Ensure Your HOA Stays Financially Healthy with Proper Reserve Planning

Studies show that there are a growing number of homeowners associations that ignore reserve funding requirements and as a result, fail to maintain the required level of reserve funds to properly maintain, repair, and replace common areas within the common interest community that the association is responsible for. Such a practice is a violation of the responsibilities of the board members who make the decisions for the association and will ultimately have considerable negative effects on the association.

Inadequate reserves are typically a result of several different causes, but in most instances the problem can be traced to poor decision making on the part of those who are responsible for the preparation of the association’s annual budget. Maintaining a realistic budget each year is critical to the financial success of a homeowners association. An unrealistic budget will ultimately lead to improper use and depletion of necessary reserve funds, deterioration of property that is not properly maintained, unexpected needs for special assessments on homeowners, conflicts among homeowners and board members, and a decline in the desirability and value of the property that is in the affected development.