Get 2 months of free community web site hosting from Community123.com!
Tuesday, June 18, 2019
Get 2 months of free community web site hosting from Community123.com!
Only members have access to all features.
Click here to join HOATalk for Free! Members click here to login and access all features.
Subject: Florida HOA - Reserve Fund Investments
Prev Next
Please login to post a reply (click Member Login on the menu).
Author Messages
ToddR7
(Florida)

Posts:2


06/05/2019 10:15 AM  
I have seen and read multiple post regarding the investment instruments that reserves can be invested in.

The logical investment to protect all principal contributed at all cost is FDIC insured accounts.

However, our board invested a significant amount of funds into non FDIC insured brokered CD's. Yes, non insured. The principal fluctuates like a bond with principal adjusted as interest rates move up or down. Clearly, in this interest rate environment, principal has been lost.

Is there a reference to any Florida law on the limitation on what accounts these funds can be invested?

I have also seen comments referencing our governing documents. There is nothing addressing investing reserve funds. However, the board adopted a resolution that is vague and doesn't limit brokered accounts.

This is a potentially dangerous scenario.

Thank you.
AugustinD


Posts:1631


06/05/2019 10:48 AM  
Is your HOA under developer control?

I agree this scenario is dangerous. It is also par for the course for volunteer directors. Yours are not bright.

Florida Statute 720 has a number of restrictions on reserve funds. It seems to me that brokered, non-insured CDs result in a Reserve fund whose value fluctuates, potentially by a lot. This will result in potential, unplanned violations of the statute.

E.g. the statute at 720.303 (6) (f) states, "After one or more reserve accounts are established, the membership of the association, upon a majority vote at a meeting at which a quorum is present, may provide for no reserves or less reserves than required by this section." The implication is that the Board deciding, via these non-insured CDs, to have less reserves violates the rights of the members to vote on the matter, pursuant to 720.303.

In general, I do not think budgeting pursuant to 720.303 (6) can be achieved.

Statute 720.303 also speaks of the fiduciary duty board directors have to the HOA and members. This means they are not supposed to violate Florida statutes on budgeting. They are not supposed to take members' money and use it to gamble.

ToddR7
(Florida)

Posts:2


06/05/2019 10:56 AM  
No, it is not under developer control. Turnover was made in November 2017.

See if this sounds familiar.....a bunch of former "captains of industry" took control and made our community and HOA their own little city.

Better yet, our HOA is self managed. 1,425 doors. Recipe for disaster, you bet.

Fiduciary responsibility?

Our board consist of seven members. Three were voted out in March 2019, including self proclaimed leader. Four more to get voted out in March 2020.

Being on the finance committee has been an interesting challenge.
DavidW5
(North Carolina)

Posts:565


06/05/2019 5:24 PM  
Are you sure the brokered CD's do not carry FDIC insurance? In my experience brokered CD's are actually issued by banks and are then resold by brokers. Such brokered CD's cannot be cashed in early by paying an early withdrawal penalty like a CD bought directly from a bank. Brokered CD's can be sold on the open market at a price determined by the prevailing interest rates. That price may vary substantially during the term of the CD. But if the brokered CD is held to maturity, the full face value plus interest will be paid and the principal is very likely fully FDIC insured.

My HOA uses brokered CD's exclusively for our replacement reserve funds and they all carry full FDIC insurance.
GenoS
(Florida)

Posts:2960


06/05/2019 6:43 PM  
Posted By ToddR7 on 06/05/2019 10:15 AM
Is there a reference to any Florida law on the limitation on what accounts these funds can be invested?

I have also seen comments referencing our governing documents. There is nothing addressing investing reserve funds. However, the board adopted a resolution that is vague and doesn't limit brokered accounts.

It is risky but there's nothing in the statutes that prohibits it. Monumentally stupid, but not illegal.

