Reserve Studies

Reserve Studies
LA Times response March 8, 2009Sunday’s “ASSOCIATIONS” article regarding Reserve Studies contained inaccurate information, and failed to properly address the homeowner’s question.As for the question regarding guidance; the homeowner asserts “no one warned me” of the financial condition of the homeowners association they purchased in. California law requires homeowners associations to provide very detailed financial information to its members on an annual basis, including a summary of the Reserve Study, a copy of the Funding Plan adopted by the Board, and the Assessment and Reserve Funding Disclosure Summary. Real estate transfer disclosure laws require that information be provided by a seller to a buyer in a purchase transaction. Therefore, it appears one of three possibilities may have occurred. 1) The homeowners association has not complied with the law. 2) The seller has not complied with the law – both of which may be remedied through the civil justice system – or 3) The owner, and/or their advisor(s), failed to carefully read the documentation they received during the transaction process.Additionally, the author stated “any report or study prepared…..without visiting the grounds at the time of writing the report is only a guess and should not be relied upon”. California Civil Code § 1365 requires an on-site Reserve Study every three years. Prudent management dictates that information as important as reserves and funding plans, as well as the annual budgeting and disclosure documents derived from them, be updated annually, versus every three years. Therefore, thousands of homeowners associations across California (and the country) have non-site visit Reserve Studies conducted. The preparer utilizes the previous on-site study component inventory, and adjusts remaining life down a year (unless informed of replacements). The components and financial analyses are then recalculated at today’s market rates, with updated account balances and contributions rates. The practice is recognized by Community Associations Institute and the Association of Professional Reserve Analysts as a cost effective way to maintain current financial reporting. Guessing is what is done on a game show - in the financial world it’s called projecting costs.Scott Clements, RS, PRA, CMIReserve Studies Inc.Phone 800.485.8056Facsimile 800.485.8057www.ReserveStudiesInc.comScott@ReserveStudiesInc.com
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