Beyond the Law: Why Reserve Funding Legislation Isn’t a “Silver Bullet” for HOAs and Condos
The collapse of Champlain Towers South in 2021 was a tragic wake-up call for the community association industry. In the aftermath, many states introduced legislation requiring associations to adequately fund their reserves — aiming to prevent similar disasters caused by deferred maintenance. However, Robert Nordlund, PE, RS, Founder and CEO of Association Reserves, cautions that these laws, while well-intentioned, are not a “silver bullet” for ensuring the long-term financial health of community associations.
In his insightful article, “Reserve Funding Legislation – Not a ‘Silver Bullet’,” Nordlund argues that simply complying with the letter of the law isn’t enough. True financial security requires a fundamental shift in mindset and a proactive approach to reserve planning. He points out that for decades, reserve obligations have been referred to as “contributions,” implying they are optional. Instead, Nordlund emphasizes that the ongoing cost of deterioration should be viewed as a non-negotiable bill, just like any other essential expense.
One of the key issues Nordlund addresses is the pervasive pursuit of “low monthly assessments.” While appealing to homeowners in the short term, this strategy can starve associations of the necessary funds for critical maintenance, repairs, and replacements. Nordlund challenges boards to let go of the idea that low assessments are inherently good, arguing that owning real estate is fundamentally expensive, and adequate funding is essential for preserving property values and ensuring resident safety.
Nordlund advocates for a broader cultural change within the community association industry, drawing a parallel to the widespread adoption of seatbelts. Seatbelt use became the norm not just through legislation, but through a combined effort involving the insurance industry, which made seatbelt use mandatory, and a general shift in public perception. Similarly, achieving true financial stability for community associations requires a multi-faceted approach.
This includes changing the language used to describe reserve funding, recognizing the serious consequences of inadequate funding, and fostering collaboration between legislators, the insurance industry, and lending institutions. Nordlund anticipates that the insurance industry will tighten its requirements regarding maintenance and reserve funding, and that lending institutions (including Fannie Mae and Freddie Mac) will follow suit. He also envisions the emergence of a national scoring system to assess the financial health of community associations, similar to individual credit scores.
Don’t wait for a legislative quick fix or rely solely on mandated minimums. Take proactive steps to secure your community’s financial future by prioritizing adequate reserve funding, embracing a long-term perspective, and fostering a culture of financial responsibility.
Learn more about the importance of reserve funding and how to go beyond legal compliance in this article: Reserve Funding Legislation – Not a “Silver Bullet”
