Condo Bylaws Association With Low Reserves In Philadelphia
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FAQ
On average, The Board should be setting aside 15% to 40% of their total assessments towards reserves, although for some simpler situations, a more minimal reserve fund ratio of 10% to 15% may be sufficient. Develop a funding plan that aligns with the calculated reserve fund requirements.
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.
For instance, in Pennsylvania, HOAs are regulated by the Uniformed Planned Community Act (UPCA). This act applies to all planned communities with more than 12 units and creates responsibilities for HOAs to oversee these communities. That said, HOAs typically have documents that regulate themselves.
While there is no ideal funding level, having adequate reserve funds to replace reserve components as they are due over time is the goal. For instance, if an association has a 75% reserve fund level, they can only replace 75% of their reserve components as they become due.
Percent funded is calculated by dividing the current reserve fund balance by the fully funded balance. In the above example, if the association has $30,000 in reserves in year 10, it is 60% funded ($30,000 / $50,000).
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.
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.
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).)
6 Strategies to Fortify Your HOA Reserve Fund Keep Your Reserve Fund Healthy. To ensure your community's financial health, give it a regular check-up. Know When to Use It. Make Financials Transparent. Be Prepared for Future Expenses. Ensure Proper Financial Reporting. Invest Reserve Funds Wisely.
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.
