Association Reserves https://www.reservestudy.com/ Rely on the Experts to Budget Responsibly with a Reserve Study Thu, 22 Oct 2026 22:27:02 +0000 en-US hourly 1 https://wordpress.org/?v=7.1.3 http://www.reservestudy.com/wp-content/uploads/2018/11/EDF15EA0-B065-45CE-BAD9-931F03D35C21.png Association Reserves https://www.reservestudy.com/ 32 32 Reserves, Insurance, and Building Inspections: How They Work Together http://www.reservestudy.com/reserves-insurance-and-building-inspections-how-they-work-together/ Thu, 22 Oct 2026 22:23:22 +0000 https://www.reservestudy.com/?p=16848 How do HOA Reserves, HOA Insurance, and Building Inspection reports fit together? Robert Nordlund and Kevin Davis explain why reserve studies, infrastructure inspections, and insurance loss control inspections look for different problems, how often each should occur, and why the board must coordinate all three. Learn how better information can reduce surprises, support budgeting, and protect long term insurability.

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How do HOA Reserves, HOA Insurance, and Building Inspection reports fit together? Robert Nordlund and Kevin Davis explain why reserve studies, infrastructure inspections, and insurance loss control inspections look for different problems, how often each should occur, and why the board must coordinate all three. Learn how better information can reduce surprises, support budgeting, and protect long term insurability.

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Robert Nordlund:

 

Fantastic! Thank you, Jenn, and welcome, everyone. Hello, welcome to today’s program. We’re going to be speaking about the three major inspections you should expect to occur at your association. Now, reserve studies tell us what we need to plan for infrastructure inspections. Tell us what needs attention, and loss control inspections identify conditions that result in property damage or liability claims. The reason for today’s program is that each of these inspections look at your property from a different perspective, and every year as your association ages, these three inspections become more significant. We’ll shortly share with you the key to effectively coordinating these three inspections in order to serve the best interests of the association.

 

And how we’re going to do that is the agenda that you see on screen. I’m going to start with how does that get done. We’re going to talk about the board’s responsibility, who’s doing that inspecting, and then the results and how this all comes together for benefit for your association. Now, fundamentally, you have to understand that owning real estate is expensive. The cost only starts when you purchase the home. Mother Nature and Father Time are always deteriorating everything that you purchase, and so everything that we own is in a constant state of deterioration. So the board trying to maintain the common areas is always up against an adversary in Mother Nature and Father Time. So they’re always busy.

 

Things are always changing. So let’s take the example of a pool. That’s a common, common area asset at a community association, and let’s talk about what a pool does with these three types of inspections. So, if you say we have a pool, and you ask these three professionals to look at it, you’re going to get three different answers because they’re looking at the pool from a different point of view, none of them is wrong. They’re just different. And let me explain. As a reserve study provider, it’s pretty easy for me to talk you through this portion. And this is actually one of my own pictures.

 

When I look at a pool, I see a list of projects, discrete, separate projects that need to be funded and accomplished on a regular basis, often cyclical projects. You can see the deterioration in the pool deck coating here, and I remember looking at this, thinking some little kid is going to stub a toe on this kind of stuff and maybe break out into tears. So this is not good. But this is the kind of things that I look for and I see. So when I look at a pool, I see many reserve components, and hopefully you see this in your reserve study. There’s the pool resurfacing itself.

 

There’s the pool deck resurfacing, perimeter fence repainting, likely the ironwork fence, pool furniture, the pool heater, the pool filter, pumps, all those other things that come along with it, and everyone has its own cycle, and each needs its own funding. So I look at it as a lot of discrete, separate projects. And then if you have an architect or engineer doing an infrastructure inspection, they’re going to look at it and say, “Hmm, how is this different from when it was new? And I hope you can see it in the picture here that you see on screen. There’s a settling that’s going on here, and you can see someone drilling core samples to find out what’s happening down below.

 

So, is it a minor crack? Is it a little minor upheaval? Is it settling? And when things crack and open up, does that mean there’s going to be moisture problems getting into the rebar, or even worse, seeping into the garage below? So that’s what the kind of things they’re looking for. What the heck is going on? How is this aging?

 

Is it aging in a healthy manner, or in an unhealthy manner, and then if you put on the hat of a loss control inspector, someone who’s looking at potential hazards, they’re looking at a pool and they might see something like you see here, where it’s a gate that is wide open, and all of a sudden, I hope you’re thinking as I am. That’s a safety hazard. You don’t see signs up saying what the pool hours are. Maybe some keep it quiet from 10 p.m. and on. Some pools are other restrictions, but they’re looking for gate closure and signage, trip and fall hazards.

 

To me, this looks like the pool entry is at this level, and then maybe you go around the rock area to get down to the lower pool deck area. So there’s trip hazards if you want a little kid eager to jump into the pool. Maybe there’s standing water that makes this all slippery. Where are the sharp objects and exposed edges? And we haven’t even looked at the crack in the foreground, and that’s probably exactly what the infrastructure inspector is going to look at. And I’m going to be focusing at look at how the paint is starting to deteriorate at the top. It’s getting close to needing time to repaint this.

