reserve accounts

I have been living in a HOA community for 27 years. In all these years, there have never been separate reserve accounts set up by previous boards. When the Corp handed over the torch to the homeowners, no board after that followed the same by not providing reserve accounts over the years. Our association has some money in reserve but not dedicated. We need to start on a new budget for 2018 and need to fix this situation. All of us are volunteers and know what we need to do but I am asking if anyone out there has had the past experience of setting up these accounts. If so, we could certainly use some input. Have any of you done this yourselves or have you used professional help to do so? I would appreciate any help I can get. Thank you

What Norm said. You might also want to talk to your bank or perhaps a few others (preferably those who have experience working with HOAs) on what your options are in establishing the account. You should strive to get an interest bearing account that protects the principal.

Between the reserve study and your association attorney, your board should also consider establishing some policies and protocols for the account covering things like borrowing from reserves (which you should avoid as much as possible), how often to do a reserve study, how the reserves should be funded, what components of the common area qualify as reserve items as opposed to something that could be covered by the operating budget, etc. By establishing some policies and protocols, future boards won't have to start from scratch.

I agree with Bill too. You need a study done by a professional or certified reserves analyst.

But, wait. Tell us a little about your reserve items or components. Do you have many? Fences? Swimming pool? Lighting? Sprinkler systems?

Welcome, NormaB. Your HOA sounds a lot like mine. We have never had a reserve study done. I have tried to get some consensus on getting one done but the board as a whole does not agree. Reason? They don't want to spend the money when we can "do it ourselves". We are self-managed.

Please be aware that reserve "accounts" exist in the plural only for accounting purposes. Usually the amounts dedicated to each "account" will all be in the same bank account (subject to FDIC limits that might result in more than one bank accounts).

This part is very important:


In Florida, if you have no reserve accounts set up then FS 720.303(6) probably does not apply to you re. reserves. This is a big deal because if FS 720.303(6) does apply then your hands are tied very tightly with regard to how you budget your reserves, how you may handle the money, and how the different accounts may be adjusted.

Under FS 720.303 every year you will need to prepare 2 budgets. One with fully funded reserve contributions - the statute provides a formula you must use - and one with underfunded reserve contributions. YOU NEED A VOTE OF THE HOMEOWNERS TO APPROVE A BUDGET WITH UNDERFUNDED RESERVES. Every year you want to underfund. Without that vote then the 1st budget must go into effect. This is designed to protect homeowners in the long-term from themselves.

Starting with a reserve study is a good idea. With or without a study, however, realize that once the board commits the association to being under FS 720.303 then you will have more work to do. Preparing two budgets is only the start (if you want to underfund, that's not a given in every case). There's also the necessity for an owner's meeting to vote on the underfunding. Every year, if need be.

If you have no reserves, reserves that are not subject to FS 720.303(6) or the homeowners have voted to underfund them for the year then you are required to have conspicuous language - specified by statute - in your annual financial report. This is key information for any prospective homeowner to be aware of.

My HOA does none of that and it has been a sore spot with me since I got here. My advice would be to learn as much as you can about FS 720 and reserves, give serious consideration to getting a reserve study done, and then plan for a changed way that things are done every year with regard to your budgeting process (those changes including a homeowner's meeting and vote if any deviation from the statute is planned for the year).

A reserve study is where I would start. However, would need more details on what your HOA needs a reserve account for. What common areas do you have which would need a reserve account for? Do you have a pool? A clubhouse? Responsible for roads/roof replacement?

Having a reserve account just for reserve account sake may not be what your HOA needs. There could be some tax ramifications. Plus it may create some distrust of general membership or bad spending via the board. Members may say "Why are we paying more dues to put into reserves?" Board members may use the money as a "cushion" fund. "Well we can do this knowing we have this money in reserve". Which can get you deeper in a hole later. So it is quite the balancing act.

We did not have a reserve account. It was just a small savings account. We did have a pool, clubhouse, and other minor expenses. For us, it was better to have a special assessment for those times we had "special" project/emergency needs. Otherwise, most people did not like the idea of raising dues to put toward savings/reserves.

My goal basically was to have enough in savings to cover the insurance deductible.

JohnC, ain't that the truth? For 10 years our roof reserve schedule anticipated a 20-year lifetime on $1,000,000 of re-roofing due again in 2027. We're halfway through that 20 year period and the roof reserve is sitting comfortably on $500,000. Halfway to the goal halfway through the cycle. We need another $500,000 from 100 homes over 10 years, monthly c $41.67.

Now we learn that the roofs need to be replaced in another 5 years, not 10. So we need $500,000 from 100 homes over 5 years, monthly c $83.33.

That's a $42 per month increase that we need to start collecting ASAP. In the last 10 years this HOA's monthly assessments have gone up an AVERAGE of $6 per month. Our point man on this crisis is a board member who is a retired CPA. His word carries a lot of weight in the community. He's selling his house and moving on August 1. My only ally for sanity is leaving.

The kicker is the estimated remaining lifetime of the roofs, which was 10 years and suddenly went to 5 years, is an estimate from the roofing contractor who last re-roofed in 2007. He's looking for the business but nobody here seems concerned that he might be giving us the business. My calls to engage an independent roofing consultant who has no vested interest in our re-roofing plans have so far gone unheeded. We're staring down the barrel of a $2,500 special assessment in 5 years unless people open their eyes and see the consequences of only raising assessments another $5 next year.

If you live in a PUD-Planned Unit Development Non Profit and never had a Reserve Fund. Can the board vote to have a reserve fund? We only have 2 gazebos, 2 signs and private streets which need no repair. We as unit owners are responsible for our own unit-siding-roof. This is in Ohio.

Thank you

Reserves are very important as it keeps special assessments to a minimum (if at all).

To learn more about reserve studies (which identifies how much you need to set aside each year to pay for future planned expenses and replacements), see the following thread on this forum:

http://www.hoatalk.com/Forum/tabid/55/forumid/1/postid/103517/view/topic/Default.aspx