Question:
I am a HOA board member of a 13-unit condo building. We just recently held a budget meeting to approve the 2023 budget and in it, any increases in the homeowners’ monthly dues. Our reserve is severely underfunded, 25% of the Fully Funded Reserve Balance stated in our latest Reserve Study, which was completed just this year. The board voted to approve a 5% ($25/unit) increase in the dues, which does very little to fill the underfunded gap. The board members decided that they prefer to pay an assessment in the future if funds are needed, than to pay higher monthly dues (I was recommending an increase of 10%-16%). I am concerned that as a board, we have a fiduciary responsibility to keep a healthy reserve (between 50%-100% of Fully Funded Reserve Balance). Do we, or can we allow a 25% funded reserve?
Thank you for taking my inquiry.
– Oscar
Answer:
Hi Oscar,
There is no statute that specifically requires associations to properly fund their reserves. That being said, it may be argued that the board has an implied responsibility to fund reserves because the board has a duty to collect assessments (regular and special) that are sufficient to perform their obligations under the governing documents, which can include the duty to set aside funds necessary to pay for major replacements and repairs.
While there is no statutory requirement to fund HOA reserves, it is best to fund them according to your association’s funding plan and reserve study.
Disclaimer: We are not lawyers. The information provided on this website does not constitute legal advice.