 

So we’re all looking at this from different points of view, and gathering different information. So, with three inspections of the same pool, each inspector is looking for something that the others are not even looking for. I’m not looking for the trip and fall hazards. That’s really not my area. The person looking for safety hazards is not looking for how well the paint is behaving or how rough the surface is of the pool itself. Each reports something that the others will not report, so they’re gathering information, and it’s important information.

 

But you need these three points of view to get things together, and so there’s three different inspections, three different results, three different reports, and I’ve spent almost four decades developing reserve studies. And like Jenn said at the very beginning, we have a bias towards reserve studies. But just looking at those pictures, you realize that a reserve study alone is not going to get you those things. So today’s presentation is all about the importance of these two other reports: the infrastructure report and the insurance loss control report, and how meaningful they are to your association. So to say it very plainly, one pool, three inspections.

 

Now it could be any other part of your association, but pool is a great example, and not one of those reports is redundant. They’re looking at different things. So with that stage set, I’m going to turn the page to the next chapter, and Kevin’s going to speak about board responsibility. Kevin,

 

Kevin Davis:

 

yeah, thanks a lot, Robert, and great being back here again. It’s been a while since we’ve done a podcast, a webinar together. We do lots of podcasts together, but our first webinar we’ve done in several years. So let’s talk about board responsibility, and this is the key area because in order to really understand the importance of these inspection reports and understand that you have fiduciary responsibility. You have a job to do certain things in a correct manner. If you do not, you’ll get sued, and that’s what my job has been for all these years. Be handling insurance for community association is to try to stop community association board members and managers, and just to not be sued.

 

So we start from the basic premise that you, as a board member, has three responsibilities. You have the jobs to maintain the common area to make sure the common area there is is well taken care of, well maintained. You have to collect the revenue and make sure you have a sufficient revenue to make sure you you pay all all the expenses you have, and then you have to enforce the documents and the rules, so that’s your primary responsibility. Now, today we’re talking about you know the inspections, and this is where the inspections live in maintaining common area. The reality is is that really all three areas is inspection because if you collect enough revenue, guess what? You can maintain that.

 

You can maintain the common area. If you enforce the rules correctly, guess what? You can maintain the common area. So all three of these things lock in together to make sure that the buildings are well taken care of and well managed. It’s important to me on the insurance side because my jobs do one thing: to look at your association and make sure it is insurable. Make sure it not only is insurable that we can provide a great quote with the best terms and conditions available for your community association. Now, maintaining the common area requires inquiry. You have to make an effort. You have to be able to stand and say, “Guess what? It is my responsibility.

 

I have a fiduciary responsibility to act in the best interest of the association. The problem is nobody can know it all. You can’t see it, so you need special expertise today more than ever, and it really is important because you see here where where important matters not not obvious, but you have some things that you just have no knowledge of. There are state laws that constantly change things and things how they should be done. There are requirements by lenders, requirements by insurance.

 

You don’t know about these things, so what you need to do is rely on experts, separate experts who has their own schedules and have their own reports they look at to make sure that you are complying with the rules and regulations of an association to make sure that you are doing the things that’s in the best interest of the association today. More than ever, because a lot of community associations are getting older, and the more older you get, the more this maintenance really matters more than ever before. But this is the good news, guys. This is not new. You already do this.

 

I bet you any amount of money that people are listening to this webinar right now knows the attorneys, the accountants, landscaper, management company, even insurance professionals. This is a team that we work together to make sure you do not have a D and O claim because you failed to maintain a common area, or you failed to enforce the rules, or you just failed. You breached your fiduciary duty. So understand, you don’t have to take all that responsibility. These people allow you to give you a defendable position if you’re in front of a judge saying, “Why did you make that? Why’d you make that decision?

 

My attorney, my accountant, my landscaper, the election company, management company, and insurance person told me that it would be okay. So the board doesn’t have to actually do the work. They’re the ones leading the work. Their job is to oversee, to coordinate it. They’re not the ones going out there and paving the lot or getting on the roof and doing the roof inspection. They’re not the ones inspecting it. You hire a specialist to read the report to decide what happens next. Fourth, remember, responsibility is to lead and coordinate the role so that you can defend yourself if you’re sitting in front of a judge, and the judge asks you that question: How do you make that decision?

 

So we have three separate reports: the reserve study, infrastructure, and loss control. The three of these things work together to help the board of directors make informed decisions. And at the end of the day, that’s what this is about. The board has to make informed decisions. Each specialist report goes into that board, and that board has to do something, especially on the loss control. If you don’t do what’s said on the loss control, the policy may be canceled. So it’s very very important. If you don’t listen to the reserve study, if you don’t pay attention to reserve, you don’t have a reserve study, then you may not be able to get insurance. Same to the infrastructure. You may not.

 

So all three things are important and necessary to make sure that you operate an effective community association. So plainly, again, Robert said you have three specialists, one board. Coordination is your responsibility.

 

Robert Nordlund:

 

Fantastic, Kevin. Well, let me take it now into the next chapter, and that’s the question of who’s inspecting. We’ve outlined pretty clearly that the common areas are in a continual state of decay, and that’s driven by Mother Nature and Father Time. It’s not the board’s fault. It’s not state law. It’s not anything else. It’s just part of life here on planet Earth, and you have three different points of view: the reserve study, the infrastructure report, and the loss control report. And they are all individual reports, but they feed into the board, and the board is sitting there with their job as leaders to gather that information and decide. Okay, how do these things look alike? How they look dissimilar?

