Homeowners Associations Must Maintain Proper Reserve Funds

Associations are responsible for the repair, replacement and maintenance of the common areas. An association’s governing documents may also have provisions that require the association to maintain various separate-interest components. In addition to the normal operating expenses for things such as insurance, landscaping maintenance, and utilities, all homeowners associations need to anticipate the need for future capital expenses such as a new roof, street paving, and repairs or replacements of other major components. The funds that are required for such future capital expenditures are commonly referred to as the association’s “reserve funds.” The establishment and maintenance of proper reserves is typically mandated by: (1) state statutes and regulations; (2) an association’s governing documents; and (3) mortgage lenders.

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