New Lending Requirements Continued From Page 19
also require that associations adequately fund for insurance deductibles. In Washington State, the association’s master policy is primary in property losses, regardless of the cause of the insurance loss. Unless the governing documents insurance deductible. Fannie Mae and Freddie Mac require that the property is prepared to pay for an insurance loss, so budgeting for the association to pay for a deductible is advisable, even if there is a deductible pass-through clause in the Declaration. Not every insurance loss originates from within a unit.
Unfunded Repairs & Secondary Brokers
Associations won’t be able to obtain lending from secondary brokers if there are unfunded repairs of greater than $10,000 per unit. It’s unclear exactly what that means, but after speaking to two different lenders, a logical assumption is that there cannot be deferred maintenance of more than $10,000 per unit in a given year. For example, if a 50 unit townhome needs $550,000 worth of repairs in a single year according to an inspection report or the annual reserve study, that association would have a per-unit Fannie Mae loan. However, it is possible that the lenders will look at the reserve disclosure document at the end of the without considering the repair budget.
Proactively request reserve study updates if a component requires a renewed Remaining Useful Life (RUL).
Closely Examine Reserve Studies
Lenders, and therefore real estate agents, are going to closely examine resale documents. Consequently it is critical that the association's board of directors closely examine and approve the statutory required updated reserve study every year. The association’s board of directors should proactively request changes if they feel a component requires a renewed Remaining Useful Life (RUL), request cost reviews on active bids for outstanding projects and
20 Community Associations Journal | March 2024
update if necessary, and ensure components in the reserve study match governing document dictates of assets to be included in reserve funding.
Every declaration is different, and each needs to be examined with the appropriate experts.
Managers and association attorneys can help boards review common and limited common elements in the Declaration of each association to ensure that the reserve study covers the appropriate maintenance, repair, and replacement costs of all components. Every declaration is different, and each needs to be examined with the appropriate experts. For example, close attention to whether the replacement of an element is a reserve expense or repair/maintenance of that item is an operating or individual-owner expense.
deferred maintenance if they have been at zero RUL for at least one year.
Deferred Maintenance
Deferred maintenance can be decided by referencing an association’s annually required and updated reserve study. Items that have zero years remaining useful life (RUL) can be
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