 

What do we need to do about them? It helps inform the board’s decision. And so let’s talk about these three different inspections, three inspections, three standards, three schedules. So they’re different professionals with different training, different credentials, doing their inspections for different purposes. Hiring one does not get you the other two. As a reserve study provider, I’m not going to give you a loss control evaluation. Also, doing a structural destructive test of the association. I’m looking at and think back to that pool idea. I’ve got a list of components for the all the projects that are going to have to do with the pool.

 

I’m looking at my normal deterioration type things, and so start to think of it that there’s going to be different people looking at different things. Now, the reserve stay provider is supposed to follow national reserve day standards, and they’re going to look for common area deterioration and primarily cyclical projects, normal things that happen over and over and over again, and think that that’s different from the structural inspection that’s looking for something that was constructed that is now starting to go sideways based on age or lack of maintenance, and then the reserve study is done for budgeting and cash management. We’re not saying a look out; you have this one thing.

 

We’re trying to help the association know how much money to set aside on an ongoing basis in that kind of usage fee manner, so that they can care for the. As Kevin said, that number one objective is to care for the common areas, maintain the association, and then we gather that information based on our visual inspection plus any reports that are provided to us. And keep that in mind.

 

We often get a plumbing report or an elevator report, sometimes an asphalt report, sometimes a roofing report, and in some cases we get the gold of an infrastructure report, where we have an expert that has been to the property with complementary skills, and we get our hands on that, and we find out that those cracks that we saw on the balconies-they’re just cosmetic, no big deal. So we are looking at the information that’s provided to us, or what we see with our eyeballs. And reserve study, since everything is in a constant state of change, needs to be updated annually. And best practice is never more than three years between on-site inspections.

 

Now, the architect or structural engineer doing the infrastructure report-they’re going to be following engineering or architectural standards. What are they? ASTM. I probably should have looked up some of the standards for an inspection. It’s ASTM. I think it’s a four-digit number, and they’re looking for structural integrity. And often, as you saw in that picture of the pool, someone is drilling core samples because they’re trying to find out what’s that rebar look like down inside. Is the moisture getting to it? And they might do tap tests or other kind of tests where they’re trying to figure out what is there that I cannot see.

 

Now, those structural engineering or those infrastructure reports are often multiple times the cost of a reserve study, but fortunately they’re performed less frequently, maybe every five to 10 years, depending on the type of common areas or construction that you have at your association. And then, since we have Kevin here, Kevin, can you spend a few moments talking about the insurance loss control inspection?

 

Kevin Davis:

 

Yeah, sure. The insurance loss control inspection is something they take very seriously over the past several years. They’ve always have done it, but before they would make recommendations and you know mandatory recommendations, they kind of let them go, but today the rules kind of change. What we’re seeing-we’re seeing whenever you have a new policy and you have a new insurance provider writing that policy, they automatically looking out and call what is called a pre-quote loss control, and those pre-quote loss controls or last about 30 days, so they’ll go out there and they take a look at things, and they really concern about things. And again, Robert mentioned before soft closing gates. They’re looking for uneven sidewalks, handrails.

 

Handrails is interesting because we found out that in certain states, handrails are required over a certain number of steps. So you have a four steps. You got to have them, and these things. You know, we found out that you know they don’t have handrails, so we have to go out there and make these kind of recommendations. So we’re looking at new business. Every new business they get a loss control, and then if it’s a renewal comes up and you and you’ve had it for a number of years, and depending on what type of association is we’re talking about maybe somewhere between three and five years they’ll ask for an inspection.

 

So what they end up doing is come back with a written report, and that written report is either mandatory or advisory. They will recommend you do certain things out there, like making sure that the trees have been trimmed or making sure that your handrails are a little tighter, but then make mandatory recommendations. And what happened before was happened now is when you see these mandatory recommendations, you got to take care of them because if not, they can come back and either non-renew it or just cancel it mid-term. So that’s kind of a quick overview there, Robert.

 

Robert Nordlund:

 

Hey, can I follow up with a couple of questions? So, number one, when I’m thinking I’m looking at a building that looks like it’s a little bit tired, if it has carpet, sometimes I see wrinkles in the carpet or threads that are loose. I’m thinking those are trip and fall. Is that also the kind of thing that a loss control inspection might pick up?

 

Kevin Davis:

 

And that’s the things they’ll put inside the report. That these things we advise you to take care of. One of the big areas that they’re concerned about now is the roofs. The roofs seem to be that one area because, again, one one the the problem from an insurance point of view is that this is a insurance contract, not a maintenance contract. So, and a lot of our claims that we see on the insurance side is because they fail to maintain the property. Right, they maintain the property that’s likely somebody going to slip and fall, like that self-locking gate you showed at the pool. If that closes automatically, less likely somebody’s going to drown.

 

So really, are just looking at these things to make sure that it limits the likelihood of. Claim occurring,

 

Robert Nordlund:

 

got it. And then you also said that thing about recommendations versus mandatory. I’ve had clients give me a loss control report and saying that the the exterior stairwells look great, but the insurance company says we need to do this and this and this.

