Many HOAs Are Underfunded

April 22, 2014

More homeowners' groups may be operating with insufficient reserves, which could one day result in an unexpected increase in costs to home owners.

An estimated 70 percent of association-governed communities are underfunded, a rise from 60 percent a decade ago, according to a new report from the consulting firm Association Reserves.

Associations that lack adequate reserves may impose large special assessments for emergency repairs, says Robert Nordlund, Association Reserves' founder. What’s more, home owners who don’t pay could then face liens against their property, or the association could even have the power to foreclose on them.

Housing experts urge home buyers to ask for a copy of the homeowner group’s most recent reserve study and ask about the percentage of residents who are more than 60 days delinquent on their fees. It affects the association’s cash flow, and when “you’re buying into a nonprofit corporation, you need to find out if that corporation is stable,” Nordlund notes.

Source: “Homeowners Associations Are Short on Cash,” Kiplinger’s Personal Finance (April 2014)

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