Borrowing from Reserves im 2025

With approval from the membership.

Darren,
How is the association going to pay the loan back? Have the dues been raised?

Borrowing, for reserves or financing, sounds like a fools errand. The issue you have inadequate operating capital. Due to the early date in the calendar the premium is due, you need to raise your assessments to cover both the 2025 increase now and at least the same value in 2026 over about 12 months.

You need an emergency assessment.

Check your declaration and see what it says about reserves.

You technically could borrow from the reserves for the insurance, but it's not an appropriate use of reserve funds. Reserve funds are for repairs and replacements and capital expenses. Insurance is an operating expense. If you borrow money from the reserves now, aren't you just delaying a repair or replacement and delaying a special assessment?

We are all feeling the pain of higher premiums, but better to do a one-time special assessment or finance the premiums. That's actually pretty common in condo associations. Then you can raise the regular assessment to cover the principal and financing costs and avoid a special assessment.

We all hate special assessments, but in this case it may be necessary. I would not want to be on a board that was responsible for borrowing from reserves for this because there are penalties now for misuse of funds and I wouldn't want to be accused of that.

This string went off in different directions it appears. The situation has nothing to do with a budget shortfall, its merely a timing issue where the policy renews in Jan and setting up an installment plan is costing 8% in interest cost, which would need to be budgeted for. If it was borrowed from Reserves and paid back as the monthly dues are collected, it would be paid back over the fiscal year, and paid in full before year end. The situation is probably something most every COA is dealing with when 20% of the total annual budget comes via an annual premium that comes at the beginning of the year. Basically if 20% of the budget comes due in the first month of the year, but you need at least 3 months of collections to fund it, so you have a cash flow problem.

Nope. Insurance (just like your car, homeowners and health care) is a ROUTINE expense, not a reserve expense, because you need it year round, unlike reserve expenditures which are (usually) a onetime thing. You say you want to avoid financing of insurance policies – what do you think you’re doing when you talk about borrowing from reserves to pay this? You might not want to admit it, but the fact that you’re talking about borrowing from reserves indicates someone needs to take a hard look at the operating budget because it’s not keeping up with current costs or the assessments haven’t kept up with inflation.

HOAs everywhere are facing increased insurance costs for a variety of reasons, but it seems in Florida, it seems I hear a lot about underfunded reserves, no reserves at all, excessive borrowing without paying it back. Then there’s also the amount of claims your community may have filed and how much the insurance has paid out . Perhaps your deductible is too small? While you’re trying to see how this will be paid, has anyone spoken to the insurance company about what’s happened in your community over the last five years or so?

As Tim noted, you need to check your documents to see what it says because depending on the amount, this may be something that requires homeowner approval, and that may take a minute to organize. In less than a week, we’ll be into December, so if you want to do all this by January 1, you’ll run into people being distracted with holiday preparations. By the way, adjusting next year’s budget will have to factor in this loan and interest (you don’t get away with skipping that part).

You may also find these articles helpful

https://azreserveanalysts.com/should-your-hoa-borrow-from-the-reserve-fund/#:~:text=Florida%20has%20very%20strict%20statutes,a%20supermajority%20vote%20is%20met.

https://www.fcapgroup.com/flcaj/flcaj-articles/where-is-the-money-coming-from-understanding-borrowing-for-condominiums/

If your documents don’t mention anything about borrowing from reserves, talk to your association attorney and accountant about your options.

You should also read your documents to see if they have a maximum amount that assessments may be increased with and without homeowner approval. You may need to go with the maximum for this year and over the next year, do a deep dive into your income and expenses, along with talking to the insurance company to see where you can save some money. Having specific procedures for your community on reserve borrowing if you don’t have any – and you need them, as the policy could dictate what should be attempted before this becomes your only option.