 

And in the next year, and I say, oh, no, they looked okay and they said oh we need to replace the stair treads the handrail is loose or something like that and things that you know I had just plain missed and getting that report helps me do a better job with a reserve study so they can have the cash flow to get those things done because if the board’s confronted with a 20 or $30,000 expense, they’re wondering how we’re going to afford that, and it’s nice if that gets floated into your reserve study. So it’s just one of those big projects that you have the reserve cash to be able to accomplish.

 

Kevin Davis:

 

And one more thing about the the handrail, especially exterior handrail handrails, is that accumulate moisture. So you got to hold on. Yeah, has something there, and so those are one of the things they really do take a look at is those handrails.

 

Robert Nordlund:

 

I like that because I’m I’m not a handrail expert, folks. Okay, so we have different standards, different scopes, different schedules. Annually, to every third year is a reserve study. Every five to 10 years is the structural inspection, and as you heard from Kevin, no set schedule at all. It might be a renewal date. It might be at a transition time. It might be based on a series of losses, and the insurance company is saying, “Hey, is there something we can do to keep you guys safer and minimize your expenses here? So there’s different kind of timing on that third one. My concern is who checks what nobody was asked to check.

 

So if you only have two of these inspections going on at your association, you might be wondering what am I missing here? And particularly at an older association, I like being given the infrastructure report because that gives me a heads up to, they need to be replacing this in the next five years, and I can dial that into the reserve expenses. So I want you concerned and sensitive to thinking what is out there that I think Kevin said it earlier is not patently obvious, and that’s a great reason to have the experts on your side. So to say it plainly, hiring one specialist does not cover the other two.

 

There are different people with different skill sets looking for different types of problems at the association. So they’re not substitutes one for another. So be careful about that. Now let’s turn the corner to results and bring this program in for a landing. To summarize, we have three reports and one recipient. So these three experts are going to look at the association, the reserve study, the infrastructure inspection, the loss control inspection. They’re going to provide that information to the board, and it all lands with you, the board, and hopefully the managers here on the program are understanding that they’re part of this. They can help counsel the board. They can help encourage the board. They can facilitate board action.

 

But no one else is reading all three. Notice that the arrows go to the board, not to each other. So the board needs to be coordinating this activity, and that’s going to be a big deal here. Neither specialist reports to the other. None of them sees the other two reports unless you share them. And I think it would be very easy to say that all these three experts are on your team. We’re here to support you. We’re here to support you and your decision making at Happy Valley Villas, let’s say, and so if you ask the reserve study provider, “Would you like to see a peek at the infrastructure report? They’re going to say yes.

 

If you say, “Would to the infrastructure report? Would you like to see the loss control report? They’re going to say yes. So you might want to volunteer those to make sure that everyone’s on the same page, because otherwise, overlaps, contradictions, and gaps surface when there’s not the information being shared. For privacy purposes, these experts are going to provide you, the client, you, the board, Happy Valley Villas, with their report, and it’s up to you then to decide it will be helpful, and that’s the message that we want to begin to communicate here today. So the board coordinates the information flow. Read all three. What do you learn? Is it a recommendation? Is it a requirement?

 

Look for what could help the others. Do the reserve study people need to know that this is going to happen next year. Do you need to revise that report? Just make sure you’re communicating that type of information. Share what is relevant with each of the providers, because you may be thinking in the back of your heads, what’s this all going to cost? And again, reserve study is not a large expense. The. Infrastructure report is usually multiple times the cost of a reserve study, and Kevin, the loss control report isn’t that something often done by the carrier or the candidate carrier?

 

Kevin Davis:

 

Yes, the carrier takes care of it. They will oversee the report, take care of the report. Yes,

 

Robert Nordlund:

 

got it. They’re trying to prevent bad things happening, and they’re going to send out someone because it’s probably a whole lot cheaper to mobilize an inspector for a day than to get hit with a a big loss. Is that what it boils down to?

 

Kevin Davis:

 

Exactly. Yes.

 

Robert Nordlund:

 

Got it. Okay. So don’t just think that we’re talking about a checklist here. Don’t just make sure these three things get done, organize them, and you throw them into the notebook or scan them and save it until the next board. Make sure you’re reading it and acting on it, using it. So fund it, schedule it, or if it’s something that’s recommended for a future year, document it, put it in the maybe in the reserve study for two years down the road or five years down the road, or document why not?

 

Maybe you’re not going to take that action recommended by the insurance carrier because it’s getting done in the reserve study even before the insurance carrier was recommending it getting done. So document why not? Why they all come together? And I want to make it clear: when nobody coordinates, some bad things can happen. And Champlain Tower South, to me, is Exhibit A. This place was 40 years old, and they were driven to a 40-year mandate inspection in their county in Florida, Miami Dade and Broward County. They hit the 40-year of age, and they got hit with the engineering inspection requirement, they got that done. They finally had a board that was starting to take care of things.

 

They hired the reserve study. That was our firm. Hired us in 2019. We delivered it early in 2020, and then almost days after we delivered the reserve study, that’s when COVID 19 appeared and pretty much shut the world down, and made getting a loan and getting proposals and all those kinds of things a long and laborious process. There, people didn’t want to come out to the property. We were all afraid we were going to catch the Black Death or whatever it was. Unfortunately, they just waited too long, and by the middle of 2021, part of the building collapsed and 98 lives were lost. So we want to start earlier in this process.

