Bylaws Condo Association With Low Reserves In Michigan
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FAQ
Reserves are like savings accounts – an accumulation of funds for a future purpose. The source of funding for a reserve might be surpluses from operations, or scheduled transfers that have been planned and budgeted.
Every property has its own unique list of common area assets that the HOA is responsible to maintain. On average, HOAs should be setting aside 15% to 40% of their total assessments towards Reserves. This percentage holds true for all types of associations.
Funding Level Unfortunately, most associations have underfunded HOA reserves. This means they have reserves that are below 70 percent funded. The ideal HOA reserve funding percent sits between 70 and 100 percent.
Section 559.205. The state administrative code requires the co-owners' association to maintain a reserve fund which, at a minimum, shall be equal to 10% of the association's current annual budget on a noncumulative basis. The funds shall only be used for major repairs and replacement of common elements.
Except as provided below, all associations are required to prepare a reserve study at least once every three (3) years with a review to be conducted annually to determine if adjustments are necessary to the association's reserve account requirements. (Civ. Code §§ 5300(b), 5550(a).)
No Reserve Fund Equals Higher Dues or Special Assessments An HOA without an adequate reserve fund may have to increase dues significantly right away or levy special assessments. Neither of these options will get you popularity points with the development's homeowners.
The state administrative code requires the co-owners' association to maintain a reserve fund which, at a minimum, shall be equal to 10% of the association's current annual budget on a noncumulative basis. The funds shall only be used for major repairs and replacement of common elements.
Section 57 of the Act provides that all books, records, contracts, and financial statements concerning the administration and operation of the inium project shall be available for examination by any of the co-owners at convenient times.
The Federal Housing Administration (FHA) has weighed in by requiring approved inium projects to have at least 10% of the annual operating budget set aside for reserves. However, that percentage is arbitrary and is usually never enough for an association that has to paint and replace roofs.
