Insufficient Reserve Funds

[thetwoxer]

I was 3 weeks away from closing on the sale of my condo unit when my buyer's loan was rejected by Fannie Mae because of lack of sufficient funds in the Association's Reserve account. My buyer (who was very enthusiastic to move in) has now lost interest in buying the property, (figuring it's not financially sound) and I have had to sign a release on the new home I was having built.

Do I have any recourse against the association or the mgmt company for not carrying the necessary funds? As far as I'm concerned, their lack of fiscal responsibility has cost me the sale of my condo, and, more importantly, my new home.

[private_person3]

Why didn't you know about YOUR Associations financial situation beforehand?

When considering action against the HOA, it is good to remember that you are part of the HOA and could easily have been involved with the workings thereof.

Their failure is your failure too! No offense meant.

Now that said, it would be hard for anyone on this board to offer advice, as we don't even know the State you're in. It seems you had as much concern into the proper posting guidelines as you did your HOA. Lesson learned I hope.

As for any real help, here in NJ, the HOA would have failed their legal Fiduciary requirements. It is in our bylaws that the HOA must maintain a fully funded reserve. In fact, we have to have reserve studies every few years.

[HomeGuru]

Originally Posted by thetwoxer

I was 3 weeks away from closing on the sale of my condo unit when my buyer's loan was rejected by Fannie Mae because of lack of sufficient funds in the Association's Reserve account. My buyer (who was very enthusiastic to move in) has now lost interest in buying the property, (figuring it's not financially sound) and I have had to sign a release on the new home I was having built.

Do I have any recourse against the association or the mgmt company for not carrying the necessary funds? As far as I'm concerned, their lack of fiscal responsibility has cost me the sale of my condo, and, more importantly, my new home.

**A: what state are you in?

[HomeGuru]

Originally Posted by private_person3

Why didn't you know about YOUR Associations financial situation beforehand?

When considering action against the HOA, it is good to remember that you are part of the HOA and could easily have been involved with the workings thereof.

Their failure is your failure too! No offense meant.

Now that said, it would be hard for anyone on this board to offer advice, as we don't even know the State you're in. It seems you had as much concern into the proper posting guidelines as you did your HOA. Lesson learned I hope.

As for any real help, here in NJ, the HOA would have failed their legal Fiduciary requirements. It is in our bylaws that the HOA must maintain a fully funded reserve. In fact, we have to have reserve studies every few years.

**A: I agree, good info.

[private_person3]

Originally Posted by HomeGuru

**A: I agree, good info.

*calls Satan to check on the temperature below"

[thetwoxer]

I live in MA.
I DID contribute to MY association. I was on the board a year ago. It was the ineptitude and lack of understanding thru the entire population I encountered which prompted me to put my condo on the market and get out.
The monies were in reserve account until approx 3 weeks prior to the lendor obtaining the data to qualify my buyer's loan. So at the time the P&S was signed, there was no problem with the reserve account.

[private_person3]

So what did they spend it on?

FYI: A fully funded reserve will have plenty left after various projects! In fact, a fully funded reserve is to account for all major future projects.

[HomeGuru]

Yup, well said. THe OP was on the Board so is responsible for underfunded reserves.

[thetwoxer]

Don't know what it was spent on. My guess it was a payment for the upcoming Winter snow removal, services, etc.
When I was on the Board, we did not have problems with the reserve account level.
The reasoning I heard as to why the reserves had to be dipped into was the growing number of unit owners in arrears on their monthly condo fees.

[private_person3]

Snow removal is supposed to come out of either an operating account or general fund. Reserves are only for preplanned repairs and maintenance to capital projects: road repaving, new roofs, etc.

If the HOA finds that they do not have enough money to pay for everything, they are not allowed to dip into the Reserve fund, rather they have to either do cuts or have special assessments.

Sounds like you are in a quite a pickle. One, you can't sell to anybody who needs an approval for a mortgage. Two, your HOA is not pressing forward hard enough to either collect from delinquents or to force them out so paying members can join. Three, there is going to be a special assessment coming down the pike for everyone (and you), especially if they have to defend a lawsuit from you.

I feel for you. I really do. It was like that here in my HOA several years back. It was Hotel California: seller couldn't get out! We could not bring in enough money to pay for the operating expenses after our insurance rose due to a massive fire. Compound that with a large percentage (over 20%) of deadbeats and it was mess. We got through it by hiring a competent lawyer to pursue the deadbeats. It took time but we either got them to pay or we actually succeeded in foreclosing on their units. We accepted that we would never see money from some of the foreclosures (as we were not first in line to be paid). It was worth it in the end because the banks sold cheap to people who could pay. Now out of 200+ owners, we have less than 10 on the lists, of those maybe 3 or 4 are habitual (60+ days).

I don't think a lawyer will work for you. You are going to have to dig yourself out. I suggest running for the board again and helping them to square away there finances. Have them do a Capital Reserve Study, hire a lawyer to collect from delinquents, hire a competent Accountant (one would have seen this coming!), and start the belt tightening. In a couple years, things should be different!

Lastly and personally, find out what the general requirements are for mortgage approval in regards to the HOA finances. Once you see the HOA meet that level, you can sell!

Good Luck.