 

We want to make sure that we are getting ahead of things, and as Kevin said, helping you save some money in the process. So back to the very beginning, Kevin spoke about maintaining the common areas. Get those three inspections done because that will inform how you set the budget, and that will help fulfill your responsibility per the governing budget, per the governing documents, to set the budget correctly and coordinate what you find with your experts. The result is you protect the association’s financial stability, less special assessments, less surprises.

 

The physical assets are in better condition, which improves owner peace of mind, it improves property values often more than you invested in the property, and as Kevin stressed, it helps with the long-term insurability. It keeps your premiums under control, and it makes you a preferred risk for the insurance company. So to say it clearly, find your problems early, use these reports, then solve your problems early because early is inexpensive and small. We love that. Late is expensive and dangerous. You could also add unsettling because it’s special assessment time, things like that. And that brings us to the end of our prepared content. So let me just close here. If you want more information, we have plenty at Association Reserves.

 

You can find us@reservestudy.com, and that’s video resources, written resources. And Kevin, can you give a little overview of what’s available with Kevin Davis Insurance Services?

 

Kevin Davis:

 

Sure. We’ve been around for 35 years handling community associations, directors, and officers like building insurance. You have any questions? First, look at our website; gives you a lot of information, and send me an email, which is coming up next.

 

Robert Nordlund:

 

Sounds good. We’ve appreciated and enjoyed being a partner moving forward in this industry with Kevin Davis Insurance Services for decades now. They’re just one of the stable, dependable leaders in the industry, and we’re just moving, helping associations get successfully to the future. So we’re going to have this webinar on YouTube. You can find a copy of it also at reserveside.com, and we can’t leave you without featuring our weekly podcast for board members. It’s a 30-minute program drops every Monday. It’s called HOA Insights: Common Sense for Common Areas. You can subscribe from all the major podcast platforms. You can listen directly from HOA insights.org. It features guest experts. Kevin and I are two of the three co-hosts.

 

We walk you through common issues with associations, guest experts, board heroes, lots of great things to help you in the hard work you do leading your association forward. With that, I will turn the microphone over to Jenn, who will coordinate our Q and A time together.

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]]> 180 | HOA Issues That Can Derail a Condo Sale http://www.reservestudy.com/180-hoa-issues-that-can-derail-a-condo-sale/ Tue, 20 Oct 2026 20:33:08 +0000 https://www.reservestudy.com/?p=16690 LISTEN ON YOUR FAVORITE PLATFORM Podcast Spotify Apple Rss Summary Before buying a condo, look beyond the walls! The HOA’s finances and operations can have a major impact on the deal. Transcript   HOA Issues That Can Derail a Condo Sale | 180 Kevin Davis  00:00 Things change, and that makes it a problem for […]

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LISTEN ON YOUR FAVORITE PLATFORM

Podcast Spotify Apple Rss

Summary

Before buying a condo, look beyond the walls! The HOA’s finances and operations can have a major impact on the deal.

 

HOA Issues That Can Derail a Condo Sale | 180

Kevin Davis  00:00

Things change, and that makes it a problem for community associations. The good news for us is that, and this is what we do: we give advice to board members. We want to put them in a defendable position, and that’s what we’re doing today. Our job is to say, listen: if you’re buying into a community association, if you do this job, if you do your job correctly, then guess what’s going to happen? You may you may get in trouble. You may get in trouble. Somebody might come after you because you didn’t meet these requirements, but you did your job the best you could do. So now, of a sudden, you have insurance to back you up. You’re you being well taken care of.

 

Announcer  00:33

HOA Insights is brought to you by five companies that care about board members: Association Insights and Marketplace, Association Reserves, Community Financials, Kevin Davis Insurance Services, and the Inspectors of Election. You’ll find links to their website and social media in the show notes.

 

Kevin Davis  00:48

Hi, I’m Robert Nordlund of Association Reserves, and I’m Kevin Davis, the president of Kevin Davis Insurance Services,

 

Julie Adamen  00:55

and I’m Julie Adamen, the president of Adamen Inc. And this is HOA Insights, where we promote common sense

 

Robert Nordlund  01:00

for common areas. Well, welcome to episode 180, where for us we’re having a special episode of all three co-hosts together. So I’m joined by insurance expert and regular co-host Kevin Davis and expert management consultant and regular co-host Julie Adamen. We’re all together for this episode because we wanted to tell you about our experience recently being resources for a Wall Street Journal article, and the reporter Veronica Dagger is one of our growing number of podcast listeners, and so she was writing a story addressing some of the challenges of selling a condominium unit in today’s market, and she wanted to know what questions a prospective buyer should ask. So she thought of the podcast, and she reached out to the three of us. She thought our responses were relevant and included them in her article. So that was kind of fun, and we’ll include a link to that article in our show notes. Well, if you’re a new listener, we’re here weekly with episodes to help you with the hard work of being a board member. Week after week, we bring you fresh content from our regular co-hosts, subject matter experts, or board heroes-we’re so proud of those board heroes. They are the examples of people doing it well, doing it right, and doing the hard work. And you can catch all our prior episodes on our website hoainsights.org, on any major podcast platform, or on our YouTube channel. And if you like the show, by all means, subscribe and join us in our mission to improve board member leadership all across the country, one association at a time. Subscribers and positive reviews boost the show’s location in search engines, making it easier for more board members to find the Common Sense for Common Areas podcast and get hold of a rescue line to help them with their association. Well, if you haven’t been to hoinsights.org, you’ll find we have some great merch for sale, like this mug that I have here. We all oh great we all have mugs. We’ve got some great things for sale like mugs and some great free stuff there like board member Zoom backgrounds that you can download for free for your next online meeting. It’s worth a quick visit. Well, we enjoy hearing from you, responding to the issues you are facing at your association. So, if you have a hot topic, a crazy story, or a question you’d like us to address, you can contact us at 805-203-3130, or email us at podcast at hoa insights.org, but today’s episode is on us. So, Kevin and Julie, what was it like being interviewed by a Wall Street Journal reporter?

