For the most part, CC&Rs (Covenants, Conditions and Restrictions) for HOAs require the association to maintain or replace major components found in the common areas. These components range from roads, roofs, siding, exterior paint and landscaping irrigation systems. These components unexpectedly fail from time to time. Associations plan and set funds aside in a reserve fund in order to cover these expenses. Reserve funds are good, and the needed contributions to these funds should not be looked at as an extra expense.
Please keep in mind associations fund their reserves for other important reasons:
- Reserve funds are sometimes needed to meet legal, fiduciary and professional requirements.
- Any secondary mortgage market in which the association participates may require a reserve fund.
- The association’s CC&Rs may require a reserve fund.
- Reserve funds minimize the need for special assessments or borrowing. For most association members, this is the most important reason.
Reserve funds enhance resale values. Lenders and real estate agents are aware of the ramifications for new buyers if the reserves are inadequate. Many states require associations to disclose the amounts in their reserve funds to prospective purchasers. FBN
HOA Reserve Funds
Mike – Reserve contributions are good, as they offset the real cost of ongoing deterioration. The “bill” of ongoing deterioration is as real as any other bill the association is obligated to pay. No bill is inherently “good” or “bad”, but every fiscally responsible organization pays its bills. Reserves pay the very real “bill” of ongoing deterioration.
Reserves allow the association to operate in a sustainable manner, where all owners pay their fair share of the deterioration that occurred while they owned a home in the association, so the funds are available to perform those major repair and replacements in a timely manner.
No association can claim they are operating in a fiscally responsible manner unless they are making adequate Reserve contributions.