Preserve Your Reserves

2014-02-01T12:12:00Z Preserve Your ReservesMaggie Flynn
February 01, 2014 12:12 pm  • 

Seventy percent of homeowner associations are underfunded, and homeowners will feel the pinch

Anyone who lives in a townhouse or a condominium relies upon a homeowner association (HOA) to manage and maintain the building and common areas. Unfortunately for homeowners, a new study shows that most HOAs are drastically underfunded.

While regular HOA assessments go toward monthly maintenance and regular fees, the association also is expected to hold a reserve fund that can be drawn upon for emergencies.

But the majority of HOAs don’t have the reserve funds to deal with problems like a leaky roof or burst pipe. A recent study by Association Reserves, a study company that works with HOAs nationwide, reveals that 70 percent of HOA reserves are underfunded.

That number doesn’t surprise Richard Monson, president and CEO of California Association of Homeowner’s Associations Inc.

“It’s fairly common knowledge that people move around,” he explains. “If you were living in a condominium association and your work was going to take you someplace else in a few years, you aren’t going to want to put your money into reserves for the future benefit of someone else in the association.”

If the reserve fund falls short, a potential buyer or lender might steer clear. However, “other than that, there’s not too many consequences” for the association itself, Monson says.

The most significant consequences fall upon current homeowners.

When the building or community requires the emergency repair or unexpected expense, the association can choose to charge a special assessment (one lump-sum payment) or increase the monthly payments to the association.

First-time homebuyers should always be thorough when researching prospective homes, but they should take special care in learning about their HOA. Rathbun says prospective homebuyers should be proactive in their research.

“Is the association financially solvent?... Has the community seen a lot of special assessments in recent past?” Those questions must be considered, Rathbun says.

Put simply, he says, “In other words, do your homework.”

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