 

Kevin Davis  03:31

When you get that phone call or you get an email from the Wall Street Journal, you go, “Wow! I mean, I panicked first because it’s like that’s usually bad news, but it turned out to be a lot of fun. I enjoyed it. What about you, Julie?

 

Julie Adamen  03:41

Oh, it was great. My contact was via email, and we went back and forth. I gosh, four or five times. I had sent her links to articles I had written over the years when she asked about you know buying in HOAs, which is what the article is about. Yeah, it was great. It was real fun. I was surprised that I actually got quoted. Quoted. Yeah. Well, this

 

Robert Nordlund  04:00

is a reporter that I first spoke to right after Champlain Tower South, so she remembered me from that. Maybe she learned of the podcast that way. I’m not sure, but usually when I get a call from the New York Times or Wall Street Journal, I’m suspicious they just want to sell me a subscription. Yeah, I don’t get all hot and bothered about that. It’s like because I think I’m on a well anyway a minimal subscription just so I can see things online. But I thought it was fantastic to see the the system at work because we’re trying to serve community associations, we’re trying to help board members, and we’re trying to help our community association industry. And it was nice to see that the was it the Fourth Estate?

 

Julie Adamen  04:42

It’s the Fourth Estate. That’s right. Is

 

Robert Nordlund  04:44

doing its job and finding out things and trying to figure things out. So, Kevin, did you correspond with? Did you speak to Veronica? Tell me what you guys talked about.

 

Kevin Davis  04:56

Yeah, you know what? The timing was perfect for our conversation. Because right now, the when you go in to buy a community association, either condo or a home in a homeowner association, the number one problem they have is two people have to be approved. I have to be approved as the buyer, but the association has to be approved also. And the problem is today is that when the lenders or the mortgage companies go in there and look at that community association, they get denied. And when they get denied, the number one reason, a third of the reasons why they are denied, is because of inadequate insurance. That’s the number one thing that I tried to present in that article, but didn’t get out as much as I would like to. That is number one problem right now facing community associations is they don’t have adequate insurance when it comes time to having a loan approved. Simple as that.

 

Robert Nordlund  05:49

Okay, well let me let me back us all up because I remember when I first bought my first home purchase was a condominium unit, and I had my parents had told me make sure you have a good credit score. Get your credit card and pay your bills on time. And I had a strong credit score, and that was all I needed to do. But now we’re talking about both parties need to qualify. Is that the deal?

 

Kevin Davis  06:12

That’s what it is, and it’s such an important thing right now because again, there are like four or five different things that a lender will look at mortgage company, but it’s surprising today. And again, it’s been since Champagne Towers went down. The lenders are looking at insurance, and there’s a third of the reasons why your your loan has been denied.

 

Robert Nordlund  06:32

Okay, so you can have a a good score, 800, and all of a sudden, and you you or you and your spouse, or whoever you and your family are all getting ready. Oh, we found this unit. It’s going to be great. We got a new job in a new town, whatever it is. And all of a sudden, you realize no, the loan fell through. Yeah, and you have to start. You have to start over.

 

Kevin Davis  06:54

Well, not only that, you have to start over, but now the seller there is upset because the seller is shocked because the seller didn’t understand that in order to you know get a to get her house approved that the board ahead of time has to know. So again, when we had this conversation with the Wall Street Journal, there like a lot of inform a lot of information that she picked up on. But that one area that kind of said, well, we have to be careful when you buy a community association, you have to have adequate insurance. Period. The

 

Robert Nordlund  07:23

association has to have adequate insurance. So, and I

 

Julie Adamen  07:27

would say, chime in. I’m going to ask Kevin. So now the buyer would have to disclose that right up front, wouldn’t they?

 

Kevin Davis  07:33

Yes.

 

Robert Nordlund  07:34

And if if they’re trying to sell their condo for 500,000, and now they realize that nobody is going to be able to buy it, get a mortgage on that. Then they’re looking for an all cash buyer, and that case buys your lowers your buyer. Well,

 

Kevin Davis  07:48

it’s it’s more than that. It’s not you won’t get a conforming loan. You won’t get a you know a a good loan. You have to get now. You have to pay more interest. You may add cash. The terms are different. So, but what happens is is that when you in the community association end up going to Fannie Mae and Freddie Mac, who buy loans. That’s their job to buy these loans. And when they go to buy the loans, they have requirements that you have to qualify as an individual association to qualify. Also,

 

Robert Nordlund  08:13

got it. Okay, so it’s really that’s fascinating,

 

Julie Adamen  08:15

Cam.

