ADDRESSING INSUFFICIENT RESERVES: WHAT HOMEOWNERS NEED TO KNOW

For many homeowners, living in a community run by a homeowners association (HOA) brings certain expectations — well-maintained common areas, predictable budgets, and stable assessments. But what happens when the HOA hasn’t been setting aside enough money in reserves for years, even decades, and now announces a massive special assessment to pay for overdue repairs?

This situation isn’t just frustrating — it raises serious questions about past and present board decisions, possible legal rights, and whether anyone can be held accountable.

Why Reserves Matter

HOAs are responsible for maintaining and replacing common area components such as roofs, siding, roads, pools, elevators, and more. Reserve funds are the savings account for these big-ticket items. Without adequate reserves, repairs get delayed (often making the problem worse), emergency fixes that frequently involve more damage and greater cost to repair are required, and owners invariably get hit with unexpected large special assessments to raise the funds needed to make the repairs that can no longer be ignored.

Although many states have laws that require HOAs to conduct periodic reserve studies and budget for the recommended funding levels, frequently the required reserve studies are not performed and/or, the association disregards the reserve study recommendations and does not take action to increase member dues to cover the required contributions to the association’s reserves. As a result, the reserve fund is underfunded, the required periodic maintenance of common area components is not performed and when there is a failure of the component, the association lacks the funds that are required for the repair and/or replacement of the component.

Long-term reserve shortfalls usually develop from: (i) Boards trying to keep monthly dues low for popularity; (ii) Boards ignoring or downplaying reserve study recommendations; (iii) Boards prioritizing cosmetic projects over essential repairs; and (iv):