Nevada dilemma

Started by HaroldS1 • 4 replies • 3689 views

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HaroldS1 (Arizona)
Posts: 314

Posted:

Nevada law requires an HOA to maintain reserves, yet when one HOA made a special assessment to fund reserves, a member sued because the board did not get the required percent vote of the members needed to approve a special assessment. An arbitrator has ruled that the HOA must indeed put a special assessment to a vote of the members. So what happens if the members do not approve a special assessment? The member can then sue the HOA for not being in compliance with state law! http://www.lvrj.com/news/8483492.html

JoeW1 (New York)
Posts: 728

Posted:

HaroldS1 - Read the article, thank you, very interesting. The article kind of confuses me because it states, "The problem is that state law requires associations to have a fully funded reserve for capital improvements". I could be wrong but aren't funds for capital improvements different than items replaced by the reserve funds? Aren't capital improvements things that are not contemplated within the original budget, such as a new gazebo, or new gate?

Special Assessments are one option, budgeting is another. If the By-laws don't prohibit the Board from budgeting a certain dollar amount to fund an increase in the reserves, then a special assessment is not necessary.

The "full funding" method mentioned in the article for reserves can be prohibitive. Many associations use a threshold method for reserves which is a percentage of the total replacement cost of the elements with a minimum reserve balance to be in the account at all times.

My association Board still doesn't grasp that a 5% threshold of $1,205,000 is not $42,250, it is $60,250.00. Unfortunately the Board has lost $18,000 worth of reserve funding because of their unwise error. Compounding the error was ratifying a budget for the coming year that didn't capture the need to increase the reserve funding. Tisk, tisk.

HowardG1 (Nevada)
Posts: 6

Posted:

HaroldS1: Nevada law (NRS 116) requires an HOA to have a RESERVE account and a DUEs account. The RESERVE account monies are derived from each homeowner, these monies are to be used for MAJOR repairs wihtin the HOA, I.E.-sewer line replacement, street repairs, pool repairs, club house roof replacement,etc. These funds are not to be used for daily, weekly or monthly expenses.
The operating expenses for wages, contracts and maintenance (considered budgeted items) are derived from the monthly DUEs allocated to each homeowner.
Sounds simple, right? Ain't so---the last BOD (2006) has us in debt for over $68,000 and they were pulling from the RESERVE fund which is against Nevada state statutes.
We need HELP badly but the BOD does not have a clue to where they can go for help and they won't listen to any of the HO's.
If there is help out there I would welcome it.
HowardG1

HaroldS1 (Arizona)
Posts: 314

Posted:

Howard - are you saying that only operating expenses can be budgeted and collected thru annual dues? And that reserve funds must be collected via special assessments? If so, with this ruling, it would appear to be always difficult to get member approval for special assessments.
How did your BOD establish and fund your reserve fund that they have been dipping into? Are they in trouble because they aren't collecting the budgeted income or just bad budgeting?
I do agree with the arbitrator that the correct percent of the members must approve all special assessments. Otherwise there would be open sesame if a board could levy annual operating dues and also unchallenged special assessments as long as they are labeled "reserves." I don't see how the state law requiring reserves would trump the CC&Rs in this instance. Harold

GloriaM (North Carolina)
Posts: 829

Posted:

Any HOA, POA, COA; any subdivision collecting dues should whether the law says they should or not; have an operating account that pays for monthly expenditures. Should have a budget that anticipates the income of the association, as well as the expenditures. This budget should also include a line item for a reserve fund. The reserve should be used for Capital improvements.

If the association budgets $5,000.00 in a certain line item for the year, the board, MC whomever is in charge should make sure that line item does not go over budget.

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