Lack of a reserve

Started by SusanB16 • 6 replies • 1479 views

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SusanB16 (Illinois)
Posts: 7

Posted:

I've been the president of a six unit association for about 6 months. We live in a vintage six-flat in Chicago. Before I became president, we had not had an increase in assessments at least fifteen years, there was no budget, no reserve, and no transparency about expenses. When something broke, we did a special assessment. I've finally forced (really!!) the treasurer to reveal how much we are spending for basic services and we are taking care of long delayed maintenance issues. What is very discouraging is that the three original owners (two of whom were the "developers" involved in the conversion) are very resentful of the changes that have been made and there is a real split between the three old timers and the three of us who have bought in in the last five years. The old timers absolutely refuse to create a reserve and when they vote in a block they always prevail because of the size of their units. Because they both delayed maintenance and failed to create a reserve, I and the other new owners have paid about 15,000 each in special assessments as the roof leaked, skylight leaked, boiler failed, etc. I've managed to push a 10% increase in assessments for next year, but this will result in a reserve of only 2K per year, and we have several big repairs necessary in the near future, including tuckpointing and replacement of the horizontal pipes. Our assessments are demonstrably the lowest in the area, but there is incredible anger even over this modest increase. Is there anything that can be done to resolve or just effectively handle this kind of situation (other than selling and moving on, an increasingly attractive prospect).

SheliaH (Indiana)
Posts: 6,964

Posted:

Good Lord, do you live in MY community? (Oh, wait, you're in Illinois - my home state!)

I'm treasurer of my HOA as well (a community of townhomes) - we do have a reserve, thank goodness, but it's terribly underfunded. We're lucky we haven't had to request a special assessment, but like you, I fear it's a matter of when, how much and what for, not if there should be a special assessment. I had hoped to do a reserve study next year because it's been at least five years since the last one. However, I was outvoted (we WILL do one in 2011 - we'll see).

Anyway, the best I can suggest to you is that you bring forth all of the numbers and put them together in a format everyone will understand. You may also want to Google a few articles on the importance of reserves and what happens when a HOA doesn't have one, and pass those out as well.

For starters, I've read that reserves may play a role as to whether FHA, Freddie Mac or Fannie Mae will underwrite a mortgage in your building - if a potential buyer can't get one, the house or condo won't sell or it'll fetch a lower price, bringing down everyone's property values.

I know people howl about fees and "keeping them low," but what they don't realize that if you don't save now, you'll have to pay more in the future because the older the homes, the more expensive they are to repair - especially if you don't have the money to take care of routine maintenance, which may put off or even prevent the need for such repairs. This probably explains why you've been hit with so many special assesments.

You may also want to tweak your bylaws to make things more equitable among the homeowners - why should 3 knuckleheads be able to run the show just because of square footage?

Good luck!

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

SusanB16 (Illinois)
Posts: 7

Posted:

Thanks for the answer and the advice. I had never owned a condo before and was incredibly naive about how they worked. For example, we never had any rules and regulations so until now there have been no late fees, no fines, etc. We spent six months drafting, discussing, and revising before the thing was passed. I thought everything was settled until one of the old timers got hit with a fine for paying his assessment late. He absolutely refuses to pay up because he has done XYZ for the building in the past. Is this kind of thing normal or is my building just incredibly disfunctional??

EllenS1 (Florida)
Posts: 1,148

Posted:

Susan,

I moved into something similar (without first checking to see if there was a reserve). We had 11 units in a co-op and I learned when I got on the board that the assessments were ridiculously low. In the two years I lived there we raised the assessments three times which only took care of day to day expenses. We had two special assessments within four months after I moved in. Since this was a 50 year old building with no reservee and huge expenses coming up I took the easy way out and sold and moved. I never regretted it.

SheliaH (Indiana)
Posts: 6,964

Posted:

If you've read various other posts on this website, you've probably figured out that attitudes such as what you're seeing in your building are fairly typical in HOA land. People love the idea of paying a relatively small fee for maintenance(compared to doing everything themselves) but don't seem to understand that as time goes on, expenses go up and you have to pay accordingly.

As for the old timer who's mad because he's done XYZ for the building in the past - as Janet Jackson used to sing "what have you done for me LATELY?" If all of you have agreed to the rules and he got fined for paying his assessment late, he should shut his yap and pay up - maybe next time, he'll plan better. If you pay your water bill, light bill or car payment late, you get hit with a late fee, so why should the association be any different?

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

RickW (Illinois)
Posts: 169

Posted:

Susan,

I'd check a few documents, if you haven't already done so. One is the Illinois Condo Act, http://www.ilga.gov/legislation/ilcs/ilcs3.asp?ActID=2200&ChapAct=765%C2%A0ILCS%C2%A0605/&ChapterID=62&ChapterName=PROPERTY&ActName=Condominium+Property+Act.

The other is the deed filed with the county within which you live. I know that in our deed (townhomes in DuPage County), we are required to 'adequately' fund a reserve fund. Sure, its questionable what 'adequately' means, but regardless, according to our deed, there in fact needs to be a reserve fund.

The Reserve Fund Study, in my mind, is a must have. Even if an association does not adhere to the study strictly, it provides a fantastic guide. One which our board uses quite often.

SusanB16 (Illinois)
Posts: 7

Posted:

Thanks to everyone who responded. I have printed out articles on the need for reserves, created spread sheets detailing future expenses, circulated a carefully constructed budget, and our most recent buyers explained how concerned they were about the lack of a reserve and that they used that both to bargain down the price and to get a 5,000 cash refund at closing. All of this to no avail. Two of the "oldies," both of whom rent out their units, have threatened to sell, which would be the best thing possible for this building, but I see no sign of that really happening.

We tried to put rental restrictions in our rules and regulations, thinking that would force the issue, but our lawyer told us that we would need to revise our declaration--and we don't have the money to do this now and maybe the votes.

I am sorry if this sounds like a real whine, but I am really at a cross-roads here. I love my place, which is ideally located only blocks from my job, two blocks from the lake, 5 miles and an easy train ride to downtown, but I feel as though I am being financially and emotionally drained.

Has anyone seen a building turn around dramatically?

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