Real Estate & Property Law

Management Practices - What's Happening?

I wrote a blog awhile ago making suggestions for cost cutting for Boards and HOAs and have seen some practices that make me shudder. I hope it is not as a result of my writings on the issue.

One of the things I have heard of happening are management companies and other "so called professionals" that suggest underfunding of reserves is okay and recommend it as a means of saving money.

Yikes. Enough HOAs in this state are underfunded with regard to reserves to sink a ship, or should I say many ships. Studies done by industry vendors with the ability to run credible surveys (David Levy CPA, SF and Tyler Berding, Attorney, Alamo - my hat is off to you) show that a large percentage of HOAs and Condo Associations in this state are underfunded in reserves, being closer to the 50-60% mark than 90-100% (meaning somewhere around 40-50% underfunded).

Hey folks, this does not mean that being 50-60% funded in reserves is where the bar should be set. All HOAs and Condo Associations that are at that mark - and certainly all that are lower - should be looking a plan to improve ... not to lose ground, in the area of reserves savings. I am not saying go out and break the bank of each and every HOA or Condo member during these hard times, but I am saying keeping moving toward a higher standard, not a lower one. I feel quite strongly that the reserves percent funded figures will continue to become more and more important as banks, lenders, the government entities and insurors look more closely at HOAs and Condo Associations situations when considering lending or insuring as time moves forward.

So if you have been exposed to someone that is telling you that they can "save you money" as an association vendor by "trimming" the reserves ... be wary ... in fact, be very wary. You will be losing ground in the overall scheme of saving for those big expenses that come along every so often.

And, there is a great Reserves Primer available on what should be in the Reserves and how to plan appropriately at http://www.bgcondolaw.com - see "Primers Now Available". You can get a Primer on Reserves Investments as well, and learn about the importance of considering safe investments, especially in this day and age.

Full post as published by California Condo & HOA Law on February 27, 2009 (boomark / email).