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that address risk, liquidity and return. The safest bet is to invest in certificates of deposit (CDs), money markets and repurchase agreements that provide FDIC insurance or other government guarantees. Exposing the homeowners’ funds to too much risk may offer higher returns but exposes a board to lawsuits for fiduciary misconduct if the investments lose money.


Some associations have chosen not to build large reserves but plan on special assessments when the need arises. As long as the homeowners understand and agree with this approach, the common areas can still be maintained in an acceptable manner. Home values should not be negatively impacted and common areas/elements will remain safe and secure.

Seeking approval from the homeowners for a special assessment can sometimes be difficult though. The board may find some homeowners are indifferent; or worse, some may be frustrated with the perception of poor planning. It also may seem unfair to some of the newer homeowners who haven’t had the same amount of time to enjoy the common elements as the older and past homeowners. Most homeowners will see this only as an added expense and not realize the benefit or the need for such repairs. In any case, if the board is unable to obtain the necessary approval, critical repairs may not be performed due to a lack of funds. Deferred maintenance will only increase the cost of the repairs down the road and possibly impact homeowners’ personal assets should there be a leaky roof or other major problems. The association’s exposure to liability to cover the cost of homeowners’ losses is an expense that could have been avoided.

The good news is that major repairs can be financed by a bank over several years. This way homeowners will have a choice to pay the assessment up front or pay in monthly installments. Those choosing to pay in installments will also have to cover the interest expense as part of their assessment and depending on the interest rate environment, this could be significant.

50:50 50/50

(Eliminate the Painful Options)

The path of least resistance is just avoiding reality. Some board members don’t want to be the ones to increase

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assessments. Raising assessments may seem unpopular at the time but board members are not doing themselves or the homeowners any favors by failing to increase assessments when needed. The old adage “you can pay me now or you can pay me later” really comes into play here. There are many stories about newly elected boards inheriting a financial mess because previous boards didn’t want to make the tough decisions. Sooner or later it catches up to the property, and the association finds itself underfunded with a lot of work to be done. Prior to each fiscal year, the board should be working together to review current revenues and future expenses and plan accordingly. The budget needs to consider increased costs due to inflation, assessment delinquencies and current operating reserve balances. This is also the time to review the reserve study if one exists. The coming year may call for some significant repairs and maintenance projects that need to be addressed. Therefore a special assessment may need to be approved assuming the association has not built up reserves.

Community living has so many great benefits. First and foremost, you’re part of a community! You’re living with like-minded people, all of whom have agreed to the same set of rules and regulations. The homeowners association is responsible for ensuring those rules are followed for the benefit of all who live there. The homeowners association and its elected board are responsible for protecting the value of your homes, maintaining essential services such as security, common areas and amenities and planning for the costs of future repairs and maintenance. Proper planning and funding of reserves plays a critical role in enhancing the community living experience. It’s important that the homeowners elect a strong, thoughtful board of association members who will always keep the best interest of the homeowners in mind and make decisions that will ensure all the benefits of community living are enjoyed for many years to come.

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