Your best bet is to get the board members who approved it out of there. You've got over a thousand homes? Get ready to kiss your reserves goodbye. Not saying it will happen but it's something you should be ready for.
SheliaH
(Indiana)

Posts:2518


06/06/2019 9:37 AM  
What Geno said. And why wait until next year to get rid of the remaining bunch, especially if they’re still not acting right? Your documents may have instructions on how to call a special homeowner’s meeting and/or procedure to recall board members. Read it, then rally your neighbors together to get it done.

Our documents also state that reserve funds MUST be placed in investments that protect the principal, so that limits us to FDIC backed funds. You might want to have the new board adopt a rule to that effect or persuade the homeowners to approve amending the CCRs or Bylaws to mandate this.

PS - if you haven't done so, the board should have a reserve study done so you can begin funding and managing the reserves the right way. There's more to it than just protecting the fund principal.
CathyA3
(Ohio)

Posts:256


06/06/2019 11:16 AM  
I also recommend reviewing your governing documents to see what they require in the way of insurance. Ours require fidelity insurance to protect the Association against dishonest or fraudulent acts in an amount no less than the greater of: 1) 150% of the annual operating expenses including reserves; 2) the maximum funds that will be in custody of the Association at any tine; and 3) the sum of three months worth of assessments plus the Association's reserves.

Of course this may not address loss of funds due to stupidity unless you consider willful ignorance to be dishonest or fraudulent.

On the other hand, brokered CDs that are held to maturity will not suffer a loss of principal, the same as with bonds. If the board has invested funds that will not be needed for 10 years or more according to the latest reserve study, and the board also has realistic ideas on budgeting and spending, then things should be fine. However, we avoid brokered CDs in my community - just because we're responsible and realistic does not guarantee that future boards will be, or that they won't run into some unforeseen event and need the money ahead of schedule. I don't believe that brokered CDs pay enough in extra interest to justify taking on the added risk.
Please login to post a reply (click Member Login on the menu).
Forums > Homeowner Association > HOA Discussions > Florida HOA - Reserve Fund Investments



Get 2 months of free community web site hosting from Community123.com!



News Articles Provided by: Community Associations Network
News, articles and blogs about condos/HOA's

Only members have access to all features.
Click here to join HOATalk for Free! Members click here to login and access all features.







General Legal Notice:  The content of forum messages are from the posting member and have not been reviewed nor endorsed by HOATalk.com.  Messages posted by HOATalk or other members are for informational purposes only, are not legal or professional advice and do not constitute an attorney-client relationship.  Readers should not act upon this information without seeking professional counsel.  HOATalk is not a licensed attorney, CPA, tax advisor, financial advisor or any other licensed professional.  HOATalk accepts ads from sponsors but does not verify sponsor qualifications nor endorse/guarantee any sponsor's product or service.
HindmanSanchez Legal Notice:  (For messages posted by HindmanSanchez) This message has been prepared by HindmanSanchez for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute an attorney-client relationship. Members of HOATalk.com should not act on this information without seeking professional counsel. Please do not send us confidential information unless you speak with one of our attorneys and get authorization to send that information to us. If you wish to initiate possible representation, please contact an attorney in our firm. Our attorneys are licensed to practice law in the state of Colorado only.

Legal Notice For Messages Posted by Sponsoring Attorneys: This message has been prepared by the sponsoring attorney for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not constitute an attorney-client relationship. Readers of HOATalk.com should not act on this information without seeking professional counsel. Please do not send any sponsoring attorney confidential information unless you speak with the sponsoring attorney or an attorney from the sponsoring attorney’s firm and get authorization to send that information to them. If you wish to initiate possible representation, please contact an attorney in the firm of the sponsoring attorney. Sponsoring attorneys that post messages here are licensed to practice law in a specific state or states as indicated in their message signature or sponsor’s profile page. (NOTE: A ‘sponsoring attorney’ is an attorney that is a HOATalk.com official sponsor and is identified as such in the posted message or on our sponsor page.)

Copyright HOA Talk.com, A Service of Community123 LLC ( Homeowners Association Discussions )   Terms Of Use  Privacy Statement