Demystifying Budgets & Assessments: Insights from Industry Leaders

Video Insights:

Importance of Reserve Studies

• The Surfside tragedy in Florida highlighted the importance of saving funds for older buildings and brought attention to the lack of best practices in funding reserves.
• The latest law on waiving reserves is increasing the threshold for waiving or partially funding reserves, encouraging boards to stop passing the buck and ensure they have enough money for necessary projects.
• Getting a Reserve study from an independent qualified professional is crucial for homeowners to ensure proper maintenance and avoid potential issues.
• Failure to conduct required studies can result in breaching fiduciary duty and voiding transactions in homeowners associations.
• It is crucial for HOAs to regularly update their reserve studies and effectively communicate the reserve component list and funding plans to their constituents.
• Potential homebuyers prioritize knowing the budget and the last Reserve study of a homeowners association to understand how it is funded before making a decision.
• It is important for homeowners associations to have a reserve study and maintain at least 10% of their dues going into reserves.

Budgeting and Financial Planning

• "Proper budgeting is one of the most important things you can do."
• "Establishing a realistic budget is a key metric for homeowners, and the Community Association Institute provides a helpful step-by-step guide for budgeting."
• It is important to establish a trend by using past budget and year-to-date data along with service provider information to make informed decisions.
• Homeowners are encouraged to participate in a zero-based budgeting process, where every line item is challenged and prioritized by different committees, ensuring transparency and accountability.

Transparency and Communication

• Transparency is crucial in the budget process and when implementing special assessments for homeowners.
• Taking the temperature of the membership is crucial when making decisions about significant special assessments, such as a 400% increase in insurance on a Barrier Island.
• The best thing homeowners can do is communicate and be transparent with their ownership, even if they may not like the answer they receive.

Summary of Video:

We would like to talk about the pivotal role of money management and budgeting in homeowners associations, particularly focusing on the recent changes in the Florida law that requires reserve funds for various building maintenance expenses. The importance of these provisions cannot be overstated, as they become mandatory for certain items by the year 2024.

Through our deep dive into this issue, we're aiming to empower homeowners by imparting crucial information about financial management within associations. With insights from our panel of industry experts, our guidance is based on a wealth of experience, allowing us to meet the needs of community associations and ensure robust financial health.

Legal changes in Florida have necessitated that condominiums and homeowners associations set up reserve funds for future expenditures. This legislation emerged in response to problems encountered by retirees who hadn't planned ahead adequately. The law now mandates reserves for structural integrity, fire protection systems, plumbing, electrical systems, waterproofing, exterior painting, windows, and exterior doors, depending on the building's age, size, and maintenance circumstances. It's also important to note that by December 31, 2024, the Condominium Associations' Structural Integrity Reserve study items must be fully funded, with no room for waiver or reduction by owners.

Homeowners are advised to take active roles in maintaining their condos and ensuring regulatory compliance by undertaking regular reserve studies and communicating the financial health of the community. Waiving reserves could lead to insufficiency of funds for necessary projects and may risk breaching fiduciary duty. Moreover, professional Reserve analysts and Reserve Specialists can now conduct Structural Integrity Reserve studies as per Senate Bill 154.

Also critical is homeowners' understanding of the reserve schedule, even for items not explicitly required. Proper financial management should discourage waiving reserves, which can leave the board with inadequate funds. Frequently obtaining a Reserve study from a qualified professional is encouraged for the correct repair and maintenance of buildings.

Homeowners' associations need to maintain transparency about their financial health, as it significantly impacts potential buyers. Failing to provide this information can result in fiduciary duty breaches and void transactions. Therefore, sound money management and open communication are paramount for associations.

On the topic of budgeting, homeowners should strive to understand reserve studies, funding methods, and how to create realistic budgets. Tools like the online Community Association Budgeting Basics can provide invaluable guidance. Preparing for potential increases in operating dues and special assessments is part of this learning process.

Budgeting should also involve interaction with service providers, trend establishment using past budget and year-to-date data, future project prioritization, homeowner involvement in decision-making, and budget amendment to manage unexpected expenses without needing special assessments. Homeowners are advised to consider all costs associated with a special assessment, including postage, printing, and follow-up payment notices, to avoid using the operating budget.

When exploring financial options, homeowners' associations should look at the community's budget, financial health, and potential engineering studies. They should be aware of interest and late fees for collections and consider the circumstances of a mortgage foreclosure before pursuing a lien foreclosure.

Lastly, homeowners need to maintain communication and transparency, update reserve studies, address delinquencies, and seek legal advice. Remember that while boards have limited options to handle delinquencies, they cannot indefinitely delay payments or show favoritism towards specific owners. Homeowners should also leverage professional help to navigate economic downturns, insurance challenges, and understand building funding requirements, using available resources to tackle homeownership challenges.

In conclusion, as homeowners and members of associations, being aware and knowledgeable about the financial aspects and responsibilities can ensure that everyone is prepared for future projects and possible economic downturns. This level of preparedness is what helps to build and maintain strong, prosperous communities.