 

Robert Nordlund  08:16

Yeah. So you, as a buyer, you like the place. It’s a nice two bedroom. You have a view. It’s in the right school district. It’s affordable. You can you’ve bought it, and all of a sudden you realize that is that the board hasn’t done their job, or they are just in a jam and there isn’t enough insurance for the association.

 

Kevin Davis  08:34

Well, it’s it’s a little bit more complicated because two things can happen. The board could have done their job perfectly, but then Fannie Mae and Freddie Mac lending institutions’ guidelines have changed. So, effective August the first, all of a sudden they say, for now one, instead of needing three things, we need five things, and that board has no idea that you need five things or even three things. So you got the best, well-run, well-managed association, and all of a sudden, I’m ready to buy into Julie’s association, and I can’t get in there because all of a sudden, effective August the first, now they require you know X than Y. And for example, for you, your reserve studies and reserve practices, you know, all of a sudden they change that you need X number percentage other than this percentage of it. So things change, and that makes it a problem for community associations. The good news for us is that, and this is what we do: we give advice to board members. We want to put them in a defendable position, and that’s what we’re doing today. Our job is to say, listen: if you buy into a community association, if you do this job, if you do your job correctly, then guess what’s going to happen? You may you may get in trouble. You may get in trouble. Somebody might come after you because you didn’t meet these requirements, but you did your job the best you could do. So now, of a sudden, you have insurance to back you up. You’re you being well taken care of.

 

Robert Nordlund  09:50

You have your D and O insurance, and so you can say that I did everything to the level best.

 

Kevin Davis  09:55

I have a defendable position. All you want to do is be in the defendable position, saying that I. I’m aware that we’re on the black list, or we’re on this list. I don’t want to call it a black list. We’re on this list that we’re ineligible. So now, of a sudden, we did the job to get off of it. We’re doing the things that necessary. So all we can do is say we’re sorry about it.

 

Robert Nordlund  10:14

So are there board members across the country now scrambling because, on average, they had sold-not they, but on average, they had let’s say one new homeowner a month. Okay, 12 a year. So one fell through because the association, the the buyer, and therefore the seller learned that the association doesn’t qualify. All of a sudden, the board is rushing to try to get the information, or get the paperwork, or get the the coverage. Is that’s what’s going on?

 

Kevin Davis  10:42

It is a lot of that. A lot that’s happening right now. It’s getting more complicated because as insurance market has changed over the past several years, is harder to get the adequate coverage that they need. That’s the problem. Is the word adequate coverage? And adequate coverage has a different meaning to me as it does to somebody in Florida versus somebody in in New York or New Jersey is it gets complicated.

 

Julie Adamen  11:06

I have a question that I didn’t know was going on. So you’re saying that the the boards are not notified. Obviously, I would think Fanny and Freddie would they definitely would not be sending emails or whatever out to individual boards. But wouldn’t their general counsel have some idea? Aren’t they keeping track of that, or their insurance provider?

 

Kevin Davis  11:25

No, no. There’s a blacklist out. However, the blacklist has been stopped. Last year they stopped the blacklist. So right now, the only well, there’s a couple ways you can find out, but it’s most associations don’t know until you apply for a loan, and then all of a sudden the loan is denied, and then when they find out that way, now all of a sudden I have a down payment. You and I have a contract, and all of a sudden I can’t get a loan, not because I don’t qualify, but because association doesn’t qualify.

 

Julie Adamen  11:52

Right, but the association was never notified. But

 

Kevin Davis  11:55

exactly, association has no idea,

 

Julie Adamen  11:58

but they do now. No, if it’s denied, I guar I guarantee you that homeowner is not going to keep that to himself. Yeah,

 

Kevin Davis  12:05

they have knowledge. They have knowledge. Yes, and that’s the key. Once they have knowledge, they have to do something about it. They don’t get in trouble until they have that knowledge. So

 

Robert Nordlund  12:13

we’re talking this ineligible list is a few 1000, a handful of 1000s, and we’re talking about an industry where there’s better part of 400,000 associations, and so the ineligible list is maybe 1% something like that.

 

Kevin Davis  12:30

I have a list of 5000. That’s why it’s called a black

 

Julie Adamen  12:32

list. Yes, no way, however.

 

Kevin Davis  12:34

But it’s only Fannie Mae list. Freddie Mac doesn’t have a list, and they no longer. It’s no longer list anyway. So we can say that if Fannie Mae had 5000 names on there, Freddie Mac could probably have 5000 names on me also. Because if I go to Fannie Mae to decline it, I’m gonna go to Freddie Mac because he might get it. So

 

Robert Nordlund  12:52

they have the same. Well, they have the same rules, but they may. We’re not. This isn’t the blacklist discussion. The blacklist

 

Kevin Davis  13:00

is going to be in four weeks from now, so I recommend it to be. I think it’s 184 episode 184. 184. The black list. Yes, this is more about when you buy into a community association.

