Working capital/Reserved Study and Annual Budget Questions

Jordan

An HOA has to submit a Budget and a Year End Financial Statement to the owners every year. The Year End will show how much money is sitting in the Reserves.

If no Reserve Study, then just say one has not been done.

I agree with John, provide the following:

Year to date Budget summary (budgeted vs. actual)
Year to date financials (typically what is provided by the Treasurer at board meetings)
Copy of the latest Reserve Study

Yes, with Richard, a reserve study should list all of the items your HOA is obligated to repair or replace. The Study includes how long the item should least ((Estimated life); how long it has left (remaining useful life), and how much it will cost to replace it. Money is contributed each month or year to reserves by Owners so that when items need major repairs or need to be replaced, there are funds to do it.

Without reserves, if a major expense is needed, let's say to replace a clubhouse roof, there would be have to be a special assessment where each owner would have to pay a share of that roof replacement.

Banks are becoming more and more interested in seeing healthy reserves balances. I think FHA has a minimum reserves balance they'll allow before they'll back such a loan.

I think what the lender wants to know is the value of these items, and how much your HOA has set aside to repair/replace them. Some HOAs have dozens of these reserves components and some have very few.

(I don't think "working capital" is the right phrase. Also "price" isn't the right word.)

Say, what size is your HOA, Jordan? Do you have a property manager? If so, s/he should know the answers to your questions.

Most states require that an annual budget be sent to all owners. Don't your CC&Rs or Bylaws touch on this?? If not, CO state law surely does. If you're in luck, a very knowledgeable CO poster will reply to your concerns.

So we have just got our HOA CC&Rs, Bylaws, and Supporting Documents done up to what we would like them to be so we are basically trying to start fresh as an HOA. We are a very small 13 homes HOA and since we are so small we haven’t been able to get a property manager to take us on and nor do the owners want a property manager. I will look into the CO state laws and see what i find there. The only thing that our HOA pays for is water and trash. We’re very minimal as we are a country subdivision so have no city regulations like many HOAs. Thank you for your help!

Thank you everyone that has replied so far. I have a few things i can go off of now and look into further because of your responses!
We are basically becoming a new HOA so everything is new to us!

With only 13 homes, it's possible you have very few or no reserve items to put into a study and to save up for. Does your HOA maintain any fences? Roofs? Curbs, sidewalks or streets? Exterior or Street lighting? Sprinklers?

New owners don't usually pay a lump sum into reserves, but start getting billed monthly or annually for reserves as a part of their dues.

Water and trash are not reserves items, they are part of your operating budget. It sounds possible that they're the only operating expenses your have?? No insurance or taxes?

The HOA would need to maintain the well houses and dirt roads.

Interesting you say that new owners don’t pay a lump sum into reserves because every house except 1 that i know of out of our 13 homes has paid either $2,500 or $3,000 that was called working capital or reserve fund when they were closing. So i wonder if we all weren’t supposed to but was forced to. It was the only way we could buy our house and was told to come up with $3,000 the night before closing.

Yes the trash and water are basically our only operating expenses. But i believe we do have insurance just recently got and just got taxes done.

So we just have trash, water, taxes, and insurance. But we have two well houses and dirt roads that we have to maintain. We also have some common areas that need mowed but that’s about it for our country style HOA.

I have seen 1.5% of home sale price. It becomes a negotiating point between seller and buyer.

This is what is in our Bylaws.
Section 4.2 Budget Meetings
Meetings to consider proposed budgets shall be called in accordance with the Act. The Act's budget process to be followed is as follows:
(a) Effective the first full fiscal year after these Bylaws are adopted and become effective, and for each year thereafter, the Board of Directors of the Association is to prepare and approve a proposed budget at least annually.
(b) Within 90 days after the Board of Director's adoption of the proposed budget, or such longer time as allowed by the Act, the Board of Directors must mail or deliver a summary of the proposed budget to all Members and set a date for a meeting to consider the proposed budget.
(c) 'Notice for the meeting at which the budget will be considered must be mailed not less than 10 days nor more than 50 days before the meeting, or such longer time as allowed by the Act.
(d) At the meeting, unless Owners holding a majority of the votes in the Association vote to reject the proposed budget, the proposed budget becomes the approved budget of the Association.
(e) A quorum is not required at the meeting if the meeting is just a budget meeting. If the meeting is also an annual or special meeting at which other business is to be conducted, a quorum is required for other business to be conducted at the annual or special meeting, but not for consideration of the budget.
(f) In the event the proposed budget is rejected by a majority vote, the budget last ratified is continued until such time as a subsequent budget proposed by the Board of Directors is ratified.
(g) Notwithstanding the above, if the proposed budget is increased more than thirty percent (30%) over the budget for the prior fiscal year, such proposed budget must be approved by a vote of a majority of Members present and voting, in person or by proxy, at such meeting, assuming at least a quorum of Members are present.

This is what is in our CCRs
Section 5.2 Basis of Assessments
The Common Expense Assessment may be made on an annual basis against all Lots and shall be based upon the Association’s advance budget of the cash requirements needed by it to provide for the administration and performance of its duties during such Assessment year, as determined by the Board.

Section 5.3 Annual Assessment
The budget for Annual Assessments shall be submitted to the Owner for ratification pursuant to Section 303(4) of the Act and as set forth in the Bylaws, as the Bylaws May be amended from time to time. The budget may be vetoed by the majority of the total Association vote (i.e., 7 out of 13 Lots). Assessments for Common Expenses shall be due and payable in monthly, quarterly, or annual installments, or in any other manner, as determined by the Board of Directors. The omission or failure of the Board of Directors to levy the Assessment for any period shall not be deemed a waiver, modification or a release of the Owners from their obligation to pay.

Notwithstanding the above, if the proposed budget is increased more than thirty percent (30%) over the budget for the prior fiscal year, such proposed budget must be approved by a vote of a majority of Members present and voting, in person or by proxy, at such meeting, assuming at least a quorum of Members are present.

When we purchased our home 5.5 years ago the dues were $60 and they were raised once so far to $75 back in 2017 i believe.