Voting to Waive or Fully Fund
Earlier in the fall you may have gotten a request to waive fully funding for your association, or you may notice a note on the top of the annual budget you receive in the mail that mentions that the association is or isn’t fully funding. Below is a summary of what those options mean.
Reserves are an association’s savings account, dedicated to replacing association property as it wears out. Reserves can only be spent on the replacement and repair of capital items such as roofs, roads, sidewalks, mailbox structures, association entrance signs, clubhouse features, pools, etc. The point of the reserves is to have enough money to pay for the replacement of these items when it becomes necessary, without having to assess home owners. If an association can do that, then they are considered fully funded.
The amount of reserves an association needs varies widely. A condominium association with a clubhouse, pool, and private roads will require very large reserves, while a home owner’s association with only an entrance sign on their grounds will likely need a small one. So how does an association know how much of a reserve they need?
An association can have a reserve study completed to assess the health of the association’s reserves. In a reserve study, a professional appraising company comes to the association and examines all of its capital items. The age of the items and when they are likely to need replacement and how much that will cost is calculated. A report is given to the board and Grace Property Services, which specifies how much money must be in the reserve account at the start of every year to be considered fully funded. Because these studies can be costly to have done, some Board’s make the decision to just waive every year, or waive until enough money can be saved to have a study done.
Money is put into the reserve account every month, and is a line item on the Association budget. Ohio Law requires that all association’s fully fund unless a majority of the association members waive that requirement. If an association is not fully funded, or has not had a reserve study done, all homeowners will receive a waiver ballot in the fall. If the association does not waive fully funding, the difference between the current reserve fund and what is required to be considered fully funded will be assessed against all home owners immediately. This figure can be in the thousands or tens of thousands of dollars. For this reason, most boards will recommend that the home owners waive fully funding. Because reserve studies can be costly to have done, some Board’s make the decision to just waive every year, or waive until enough money can be saved to have a study done.
It is important to understand that waiving fully funding is not a guarantee that there will be no special assessments. If a large capital repair is required and the funds are not there to cover it, a special assessment will need to be done. The association is obligated to keep the property functional and safe, repairs must be made when necessary, and all home owners are responsible for funding the association.
Grace Property Services works with all boards and associations to try to reach fully funding. Increasing funds to the reserves gradually can lead to fully funding with a smaller burden on home owners then a large assessment.
