Once again in the news today, an association that failed to reserve for major repairs and the low-income owners are now looking at a $5,400 additional assessment due in a couple weeks.  The particulars or location of this association isn’t important.  What is, is that this is happening too often, in too many locations, to too many associations.  Even in states where reserves are required by law, associations are ignoring them and using the economy and delinquency rate as an excuse for not funding, or reducing the funding for one, two or more years.  And to date, I haven’t seen any consequences for those who were elected to follow the laws, and to ensure the fiscal integrity of the association, not just during their term of office, but for the future.

I used to teach a session on Reserves at conferences around the state ( which has a reserve requirement law for condo’s) and I would start it off like this:

“I’m your worst nightmare!  I’m getting ready to retire and I’ll probably move into a condo association, and I’ll never pay a special assessment for something you should have reserved for.  You have no excuse for not following the requirement’s of the law, your documents or common sense.”  And then I’d mention Raven’s Cove.  The only case where some liability was imposed for failing to reserve.  (If you want to read about it)

I am not a lawyer so what I say has no legal bearing, but I think properly reserving is a fiduciary responsibility and the failure to properly reserve is a breach of that responsibility.  But that must be wrong, because there have been so many boards which have failed to adequately reserve and no consequences except for the owners stuck with paying excessive assessments to make up for past failures.  Why bother reserving if there’s no liability for not?  Until there is some personal liability attached to individuals, this problem will continue.

Both state laws and all documents need to address reserves as an absolute requirement, laying out guidelines on how to determine reserve amounts, and how to budget for them.  An annual report to the owners should also be required, and included with all re-sale disclosure documents.  The board should be required to obtain a vote of the owners for any deviation from the funding requirements and the vote should include the plans to make up any shortfall or delay in financing.  Failure to follow any of the requirements without a vote of the owners should place personal liability on any board member that voted to deviate.

Basically, we need a case where board members from all prior boards who failed to deal with reserves properly, get held liable, and have to reach into their own pocket.  Perhaps the D & O carriers and agents can begin specifically including an exclusion for “failing to reserve adequately”, from their coverage.  I guess I’m reaching, but I’ve seen way too many issues with this not too think that drastic action is called for.  Anyhow, that’s my opinion.