Many homeowners continue to ask the question why does their Community need a replacement reserve fund?
Major components such as a pool, playground equipment, roofs, or siding must be replaced from time to time, regardless of whether or not the Community Association plans for the expense. It is in the Community Association’s best interest to set aside the funds now. Reserve funds are not an extra expense—they just spread out expenses more evenly. There are other important reasons that Association monies should be put into reserves every month:
Reserve funds meet legal, fiduciary, and professional requirements. A replacement reserve fund may be required by:
• Any secondary mortgage market in which the Association participates
• State statutes, regulations, or court decisions
• The Community’s governing documents
Reserve funds provide for major repairs and replacements that we know will be necessary at some point in time. Although a roof may be replaced when it is 25 years old, every owner who lives under or around it should share its replacement costs.
Reserve funds minimize the need for special assessments or loans. For most Association members, this is the most important reason.
It should also be noted that the American Institute of Certified Public Accountants (AICPA) requires the Community Association to disclose its reserve funds in its financial statements.
Reserve funds enhance resale values. Lenders and real estate agents are aware of the ramifications for new buyers if the reserves are inadequate. Many states require Associations to disclose the amounts in their reserve funds to prospective purchasers.