Tim (fictional) lives in a 30+ year old association. Tim pays his assessments on time each and every month. The association needs to make a major renovation to repair exposed rebar, stucco repairs, and painting. The project will cost the association approximately $375,000 dollars. The association does not have an adequately funded reserve account and a special assessment is necessary. Each unit owner will be assessed between $8,000 and $10,000. Tim cannot afford the special assessment and the association is considering the foreclosure of Tim’s unit.
Does this hypothetical scenario sound familiar? Unfortunately, many older associations are faced with this issue. Special assessments are commonly used to pay for expenses outside of the budget, which can create hardships for both unit owners and associations.
The Florida Legislature has attempted to provide a solution to this issue by requiring Association to fund a reserve account and suggesting that Reserve Studies be performed regularly.
Has your association ever had a reserve study prepared and then adequately funded the association reserve account pursuant to the reserve study recommendations? If so, congratulations! If not, how should your association plan ahead for future repair and replacement projects without causing an additional burden to unit owners by having to adopt significant special assessments?
Step #1, hire a professional to conduct a reserve study. If you are lucky enough to have had a study prepared in recent years, have it updated to reflect the properties current condition. A properly completed reserve study will provide your association estimates and information about the remaining life of the physical components the association is required to maintain and the estimated replacement costs associated with the replacement of and major repairs to those components. A reserve study will significantly help your association in properly budgeting for future repairs so that adequate reserves can be funded, as well as reflect an accurate picture to unit owners of the associations condition, both physically and financially.
Step #2, understand your budget. An association that properly plans in advance should only need to make small increases to its regular monthly assessments in order to properly fund reserves. While the majority of unit owners will not be happy about increases to assessments, homeowners should be educated about the benefits of reserve funding and the possibility of a significant special assessment in the future for major repairs should a reserve fund not be maintained.
Step #3, your association may be able to obtain a loan to cover some or all of the costs associated with a repair or improvement. Although lending guidelines are stricter now than they have been in the past, this option is still available as long as your delinquencies are reasonable and below 7%. In order to obtain an association loan the association/management will need to provide the bank with important information, such as financials, cost estimates for the anticipated project, and collateral (an assignment of the right to future assessments).
Your association should stay ahead of the game and be able to fund significant repairs and replacement projects without the need for special assessments by updating its reserve study regularly, keeping delinquencies low, and creating a plan of attack for raising reserve funds.
We have successfully helped dozens of Associations by performing Reserve Studies, implementing a reserve funding policy, maintaining an adequately funded reserve account, and developing a plan of action for major repairs and necessary funding. For questions regarding this article or for assistance with creating a Reserve Study, please contact us at 305-403-0575 or send us an e-mail to info@fourpointsproperty.com.
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