Is Reserve Legislation Next in Colorado?
And just who do they think is going to pay for this? More micro-management of HOAs by legislators.
Having come form California I have to agree that reserve studies must be a statutory requirement. The major issue is liability exposure not only with the Board but with the enitre HOA. If the complex is under funded because the Board and the Members want to keep the monthly dues low, them I see a issue that a homeowner can and would sue the Board and the HOA for under funding the reserves.
I believe less than 25% of the HOA's in Colorado have ever had a reserve study completed.
Also lenders don't take kindly to a complex that has to special assess for all the capital improvements.
If Colorado does nothing about this issue, then all we have done is make more very rich lawyers, richer!!
Totally absurd and unnecessary. Homeowners have certain rights to obtain current information from their Board. Potential newcomers to the community simply have to ask the right questions before signing a contract to buy. Paternalism is rampant in those states.
I'm President of a CA condo association and have worked with this requirement for 5 years as President. The idea is a good one, but adds expense and the dues will definitely go up. In most cases I would suspect it will be a lot. Volunteers in CA are very hard to find because of this and many more requirements. As a member of a CO HOA I can see a vast difference and in CO it is hard to find qualified volunteers. Politicians only enact the laws. They seldom have to follow them in some cases they feel they can violate them without consequences. We can't as members of a HOA.
As President of a 401 house HOA, I am glad that I inherited a substantial reserve account and a tradition of periodic reserve studies and setting aside a portion of our regular assessments to continue to approach full funding. We've never had a "special assessment", and, so long as we stay on this course, I expect that we never will. Between dealing with the minor grumbling when we increase the regular assessments to allow for building up our reserve fund or risking having to effect a special assessment when the pool heater catches fire or the clubhouse roof springa a leak, I much prefer the former!
Considering how naive people may be about their responsibilities for the common obligations of an HOA and the precarious situation faced by many homeowners with ZERO equity in their home (Thank you banking industry), I fear that without a reserve fund a community may face a heck of a time collecting special assessments and thus find the financial burden falling disproportionately of fiscally responsible & solvent homowners while collection and foreclosure proceedings drag on against those whose resources are already stretched to the breaking point.
A "caveat emptor" approach won't work, because starry-eyed new home buyers will not careully evaluate the books of a new community and inquire as to the life expectency and replacement cost of the several hundred elements that would be in a reserve study.
So, count me IN FAVOR of requiring periodic reserve studies and mandating that a summary of the study be amongst the disclosures required for transfer of a property. For the protection of both financially challenged homebuyers and their potential new neighbors who would pick up the slack when they default, I think that it is essential.
(P.S. for those who might say that we could always get back the money owed, upon foreclosure- think again: When the homeowner has no equity remaining in the property, the HOA has to "eat" the bulk of remaining balance. Aside from the pitiful "super-lien", we come behind the bank.)
HOAs should have a reserve study and disclose how the reserve needs are funded. A "Buyer Beware" attitude suggests they figure it out for themselves. Agents representing the Buyer may have a fiduciary duty to disclose this information or lack thereof.
My experience as a property manager for common interest communities is that some people who buy a home are unaware of the questions they should ask, particularly when it comes to the condition, delayed maintenance, and looming projects for the property. As a result, they enter a situation where a special assessment is on the way or a dues increase occurs but they are not prepared for the sudden change. Some properties are run with much better business practices than others. This new legislation will likely have a larger impact on those communities who are not planning for the future.