Can The HOA Board Use The Reserves For Items Not Listed On The Reserve Study?

A reserve fund is meant to plan for an HOA’s future replacements and repairs.  But, what if a component that isn’t included in the reserve study needs funding?  For instance, common drainage lines may be failing and you might be forced to decide whether or not to fund the repairs from the reserves.  This post offers helpful suggestions on the steps a homeowners association should take.

 

Typically, the first step is to bring the issue to a reserve specialist so they can offer their guidance and help you add the item to the reserve list.  One of the cases for items getting added includes unforeseen disasters.  Maybe at the time of the last reserve study, the item was mistakenly excluded because it was well concealed, like rusting underground drainage lines.

It’s the board’s fiduciary duty to get the opinion of an HOA manager or a reserve study specialist to ascertain the necessity of adding an expense to the reserves.  Also, the HOA’s governing document should be reviewed at this time to see if there are guidelines for handling unlisted components.

If it’s in the HOA’s best interest to use some of the money in the reserves for an item that was not initially included in the study, then the item should be added as long as the governing documents allow it.

 

There are situations when it’s not acceptable to use the reserve funds for handling unexpected projects.  If the rules specifically state the reserves are never to be used for minor projects, then the HOA could secure a loan or issue a special assessment.

Before using the reserves for unlisted components, it’s advisable to inform members about it through the homeowners association website for a wider reach.  Anytime a special assessment is issued, consider posting a detailed explanation on the homeowners association website so residents know why the funds are needed.