Should Our Assessments Increase?

Should Our Assessments Increase?

Hello Mr. Richardson, Our board is against raising our fees which have been the same for at least 10 years! Obviously we are not keeping up with inflation. According to our reserve study we are over $1000 per unit underfunded. We have [decades old] buildings. My concerns are falling on deaf ears despite the encouragement of our management company to raise fees. I would deeply appreciate your opinion. J.E., Irvine Dear J.E., Association boards are responsible to budget and spend association funds wisely. If a board decides in advance that it will not increase the budget, it is quite likely such a board has placed as its first priority the artificial preservation of assessments and that the upkeep of the property (and the association’s long-term financial health) is a lower priority. Properly caring for the common property and keeping vendor expenses flat for over ten years is unbelievable (and not in a good way). Because of the fact of inflation, cost increases should be factored into the healthy HOA budget. Otherwise, the association is probably deferring maintenance, hiring cheap (instead of the most competent and appropriate) vendors, and is not properly funding its reserve account. Such association are not financially healthy and are akin to people who live on credit cards. Such an association eventually has to face a day of unhappy reckoning when the deferred bills all come due and the association is forced to borrow. Qualified and certified managers are trained to prepare budgets and should be heeded in this regard. Maintaining property, keeping up with inflation, and depositing faithfully in reserves are all actions preserving the...
How Much Reserve Money Does Our HOA Need?

How Much Reserve Money Does Our HOA Need?

Hello Kelly, I enjoy and learn from your column on HOA’s. I live in small resident-managed HOA. Our reserves are very low. Is there a minimum amount or percentage for reserves required by law? Also, is there a legal requirement for a regular audit? Is there a resource I can access for basic legal requirements for HOAs? My sense is we are not fully complying with regulations and laws. Thank you, F.S., Carlsbad Dear F.S., No, there is no specific minimum percentage or amount of money required to be in an association’s reserve account, and the law does not specifically require that ANY money must be in the account. Instead, the law focuses on disclosure, in the hope that savvy homebuyers will realize that purchasing a home in a poorly funded association is less desirable. Civil Code Sections 5550, 5560, 5565 and 5570 require, among other things, that all associations obtain a reserve study each three years, review it annually, and make extensive disclosures about the extent to which the HOA is accumulating the amounts of money recommended by the reserve study. Many boards feel they are helping the members by keeping monthly assessments lower and not building the association’s reserve account each month. This is not help, any more than it helps to borrow each month to pay one’s bills. Reserve accounts keep homeowner associations financially stable by accumulating money each month to roughly offset the ongoing deterioration of capital common assets – such as, for example, roofs, railings, decks, asphalt and other items which deteriorate with the passage of time. An association which does not faithfully build...