Why not avoid these situations altogether? Having HOA reserve funds readily available “just in case” offers you and your fellow homeowners financial peace of mind.
It’s often said that “high risk leads to high reward.” Not so with your HOA reserve funds. High risk leads to risky financial standing.
When you have adequate HOA reserve funds, line items can be reallocated to meet unexpected expenses. For example, if a boiler fails in year seven instead of year ten as projected, funds can be shifted to pay for it.
Work with your reserve specialist to determine the best course of action. Let’s say your plumbing system fails and the cost is the entire amount in your HOA reserve funds. Rather than depleting your account, you may be able to “borrow” from the reserves or use a combination of regular and special assessments to replenish HOA reserve funds.
Use experts for input on major repairs. You want to get the best results for your money, not necessarily the cheapest ones.
All associations must prepare a reserve study every three years. These studies list the major components of common areas and corresponding estimates of their useful life. The board must share the funding plan with HOA members during year-end budgeting. Allocations are only projections and can be revised as needed.
Remember that operating funds and HOA reserve funds must be kept separately and be in good standing. This is probably a board member's most important fiduciary duty.
Adopt a “Reserve Funding Plan” in an open meeting to fulfill your HOA’s obligation to maintain the property. Review your budget consistently and make tough decisions to ensure that enough money is being put away.
Don’t delay repairs for the sake of keeping money in reserves. If repairs are necessary, then the repairs should be done, even if it means depleting HOA reserve funds.
Even though there is no mandate to fund reserves by the Davis-Sterling Act, it's wise to do so to avoid any possible legal disputes. Court has held that a board's failure to fund the reserves was a breach of the board's fiduciary duty.
Here are tips for effective funding strategies so you can maintain the beauty and functioning of your community.
Why spend your time managing your HOA finances when you could be enjoying life in your well-funded community instead? Our team of committed professionals at the Hignell Companies can provide customized accounting services that meet your needs.