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Q & A with America’s real estate professor: Low HOA reserves

Published: Wednesday, Nov. 27, 2013 11:17 a.m. CDT

Q. I just bought into a nice community of town homes, but in the community newsletter the board of directors has notified us that reserve funds are really low and we may need to dramatically up HOA fees to build our reserves. I don’t understand why this would happen and why I wasn’t notified of this issue before I purchased the property. Eleanor N., Virginia Beach, Va.

A. Most common-interest developments, or Homeowners Associations, have pretty low reserves these days due to a variety of issues. Low reserves mean that the community as a whole has not saved enough money over time to be able to fund – without special assessments or much higher fees – all of the anticipated capital repairs and replacements that will be needed over the next few years.

This could be due to reserve monies being used to pay for large unanticipated costs, or settling an uninsured claim, or delinquent and uncollectible HOA fees from owners in trouble. The most likely reason is that over time, the board, due to community members’ objections, has not raised HOA fees enough so that there is money left over each year to increase the amount of reserves the community holds in their investment accounts.

To fix this now, your board is doing the right thing and at this point saying it’s time to pay the piper; it’s time to start building these reserves so there are no one-time special assessments needed in the future.

As to being notified, each state has rules and laws on how this information needs to be disclosed to new buyers. My guess is that the community complied with the laws related to disclosures, and you as a buyer probably received this information when you were in escrow on your purchase. Unfortunately, most buyers do not take the time to review these documents.

Additionally, it’s a pretty challenging task to review and understand the issues, but hopefully this will be a warning to future buyers that it’s a vitally important task. So I’m sorry to hear about your situation, but I do appreciate your bringing up the issue to other readers’ attention.

Neighbor’s Shed on My Lot

Q. I’ve owned my home for years and just recently refinanced it. In doing the refinance, I found out that my neighbor’s old shed is about 2 feet over the lot line onto my lot. I’m not friendly or unfriendly with them, but I would like to redo my fence into the proper location. What are the rules? What do you suggest? James G., South Carolina

A. Many a dispute has been started and fought over lot line issues. This is why I always suggest that before an individual buys a property, they walk the lot, look at the plat or have a survey done and review the easements on the title to determine if there are any issues like your shed issue. It’s a lot easier to walk away from a purchase over these type issues than to resolve them after you own the property.

At this point, you’ve got a few options, but there are no guarantees.

The first plan of action should be to try and diplomatically work with your neighbor on a plan. You should use the plat or survey you have as evidence that the shed is on your lot. Your neighbor could agree and work with you, which would be best, or they could fight. If they’re a little edgy, maybe offer up some advantages like you’re going to put a nice new fence in between the houses. Or offer to help them move the shed, if possible. Always try the diplomatic route first.

If diplomacy doesn’t work, and many times it doesn’t, you may have a fight on your hands. You can drop the issue and back down if that’s best, or you can search out the local laws, talk to an attorney if needed, and come up with a course of action. Don’t take any drastic action, like removing part of their shed off your property, without the proper legal guidance. Unfortunately, it’s going to cost money either way, so make sure you’ve got a good idea on cost before you start a big fight.

Hopefully you’ll find an adequate resolution, and next time around you’ll know to review these items and resolve any issues before you close escrow. Good luck!

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