Maintaining a reserve fund
It is good budgeting practice on a personal level to anticipate expenses and save for them over time – for example, Christmas savings accounts. Remember the personal financial axiom that recommends you have six months income in liquid savings “just in case”?
A similar axiom for condominium associations was put in place in Ohio law in 2004. An historical lack of adequate reserve funding and the hardships of large special assessments led to financial problems with many aging condominium buildings. The 2004 statutory changes required homeowners associations to establish and adequately fund their reserve accounts.
Careful planning for future repairs and replacements is in the best physical and fiscal interests of the community association, and it is now required by law in Ohio. Maintaining a reserve fund not only meets legal, fiduciary and professional requirements, it also minimizes the need for special assessments and enhances resale values.
Mortgage regulations are continually changing and requiring a reserve study is becoming the norm. Government entities and banks understand that adequately funded reserves helps to protect the investments homeowners make in the community. If you are in the market to sell your condo, you will need to reveal lack of adequate reserves, any special assessment pending, and also face the possibility that your buyer may not secure financing because of the Association’s inadequate reserves.