Articles

The Truth Behind Your Condo Reserve Fund

by Judi Booker Online Researcher

A condo reserve fund is a "deep pockets" fund established and maintained by the condominium association. It’s a great idea to make sure the condo you are thinking of buying has one sufficient to cover any emergency situation not already covered by insurance. Many people aren't so keen on paying into the reserve fund, because they aren't sure exactly what it's for — which is why a transparent process is necessary. While a percentage of the condo fees homeowners pay will go to maintenance and services, some of it is earmarked for the condo reserve fund.

Who Determines the fund amount?  

When looking at the amount of money needed for a viable reserve fund, the board will typically do a reserve fund study every five years. An inspection of the entire complex helps determine the amount of work needed and that determines the minimum level of cash that should be kept in the fund. This is not for normal operating expenses, but set aside with an eye to covering excessive damage, lawsuits, and other expenses that can't be covered by the building or development's liability insurance, and storm or flood policies. The reserve fund report keeps homeowners advised as to the state of the fund and any potential shortfalls. From time to time, HOA dues are adjusted to keep the fund topped off, or a special assessment is levied to keep the fund at optimum strength. The reserve money is kept in a separate account from the operating fund.

What are Your Rights as a Condo Purchaser or Buyer?

Legally, the board may not be required to consult homeowners when making decisions about the reserve fund and what to do with the reserve fund study. When you sign acceptance of the CR&Rs and the bylaws, you could agree to something less than full disclosure. The CC&Rs are legally binding so long as they do not violate or contravene municipal, county, state, or federal laws. Ideally, the board should issue an annual report of expenses and issues that need to be addressed, and engage in a transparent bidding process. There is such thing as a breach of contract with a condo association and the homeowner can sue if they feel as if they have grounds. Further, condominium boards are facing more government scrutiny and legislation for serious criminal activity and lack of regulatory oversight.

If several homeowners are concerned and if HOA (Homeowners Association) fees are low, you should be having a reserve study done in an open and transparent manner to

instruct on how to raise funds and make sure that rainy day fund is a real umbrella, not a piggy bank for pet project.



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About Judi Booker Innovator   Online Researcher

26 connections, 0 recommendations, 70 honor points.
Joined APSense since, July 3rd, 2017, From New York, United States.

Created on Jan 24th 2018 23:48. Viewed 233 times.

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