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Monday, December 10, 2018
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Subject: the rule for the 10% condo fees for the reserve.
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Author Messages
DominicD2
(New Hampshire)

Posts:1


11/13/2018 6:52 PM  
'I live in a condo assoc that that requires that we pay 10% of the condo fee;s into the reserve to satisfy the banks and Fannie Mae.
Our association is responsible only for the common land and our clubhouse and not for any part of the home's. So we have a reserve fund at this time that far exceeds any expenditure that could occur. Our roads are in good condition and are good for another 20 years because of so little use. And that would be our biggest expense at that time. So why are we building a reserve at the rate of $10,000 plus per year.
My understand is that Fannie may was interested in making sure that a condo assoc. would have enough money in the reserve to cover expenses to a home that needed a roof or siding and etc. so could we cut the 10% percent to a lower figure of our choice?
GeorgeS21
(Florida)

Posts:796


11/13/2018 8:56 PM  
You should have a Reserve Fund plan that delineates the specifics of all components of your common are and capital equipment and allows clear computations ... this is the first step.
LetA
(Nevada)

Posts:550


11/13/2018 9:34 PM  
You may need to contact your association attorney. I believe here in Nevada HOA's need one and a half times their annual operating expense to be fully funded, and are allowed to be at 85% to be functional under Nevada law. Condos in your state could be different, Our board has not had any issues with owners securing new loans or re-fis.
TimM11


Posts:215


11/14/2018 7:26 AM  
$10K per year after 20 years will be $200K. Like George said, a reserve study would be very useful here. Does your association know what it would cost to replace the streets, renovate the clubhouse, etc? That money might not go as far as you think, especially when taking inflation into account.
JohnC46
(South Carolina)

Posts:7865


11/14/2018 7:41 AM  
There are no rules but one I heard was an association ought to have 6 months dues per unit in their reserves.
JeffT2
(Iowa)

Posts:421


11/14/2018 7:42 AM  
My understanding is that the 10% requirement is not a hard requirement. You need to review the FHA and Fannie requirements for mortgages.

Your condominium association may wish to look into and go for FHA approval. It is possible to get rid of the 10% requirement as long as your association has a recent reserve study and adequate reserves. Once you have that approval, FHA will insure the mortgages making it easier to get mortgages. There is a lot of information on the internet about qualifying for FHA approval.
JohnC46
(South Carolina)

Posts:7865


11/14/2018 7:42 AM  
Dom

I do not think you know what expenses are down the road. You need a Reserve Study to determine such.
KerryL1
(California)

Posts:5950


11/14/2018 8:23 AM  
You shouldn't try to guess at this, Dominic. What does your reserve study say?? If you don't have one, your Board should order one done by a certified reserves analyst or specialist. You probably have reserves components that you haven't thought of.

Do you have, for instance, shared roofs as our condo HOA does? Are there sprinkling systems or fences? Lighting the HOA is responsible for, etc., etc., etc.?

States vary a lot. In CA, for instance, HOAs must conduct annual HOA studies but there's no funding requirement for the total or per owner.

FHA does have a requirement that an HOA's reserves be 10% funded. That is very risky, though. Reserves analysts recommend HOAs be 70-100% funded.

RoyalP
(South Carolina)

Posts:203


11/14/2018 8:24 AM  
Posted By JohnC46 on 11/14/2018 7:42 AM
Dom

I do not think you know what expenses are down the road. You need a Reserve Study to determine such.





EXACTLY CORRECT

new roads from scratch = $1,000,000 per mile

'overlay' 2" asphalt = $75,000 per mile

grind and replace top = $200,000 per mile

(@ today's prices in SC)



YOU MAY ACTUALLY BE WAY WAY WAY UNDERFUNDED
SheliaH
(Indiana)

Posts:2311


11/14/2018 10:51 AM  
Depending on what's in your clubhouse and how big it is, growing the reserve is a good idea so you'll have the money down the road. You also forgot inflation - $10000 in today's money may buy only half (and perhaps less) of what will be necessary 20 years for now.

You also say the association isn't responsible for the homes, but if it's a condo association, you have roofing, siding and possibly repairs to portions of the electricity or plumbing systems the association is responsible for. Reread your documents to see what exactly is association responsibility and then the numbers may make more sense to you. As other have suggested, a look at your reserve study would also be helpful - maybe the funding is at $10K because the reserve fund is relatively now and/or previous boards hadn't funded it properly and now you're playing catch up
KellyM3
(North Carolina)

Posts:1324


11/19/2018 2:09 PM  
Condo boards usually have much more of an expense load that indicated here....this board sounds like a master association.
GeorgeS21
(Florida)

Posts:796


11/19/2018 3:18 PM  
No Dominic?
TimB4
(Virginia)

Posts:16045


11/24/2018 5:14 AM  
Dominic,

You don't really know if your reserves are properly funded or not until you have a reserve study done.

For more info on reserve studies, see the following thread Subject: Reserve Studies/Funds 101:

http://www.hoatalk.com/Forum/tabid/55/forumid/1/postid/103517/view/topic/Default.aspx


Our last quote for milling and paving of roads in the DC area was $14 per square yard (based on 10K square yards). Our study is based on $16 per square yard as this allows for any repairs that may be required once they mill the roads.

Upkeep and repair of a club house, in my opinion, can be as expensive as roads.


I find it odd that you are in a condominium association (your reference to condo fees) and believe that the Association only has the roads and club house as their responsibility. Typically, a condominium also maintains many aspects of the individual properties. You may want to read your governing documents to verify what you believe is correct actually is.

BTW: in the reserves, don't forget about sidewalks, playgrounds, signage, storm water management, etc.
GeorgeS21
(Florida)

Posts:796


11/24/2018 8:40 AM  
Still no Dominic.
GenoS
(Florida)

Posts:2518


11/24/2018 2:41 PM  
Perhaps he heard something he didn't want to hear.
KerryL1
(California)

Posts:5950


11/24/2018 3:38 PM  
info to you, a newer kid on the block, George. Some of us keep posting even when the OP has left the building.

When I do this, and I suspect with others too, the reason is that the topic is general enough that others may be interested in following it. I'd say many HOA boards could always learn more about reserves.
GenoS
(Florida)

Posts:2518


11/24/2018 3:56 PM  
What Kerry said. I wish Florida had a statutory requirement for reserve studies. Most of the board members here over the last few years couldn't tell you what reserves are for if their lives depended on it. Education is key but, as they say, you can lead a horse to water but you can't make it drink. Many board members are ignorant, know they're ignorant, and don't care enough to learn.
TimB4
(Virginia)

Posts:16045


11/24/2018 5:29 PM  
Often, a new poster will post a topic and not check back for several days thinking it takes time to get replies.
Often, a new poster will only post once and if the advice isn't what they are looking for, will not reply.
Sometimes, a new poster will only post once and read the replies without further posting.
Sometimes, a new poster will not reply because the replies are received are attacking vs. being helpful.
Sometimes, a new poster will post a topic and the issue resolved itself so they never check.
Sometimes, a new poster has subscribed to the post and receiving the replies via email and doesn't take the time to log back in to reply.

GenoS
(Florida)

Posts:2518


11/24/2018 6:00 PM  
It's only a week and a half since the OP posted. I've seen posters who post and, since this is the first place they've found that talks about this stuff in a mostly intelligent, don't think to check back in for a few weeks. Give him some time before writing him off. Kerry's right, too, that responses can still help people even if the OP never returns.
GenoS
(Florida)

Posts:2518


11/24/2018 6:00 PM  
... in a mostly intelligent manner...
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