We manage almost 100 associations, and many of these communities have kept their monthly dues intentionally low and now find themselves with low reserve balances, typically 20 to 30% of the fully funded reserve as detailed in their reserve study. These communities may have sufficient funds for the expected expenses, but they are certainly not prepared for unexpected ones. Let me provide a real-life example. As you should be aware, a law was passed in 2020 that required all buildings with balconies or elevated walkways to have them inspected by 2025. If a licensed inspector finds that the balconies are in disrepair and in danger of failing, the board must repair these structures immediately. Suffice it to say that most communities do not have a reserve fund for balcony repairs, and if the balconies need repair, there may not be funds on hand to affect those repairs.

In East Yorba Linda, in the Villages community, this is exactly what happened. Although the community was built in 1985, so the board had no reservations on doing the balcony inspections, but the inspections did not turn out as expected. The inspector found substantial rot in the balconies and because this was a health emergency, and there was the very real chance of an imminent collapse, the board was forced to levy of $60,000 per unit. Because this was deemed a health emergency, this assessment was made without a vote of the owners. This required owners to come up with the money from personal savings, refinance their unit, or sell.

This community will not be the last to find themselves short of funds for the unexpected. Having a healthy reserve allows a community to deal with emergency repairs and issues such as the balcony inspection. To increase the monthly dues more than 20% or fund a special assessment that is more than 5% of the total annual dues requires approval from a super majority of the owners (66%). That is not 66% of those who vote, it is 66% of all owners. It is not uncommon for only 30 or 40% of the owners to participate in a regular election. Many owners live out of area or out of state and are completely oblivious to the property they own in that community.

Prepare for the worse and unexpected. Keep your dues high enough to contribute a healthy portion of those monthly dues to the reserve fund. It is wiser to have a reserve account that is over-funded rather than one that is under-funded.