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Archive for July, 2017

Scheduled telephone outage

Wednesday, July 19th, 2017

Cadden Community Management phones will be down Thursday, August 3rd from 1:00-4:00 PM to switch over from regular phone lines to fiber optic. We apologize for the inconvenience during this upgrade to our phone system. If you need to reach your community manager during this time please contact them by email.

Reserve Fund

Wednesday, July 5th, 2017

The following article is an excerpt from the annual Cadden Community Management board training seminar.

Reserve Fund and Reserve Studies
Susan Rodriguez, CAASP™
Cadden Community Management

What is a Reserve Fund?

• A reserve fund is money set aside specifically and solely for the replacement of EXISTING assets with finite useful lives.

• It is not a rainy day or slush fund that is intended to be used when the association gets low on cash in the operating account.

• Reserve funds are reserved for the particular components within the community that the homeowners association is responsible for (such as roads, roofing, stucco, fencing, paint, and equipment.)

Do we really need a Reserve Fund?

There is no State provision mandating a reserve fund, but……
• Required by the Association’s Covenants, Conditions & Restrictions (CC&Rs – 10.3.B)
• Required by Lenders
• Required to be disclosed by statute (Resale Disclosure 33-1806)
• Establishes guidelines for the community

Do we REALLY need a Reserve Fund?
• Yes, yes you do.

It is your Fiduciary duty, as a Board member, to ensure your community has Reserve Funds

Maybe we can get away without Reserves:
• We’ll just “pay as we go.”

• This means Special Assessments are likely.

• Special assessments are wildly popular and your membership will probably be thrilled to hear about them. (SARCASM)

Maybe we can get away without Reserves:

• I don’t intend to sell my home, so who cares about the lenders? My neighbors are not moving, either. Ever.
• I won’t be around when it needs replacing, anyway, so why should I care?
• Can’t predict when things need to be repaired or replaced
• Fiduciary Duty

#1 – Best response for all arguments against reserves?

• Board members can be sued for inadequately funding Reserves!

Where SHOULD reserve money come from?

• Budgeted Contributions (monthly, quarterly, semi-annual and yearly financial contributions from homeowners)

• Close of Escrow contributions as directed in CC&Rs

Unpopular methods of funding Reserves:

• Special Assessments

• Loans

How much do we need?

Tool for ensuring adequate funding: Have a Reserve Study conducted for your community.

A Reserve Study? What’s that?
• A detailed inventory of community assets
• Forecast of yearly budgets for Reserve Contributions
• Schedule of planned major expenditures

Do I really have to have a Reserve Study?

• Assists in planning/scheduling for maintenance and future expenses to prepare yearly budget
• Gives the association a blueprint for financial stability – funding for future.
• Banks are now requiring for loans
• Proper funding should alleviate a special assessment (fingers crossed).
• Can assist in explaining to homeowners why dues are increasing.

How do we get a Reserve Study?
• Professional Company
• Full reserve study (starting from Ground Zero)
• Update with site visit (uses your previous reserve study for baseline)
• Update with no site visit (uses the previous study but no in person re-evaluation of assets)
• Do-It-Yourself

How much is this gonna cost us?

Depends on several factors:
• DO YOU HAVE LOTS OF STUFF? (Amenities in your community)
• Starting $800-and up

Reserve Studies – Keep it updated:
• 3-5 years
• A higher number of amenities or gated communities? Consider more frequent update.
• Inflation rates change
• Number of paying members change
• New homes, vacant homes, foreclosures etc
• Before any large dollar improvements
• After major emergency

OK, what do I do with this Reserve Study now that I have it?

• Determine your funding goal, based on the information the study contains.
• Percentage funding
• Threshold funding
• Baseline funding

The better your funding, the lower your risk of a special assessment.

Consider a Reserve Fund Policy

This policy could cover:
• Expenditures
• What funds will be used for
• How/Who expenditures be authorized
• Is there a minimum $ amount?
• Primary source of funding Reserves
• IF the HOA borrow from Reserves and how to repay
• How often will Reserve Study be updated?

Few things to remember…
• Having a Reserve Fund
• Should not be used to pay monthly expenses
• CC&R/Disclosure requirement
• Reduce need for loan or special assessment
• Fiduciary Duty
• Detailed list of reserve items and lists years for required maintenance years
• Show future expense to help in bidding
• Future expense to prepare yearly budget
• Explain importance to homeowners and reason for dues increase

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