HOA Legi-Slate

Recently, the Virginia-Pilot reported that Catherine Johnston may lose her home because the three decade old condominium association she lives in failed to plan for a major structural repair project which can no longer be put off.  Since the association is unable to obtain a loan to cover the costs, the $2 million dollar tab for the project is being financed by a special assessment of $12,000 to $15,000 per unit and homeowners have 3 months to start making payments.  Ms. Johnston, who is currently unemployed, is unable to pay the special assessment. 

Unfortunately, this is not an isolated example of what can happen when associations fail to plan for future repair and replacement projects.  In fact, we are seeing similar scenarios being played out in Colorado.  Here are the lessons board members and homeowners can learn from this situation: 

Lessons for Board Members:

1. While proposing small incremental increases to regular assessments in order to fund reserves may not be a popular thing to do - failure to do so may result in a major financial hardship for homeowners when significant repair and replacement projects can no longer be put off.  
2.  A thorough understanding of the budget of your association is a must.
3. The necessity of having a reserve study conducted, which should include a recommended funding plan, cannot be overstated.  In fact, HB 1359 requires associations to have a Reserve Policy which must include when the association will have a reserve study conducted and whether the study will be based upon a physical and financial analysis. 
4. Boards must make informed and conscientious choices about reserving and investing.  This information should also be part of your Reserve Policy.  

 Lessons for Homeowners:

1. Review and understand the budget of your association.  This should include a review of whether, and to what extent, your association is contributing to a reserve fund for future repair and replacement obligations.
2. Get involved in your association.  Ask questions about what your association is doing to plan for future repair and replacement obligations.  Offer to assist the association with researching and crafting positive solutions.
3. Do not assume your association is contributing to reserves on an annual basis or has a funding plan in place.  Instead, take the steps necessary to become an informed homeowner. 

To learn more about what your association must do to comply with the HB 1359 reserve policy requirement, please review our May 22nd entry on HOA Legi-Slate.