Reserves are only 37% funded in CA

Hi: I have only just joined the HOA Board and have a lot to learn. So happy to find this site, as last Chair left our community saying I would find all I needed from our on line minutes. Not so!

Our reserve study in 2018 showed 57% funded. We changed reserve study consultant for 2021 study and find we are only 33%. Reason is that our tile roofs appeared for the first time in the 2021 reserve study. Homes are 33 years old and study says roof tile has total life of 70 years.

Is this normal practice; suddenly adding the roof replacement after 33 years? The replacement of the underlayment on the roof was mentioned on 2018 and that was 57% funded at that time.
Previous chairperson was very upset and shocked to see the change and promptly moved to Sacramento! I kid, he moved about a year after this news. He didn't do anything about the situation apart from delaying some reserve study projects to get us up to 37% funded.

Is this professional behavior by our reserve study analyst of 2018, should the previous chair have consulted a lawyer? What do you think, all those with much more experience than me, especially if your based in CA. Regards Sue

You wouldn't necessarily see anything in meeting minutes accept something like the Board acknowledged receipt of the reserve study for '21 or some similar language. Reputable reserve analysts are very willing to meet with their clients at no cost. It's not too early for your next study to meet with her/him very soon to learn more about reserves. You might even have sort of a town hall meeting where s/he can make a presentation and then take questions from the Board and Owners.

My board is having exactly that event this Tuesday, which our current Board desperately needs.

Completely agree with Max that the tiles themselves should never need to be replaced, so shouldn't appear on your reserves study list at all.* Can you tell us what the reserve line item description in 2018 says about the underlayment? How much will it cost to replace? How many remaining years of life? What are the exact words in the line item in the '21 study for what you believe is replacement of the tiles themselves? Were any other pricy components added to your study that year?

It's not unheard of & my HOA received a similar rude shock in about 2015. We'd been faithfully raising dues enough each year to build our reserves fund. I recall, we too were in the the high 40% range, maybe 48%. Our (also new at the time) analyst added a $1m+ component that had been "missed" for years. That took us down to about 35% funded. Very depressing.

Has your HOA had no reserve study since 2021? An "update," for example? If so, what was your % funded for the beginning of '23? If not, your board wants a complete study near the end of this year for 2024. You do have a certified reserves analyst or specialist, right?

It is not up to the board president to do "anything" about underfunded reserves, it's the job of the Board of Directors. Your '21 study and/or any updates say how much dues need to be raised to contribute to reserves to get to a healthier % funded. The study most likely will recommend far more in an increase than your board believes is reasonable for Owner' pocketbooks. You then ask your specialist to prepare some scenarios for you of different dues increases to get you on the path to better health.

So if you now are 37% funded, that is NOT that horrible. Many, many HOAs are less-well funded than that. Perhaps 1/3 of all HOAs are 20% funded or less. (It sounds like your previous prez way overreacted if that's why she moved!)

There is no difference in how reserve analysts/specialists evaluate reserves in the US. They have national standards, etc. Go to Davis-Stirling.com for lots of information about reserves. It could be that no one else on your board is knowledgeable. It could be you have components listed that can be dumped, i.e., they will never wear out, or their estimated useful life can be extended. This would be an matter that your specialists agrees with and your Board would need to vote on it.

*An abandoned large police station & jail with huge patio built in 1930 in Old California Spanish style was completely rehabbed into a charming area of shops, restaurants and an entertainment plaza near me.They removed and numbered every single roof tile and put them back on the new roofs.

-- What would the purpose of consulting an attorney be? To tell the 2018 reserve study company that it owes the HOA money because the 2018 company did not include tiles when //maybe// the tiles should have been included? If so, I disagree.

-- Do you understand that reserve studies do not denote an exact science? Do you understand that reserve studies nonetheless have enormous value as a planning tool? California has strict rules about the frequency of reserve studies and lesser, annual updates. See https://www.davis-stirling.com/HOME/H/HOA-Reserve-Study-Required .

-- It's true that reserve studies look forward about 30 years at most (google and you will see confirmation of this). This might be one reason why tiles were not included in previous studies.

-- I advise that the board home in on gathering information about the tiles. They should admit that many sites on the net discuss life expectancy, giving this to be, simply and vaguel, "more than 50 years." Again, reserve studies are not an exact science. The goal of a reserve study is to avoid a large special assessment or having to take a loan. Prudence likely requires that the tiles be included in the reserve study at this time, but arguably not earlier.

-- I think it would be wrong to consult an attorney about this. I think the HOA's money would be better spent getting say a roofing professional's opinion of how long the tiles can be expected to last. Even from the professional, expect a very approximate "guess." You all could even call around and ask various roofing companies what the life expectancy of tiles is. Expect answers ranging from 30 years to the life of the building to "it just depends."

-- Weather patterns may be taking a toll on the tiles. E.g. high winds may be taking a toll on whatever fastens the tiles.

-- Regarding the low percent funded figure: In my opinion best practices is to comply with what the reserve study recommends with regard to assessment increases to get the reserve funds beyond 70%. Flirting with a large special assessment or the HOA having to take a loan may be reckless.

This has nothing to do with the replacement of the tile, it has to do with the replacement of the underlayment that protects the roof.

In my area, Solar Companies are refusing installs unless the underlayment replacement is included - this is 20 years in

Tar paper is a generic term for 'felt roofing underlayment' since it is asphalt based and I think you will find the most 'tract' homes in S Cal use 30lb tar paper/felt on the roofs under the concrete tiles