|
RESERVE FUNDING AND
HOME LOANS
 I
received a lot of inquires about last week's feedback concerning Bank
of America's refusal to lend money to buyers of units in the reader's
association. The BofA representative told him the bank would only lend
in HOAs with reserves that were 100% funded. The rep also said that 25%
of HOAs were 100% funded.
To find out if BofA's numbers were
accurate I turned to Robert Nordlund, President of Association Reserves,
Inc., for information about reserve funding in the industry. His
company compiled data from over 7,000 recently completed reserve studies
to create a profile of HOA reserve funding strength. He found that no
matter how he sliced the data (large vs small, urban vs suburban,
highrise vs townhome, new vs old), the results came out the same as
depicted in the graph below.
It turns out that BofA's estimate
that 25% of HOAs are fully funded is close to accurate. Although only 5%
of HOAs fell into the 90-100% funding range, another ~17% were funded
in ranges up to 200%.
RECOMMENDATION:
It should be no surprise that healthy reserves increase property values
and improve sales. To comply with the Davis-Stirling Act, boards need
to have a reserve study done every three years with annual updates in between. Associations should use experienced companies to prepare their studies, including a reserve funding plan. To improve marketability in their HOAs, boards should then make every effort to raise their reserve funding levels as quickly as possible. In addition, they should fully disclose the condition of their reserves.
Thank you to Robert Nordlund of Association Reserves, Inc. for the above information and use of his graph.
DISSOLVING AN HOA
QUESTION:
In four years our association will vote to either keep it or dissolve.
The community is split so it will certainly be heated. The board says it
is impossible to dissolve it. Answers are hard to come by.
ANSWER:
Most homeowners associations are incorporated as Nonprofit Mutual
Benefit Corporations under California's Corporations Code. To find out
what type of corporation your association is, check your Articles of
Incorporation. As provided for in Corporations Code §8724,
any owners association for a planned development, condominium, stock
cooperative or community apartment project of five or more units that is
responsible for managing, maintaining, preserving or controlling any
lot, unit or other area cannot be dissolved unless 100% of the members
consent.
Your
association’s articles, bylaws and CC&Rs may also establish limits
and procedures on dissolution. The Corporations Code establishes
additional procedures for dissolving all corporations, such as electing
to wind up and dissolve, adopting a plan of dissolution, and filing a
certificate of dissolution with the California Secretary of State.
Final federal and state tax returns must also be filed.
As a
practical matter, it may be impossible to dissolve an association if no
entity can be found to take over the association's maintenance
responsibilities. Any association considering dissolution or
reorganization should do so with the advice of legal counsel and tax
counsel.
Many thanks to Helene Fransz,
our subdivision law specialist, for the answer to this question. Helene
works with developers to create associations and, from time to time, is
called upon to merge associations, divide associations, and dissolve
them. -Adrian Adams
FEEDBACK
New CC&Rs.
Our association, after much hard work, was able to get passed new and
updated CC&Rs and Bylaws. We had two "town hall" meetings, a phone
tree to answer questions and to get out the vote, mailings, newsletter
articles, and a long list of former board members who endorsed the new
governing documents. We were able to say goodbye to our 1970 era
documents. -Kathy P.
Adrian J. Adams, Esq.
Adams Kessler PLC
|
Newsletters are for advertising & general information by
Adams Kessler PLC. Readers should not act on issues raised in our newsletters or website without consulting legal counsel.
|
|
|
|