haven't used their services, nor can I vouch for their work. What's interesting is the study itself and the kind of info a reserve study will reveal to you.

Whether the Board's accompanying funding plan reaches 'adequacy' or 'full funding' by a straight line or sinking fund or some other financial planning formula, the credible outcome is that funds should be available at the projected date of breakdown or end of life.

How many US states require Reserve Fund studies ?

CAI Community Assns Institute Sep 2013 Summary of State Reserve Fund Laws http://www.caionline.org/govt/news/Political%20HeadsUp%20Public%20Document%20Library/Summary%20of%20State%20Reserve%20Fund%20Laws%20-%20Sept2013.pdf

“R F Studies “are required in only 7 states : California, Delaware, Hawaii, Nevada, Oregon, Utah and Virginia. Washington requires 3 year studies unless unreasonable hardship Most others : “there is no statutory requirement to conduct a reserve study”

-Reserve Study Laws & Legislation http://www.reservestudy.com/legislation