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THE RESERVE FUNDS THAT ARE NOT “REALLY” RESERVE
FUNDS!
By
Jan Bergemann
Published
August 23, 2013
Much
has been said and written about reserve funds and the necessity
for associations to have well funded reserves. Even some of the
elderly folks who always claimed that they don’t need reserve
funds since they are long dead before a new roof will be needed
have in the meanwhile acknowledged that it isn’t really bad to
have reserve funds. We always hear the unfounded claim that
community associations protect your property values! Don’t
believe these fairy tales! But well-funded reserves actually
improve your property values because more and more potential
buyers are asking for the financials before buying a home or
condo.
Latest
Wilma and Charlie taught everybody that they can lose their
homes after hurricane damage, despite the fact that the
association is carrying a great insurance package. The special
assessment needed to cover the deductible of the claim did many
condo owners in: They didn’t have the funds to pay for the
special assessment the association levied to cover the
deductibles – and the association foreclosed on their homes
for non-payment of dues!
A
good word of advice: Make sure that your association has the
reserve funds to cover for such emergencies!
But what if your reserve funds are not really reserve funds –
just because an attorney said so?
Once upon a time there was a HOA in Boca where more than 1000
homeowners were sleeping peacefully each night – assuming that
the association had well-funded reserves to cover any emergency
that might occur. And they were correct -- until an attorney
from the law firm of Becker & Poliakoff wrote an opinion,
claiming that these reserve funds were not really reserve funds,
despite the fact that they were annually funded through the
budget and were always officially called reserve funds in the
budget and financial reports. The attorney based his opinion on
the
Florida
statutes, claiming that these reserve funds – or whatever they
should be called – were not created according to FS
720.303(6)(d). This paragraph states that reserve funds
have to be established either by the developer or by the
affirmative approval of a majority of the total voting interests
of the association. And since nobody really knows – or could
prove -- how these “funds” were initially established, the
money in the funds could be used as a slash fund by the board
– no approval of the membership needed. The board president
sure used this opinion, paying -- among other things – high
legal fees to the law firm and – according to latest info,
there is very little money left in these accounts formerly known
as reserve funds. Oh, by the way, the funds are still called
reserve funds and are officially funded as such in the budget.
But the opinion of the attorney removed the protection
granted to these kinds of funds by the
Florida
statutes: The membership has no longer a say in how these funds
are being spent!
Some
inventive folks claimed that these reserve funds are funded
“voluntarily” by the membership. In my opinion you can’t
call this funding voluntary considering that the association
will foreclose on your home and kick you out if you don’t pay!
The moral of this story:
Even if you have reserve funds – or think you do – kick out
any board member – or attorney or CAM – who tries to
circumvent the Florida statutes protecting your reserve funds
– before they kick you out of your home because you can’t
pay for a big special assessment that had to be levied because
the funds -- formerly known as reserve funds – had been wasted
on other purposes than intended!
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