Industry Trends are Elevating Reserve Planning


Following the Surfside tragedy, the reserve study landscape has rapidly evolved. From legislation to insurance and lending, the impact is far-reaching. The following states, for example, have passed legislation aimed at ensuring structural and resident safety.


1. Florida – Now requires reserve studies for buildings with three or more residential stories. These communities are also required to fund reserves at the level outlined in the reserve study, and older buildings must conduct periodic structural inspections.


2. Maryland – Signed into law in 2022, all condominiums, cooperatives, and certain homeowners associations are required to conduct periodic reserve studies. These associations are also required to fund reserves at the level outlined in the reserve study.


3. New Jersey – Signed into law in 2024, condominiums, cooperatives, and certain homeowners’ associations are required to conduct periodic reserve studies. They are also required to fund reserves at the level outlined in the reserve study.


4. Tennessee – Signed into law in 2023, unit owners’ associations with $10,000 or more in common assets are required to conduct periodic reserve studies. The law intends to inform the board of how much should be set aside in reserves to avoid future assessments. There are currently no statutory funding requirements.


Insurance Trends


Underwriting standards have evolved over the past several years as insurance providers mitigate risks associated with aging infrastructure. What was once a simple verification process is now a thorough review of structural conditions, maintenance history, and financial preparedness. Communities that are unable to demonstrate proactive planning risk greater premium increases, reduced coverage, or difficulty securing a renewal.


Key insurance trends that communities experience include:


1. More Detailed Inspection Requirements – Rather than simply accepting that a reserve study exists, insurers regularly review recommended project timelines and whether structural projects have been completed. Any indication that a structural project is overdue, such as a roof replacement, inherently increases the carrier’s risk and likelihood of a future claim.


2. Condition-Based Premiums – Historically, premiums were primarily reflective of the age of a property, building materials used, number of stories, and location. Today, maintenance history, known deferred projects, and the adequacy of reserve funds, which increase the carrier’s risk, are often reflected in premiums.


22 | COMMON INTEREST®


3. Stricter Underwriting Terms – Increased risk is often associated with the terms of renewal. Associations that deviate from reserve funding or have a recent history of deferred maintenance are at greater risk of lower coverage limits, higher deductibles, risk-based exclusions, and, in the worst cases, denial of coverage.


Mortgage Trends


Shortly after the Surfside collapse, Fannie Mae and Freddie Mac released new guidelines for securing loans backed by government-sponsored enterprises. Meant to safeguard against safety and structural concerns, the new guidelines place greater emphasis on proper reserve funding, proactive maintenance, and periodic building inspections.


With roughly 70% of conventional loans backed by Fannie Mae or Freddie Mac, the market is highly dependent on traditional lending. When a loan is denied for a condo real estate transaction, the association is at risk of landing on a ‘do not lend’ list – meaning no buyers will qualify for a government-backed conventional loan until the association sufficiently addresses any issues at hand.


Key mortgage trends that communities experience include:


1. Stricter Reserve Requirements – Lenders often require a recent reserve study and evidence or confirmation of proper reserve funding, which is outlined in the reserve study.


2. Increased Documentation Requests – It is not uncommon to have to provide detailed maintenance and capital project records, and inspection reports as part of the loan approval process. Lenders often review reserve studies to assess the extent of structural deterioration and potential water infiltration. If project timelines deviate from the study, supporting documents that validate the board’s decision may be warranted to continue the loan review process.


3. Impact on Buyer Eligibility – As lenders are hesitant to approve mortgages for condominiums that are deemed high risk, the pool of potential buyers shrinks, impacting residents’ ability to close on the sale of their home and potentially impacting property values.


Addressing Insurance and Loan Eligibility Issues


It is becoming increasingly common for boards to address insurance and mortgage lender concerns. While, for good reason, the reality is that, oftentimes, management and the board can lean on their reserve study provider to clarify concerns about reserve funding and deferred maintenance.


In a recent case involving a Midwest-based condo association, the board was unable to complete a brick masonry repair project in 2025, the year in which their reserve study recommended it. Due to weather constraints, the project was scheduled for 2026 instead. A mortgage


• Spring 2026 • A Publication of CAI-Illinois Chapter


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