Reserve Studies for Condominiums & Homeowner’s Associations
The majority of states do not regulate reserve studies or the reserve study business. A small number of states do require certain types of common interest realty associations (CIRA’s) to prepare a reserve study as part of their governance responsibilities, and in the case of Florida, state law requires associations to include reserve funding for specific items in their annual budget; but does not specifically require an association to conduct a formal reserve study to determine the appropriate level of reserve funding.
Regardless of whether you live in a state which requires your association to conduct a reserve study it is all but mandatory for most types of CIRA’s to prepare a study as most mortgage lenders now require condominiums and other forms of attached housing communities to provide a current reserve study in order obtain mortgage financing.
The department of Housing and Urban Development (HUD) and the Federal National Mortgage Association have recently tightened their underwriting guidelines with respect to reserve funding requirements. As the real estate market begins to correct itself and home sales begin to rise it will be increasingly difficult to obtain mortgage financing on condominiums and attached homes if your association does not have a professionally prepared reserve funding plan in place.
Arizona:
Condominiums in the State of Arizona are governed by Chapter 9 of the Arizona Revised Statutes (ARS). There is no statutory requirement to prepare a reserve study or to fund a reserve account. Article 33-1260(d) does require disclosure to prospective buyers of any amounts currently being held as reserves by the association. Article 33-1258(a) also requires the association to make a reserve study available for examination by any member or person designated by the member in writing, as the member’s representative; should one exist.
Many condominiums and homeowner’s associations within the State do however, conduct reserve studies, in particular those which are managed by professional community management companies.
Colorado:
Colorado law does not require condominium or homeowner’s associations to perform a reserve study or to include a provision for reserve funding in the annual budget. The Community Associations Institute (CAI) recommends yearly reviews.
Nevada:
The Nevada Revised Statute (NRS) Chapter 116.3115 (2) (b) states: The association shall establish adequate reserves, funded on a reasonable basis, for the repair, replacement and restoration of the major components of the common elements. The reserves may be used only for those purposes, including, without limitation, repairing, replacing and restoring roofs, roads and sidewalks, and must not be used for daily maintenance. The association may comply with the provisions of this paragraph through a funding plan that is designed to allocate the costs for the repair, replacement and restoration of the major components of the common elements over a period of years if the funding plan is designed in an actuarially sound manner which will ensure that sufficient money is available when the repair, replacement and restoration of the major components of the common elements are necessary.
NRS 116.31152 further states: The executive board shall:
(a) At least once every 5 years, cause to be conducted a study of the reserves required to repair, replace and restore the major components of the common elements;
(b) At least annually, review the results of that study to determine whether those reserves are sufficient; and
(c) At least annually, make any adjustments to the association’s funding plan which the executive board deems necessary to provide adequate funding for the required reserves.
2. The study of the reserves required by subsection 1 must be conducted by a person who holds a permit issued pursuant to chapter 116A of NRS.
3. the study of the reserves must include, without limitation:
(a) A summary of an inspection of the major components of the common elements that the association is obligated to repair, replace or restore;
(b) An identification of the major components of the common elements that the association is obligated to repair, replace or restore which have a remaining useful life of less than 30 years;
(c) An estimate of the remaining useful life of each major component of the common elements identified pursuant to paragraph (b);
(d) An estimate of the cost of repair, replacement or restoration of each major component of the common elements identified pursuant to paragraph (b) during and at the end of its useful life; and
(e) An estimate of the total annual assessment that may be necessary to cover the cost of repairing, replacement or restoration of the major components of the common elements identified pursuant to paragraph (b), after subtracting the reserves of the association as of the date of the study, and an estimate of the funding plan that may be necessary to provide adequate funding for the required reserves.
4. A summary of the study of the reserves required by subsection 1 must be submitted to the Division not later than 45 days after the date that the executive board adopts the results of the study.
Effectively establishing what is among the most detailed regulatory language governing the reserve studies for common interest realty associations of any state in the U.S.
Texas:
Texas law does not require condominium or homeowners associations to perform a reserve study or to include a provision for reserve funding in the annual budget. The Community Associations Institute (CAI) recommends yearly reviews.
Utah:
Utah law does not require condominium or homeowners associations to perform a reserve study or to include a provision for reserve funding in the annual budget. The Community Associations Institute (CAI) recommends yearly reviews.
Regardless of whether you live in a state which requires your association to conduct a reserve study it is all but mandatory for most types of CIRA’s to prepare a study as most mortgage lenders now require condominiums and other forms of attached housing communities to provide a current reserve study in order obtain mortgage financing.
The department of Housing and Urban Development (HUD) and the Federal National Mortgage Association have recently tightened their underwriting guidelines with respect to reserve funding requirements. As the real estate market begins to correct itself and home sales begin to rise it will be increasingly difficult to obtain mortgage financing on condominiums and attached homes if your association does not have a professionally prepared reserve funding plan in place.
Arizona:
Condominiums in the State of Arizona are governed by Chapter 9 of the Arizona Revised Statutes (ARS). There is no statutory requirement to prepare a reserve study or to fund a reserve account. Article 33-1260(d) does require disclosure to prospective buyers of any amounts currently being held as reserves by the association. Article 33-1258(a) also requires the association to make a reserve study available for examination by any member or person designated by the member in writing, as the member’s representative; should one exist.
Many condominiums and homeowner’s associations within the State do however, conduct reserve studies, in particular those which are managed by professional community management companies.
Colorado:
Colorado law does not require condominium or homeowner’s associations to perform a reserve study or to include a provision for reserve funding in the annual budget. The Community Associations Institute (CAI) recommends yearly reviews.
Nevada:
The Nevada Revised Statute (NRS) Chapter 116.3115 (2) (b) states: The association shall establish adequate reserves, funded on a reasonable basis, for the repair, replacement and restoration of the major components of the common elements. The reserves may be used only for those purposes, including, without limitation, repairing, replacing and restoring roofs, roads and sidewalks, and must not be used for daily maintenance. The association may comply with the provisions of this paragraph through a funding plan that is designed to allocate the costs for the repair, replacement and restoration of the major components of the common elements over a period of years if the funding plan is designed in an actuarially sound manner which will ensure that sufficient money is available when the repair, replacement and restoration of the major components of the common elements are necessary.
NRS 116.31152 further states: The executive board shall:
(a) At least once every 5 years, cause to be conducted a study of the reserves required to repair, replace and restore the major components of the common elements;
(b) At least annually, review the results of that study to determine whether those reserves are sufficient; and
(c) At least annually, make any adjustments to the association’s funding plan which the executive board deems necessary to provide adequate funding for the required reserves.
2. The study of the reserves required by subsection 1 must be conducted by a person who holds a permit issued pursuant to chapter 116A of NRS.
3. the study of the reserves must include, without limitation:
(a) A summary of an inspection of the major components of the common elements that the association is obligated to repair, replace or restore;
(b) An identification of the major components of the common elements that the association is obligated to repair, replace or restore which have a remaining useful life of less than 30 years;
(c) An estimate of the remaining useful life of each major component of the common elements identified pursuant to paragraph (b);
(d) An estimate of the cost of repair, replacement or restoration of each major component of the common elements identified pursuant to paragraph (b) during and at the end of its useful life; and
(e) An estimate of the total annual assessment that may be necessary to cover the cost of repairing, replacement or restoration of the major components of the common elements identified pursuant to paragraph (b), after subtracting the reserves of the association as of the date of the study, and an estimate of the funding plan that may be necessary to provide adequate funding for the required reserves.
4. A summary of the study of the reserves required by subsection 1 must be submitted to the Division not later than 45 days after the date that the executive board adopts the results of the study.
Effectively establishing what is among the most detailed regulatory language governing the reserve studies for common interest realty associations of any state in the U.S.
Texas:
Texas law does not require condominium or homeowners associations to perform a reserve study or to include a provision for reserve funding in the annual budget. The Community Associations Institute (CAI) recommends yearly reviews.
Utah:
Utah law does not require condominium or homeowners associations to perform a reserve study or to include a provision for reserve funding in the annual budget. The Community Associations Institute (CAI) recommends yearly reviews.