 

Robert Nordlund  13:12

The whole point is that, and I want to get to Julie talking about is it an association that you want to buy into? But Kevin, your point is that you may not be able to get a loan not because of anything you haven’t done, but because of something the association may not have done. Julie, there’s a lot of-is it accurate to say-a lot of bad press about community associations at this time, and evil board members, and things like that. So, how do you discern in in the article? They call it the vibe. How do you look into the association and try to get a sense of is this an association I would even want to be involved in?

 

Julie Adamen  13:52

Yeah, in terms of that, which she and I discuss this back and forth via email, and I think people don’t realize that once you’re in one, you may realize it, but when you’re out on the outside looking at bikes, where you’re like, “Oh, what’s the vibe? And no, oh well, I don’t know, but I’ll buy in. I’m sure it’s fine, but no, associations really have their own personalities. I think both of you would agree with this. And over the years, the personality doesn’t really change. Usually, it’s the same. I mean, there are the pit bulls? These are the really tough associations. The board may not be adequate, or they may be bullies, or a lot of the homeowners are that way. It’s really interesting, and they seem to attract more people like that. So there’s the pit bulls, I call, and then there’s the little yappy dogs. They may be okay, but they’re all the time. You know, you’re getting the notice: don’t park your car there. Don’t let the dog poop, whatever that is. And then there’s the best ones, which are the golden retrievers, which are always seem to be happy. Now I am lucky right now. I live in a golden retriever association. Very, very good. Yes. Oh, it’s terrific. But I will tell you. Here’s how you figure that out, because I think a lot of folks are like, oh my God, I bought another wrong. Place these people are terrible. I don’t fit. It was in the Wall Street Journal. I mean, you really have to understand where you’re moving in. And so, my advice is to walk around the project and talk to people, talk to homeowners, talk to people who are walking their dogs. If you live in a, if it’s a larger scale one that maybe has some large amenities like golf or food and beverage and all that, I would absolutely go in and have dinner at the club or lunch at the club, and and see what it’s like, and you can really get a feel for it, and then talk to people there, even talk to the staff members, and see what they think. and And I will tell you, when we looked here, and I looked at, believe it or not, when I was looking, I looked at 18 houses in one day. Wow! And I know, I know, me and my realtor, it was so terrific. She said. She said. She told her the people in the real estate office that she was going to go look at all these houses with me, and they said how many? And she said 18. And she goes, “You’ll never do it. Not only did we do that, we had lunch and then we had a happy hour afterwards. So we were able to do all of it in one day. But you certainly got a vibe when you went and had lunch at the club, which is exactly what we did, and and just driving around, you can get a feel for it. You really can. So we ended up buying here, and there we are.

 

Kevin Davis  16:08

Hey, Julie, let me ask you a question. Is there any one thing that will stick out more than anything else,

 

Julie Adamen  16:13

as far as buying about the vibe? But the vibe. Well, the thing actually is the people and talking to the people, and I this place where I live, and it’s a you know 55 and better community. If you’re walking down the street or driving, people wave to each other. I mean, I’m in Arizona. I’m not like out in the middle of nowhere, but there’s people here from all walks of life all over the country because it’s very you know it’s very well known place in the 55 plus sphere, and and but people they’re always waving. You walk, people are waving. Always really nice, and you wouldn’t necessarily see that in other places. So if they’re grumpy, they’re not waving. That’s for sure. And I will tell you, we have a sister association, and I don’t see so many wavers over there. It’s kind of interesting. There and they’re definitely different. Definitely have different personality, and we’re right up against each other, and we share amenities. So, but if you’re, you know, if you’re there with them in the whether they’re in your restaurant or you’re in theirs, they’re all very nice people. But there’s definitely definitely a shift. It’s not horrible. I just say it’s just different. It’s fascinating.

 

Kevin Davis  17:11

You know, it’s interesting. You talk about the grumpy people because if they’re grumpy, automatically and you live there, you feel like they’re hiding something. Grumpy people, they’re hiding something. You feel like not communicating. They feel like not being open, and that’s the problem that we see. You know, when we see those kind of claims, meaning that I don’t feel I’ve been heard. I feel like I haven’t gotten the attention I should have gotten because those are the kind of quote grumpy associations where people just don’t feel that they belong. They feel like they’re attached. So I agree. If they’re waving at you, the communication is probably just a better place to live, so I agree. That’s that’s a great idea. Fascinating,

 

Julie Adamen  17:45

isn’t it? Though, and I think the Robert, did we need to take a break or something? Because I was going to add,

 

Robert Nordlund  17:50

we we got some time. I got a couple things I want to do before we take a break, and we’ll we’ll turn the corner

 

Julie Adamen  17:54

quickly. I’ll say the one thing, and what I also told her, and I think it came out in the article, was that you want a place that is well managed as well? You know, people are happy. That’s the vibe. But you want somewhere that is well managed, and if that means by the board and by staff, if it’s in-house staff or it’s a management company, doesn’t matter. But if you’re looking around, look and see what the place is like. Is it are the yards tidy? Whether the homeowner takes care of them or the association does, you want to make sure things are tidy. The roads look like they’ve been taken care of. You don’t want it to look at all like it’s fallen into disrepair. Any kind of disrepair, that’s a red flag. I mean, if you can noticeably see that the tennis courts have big cracks and the and are deteriorating, no bueno. That’s something you really want to look at. And and the other thing is, is that well, that yeah, the disrepair. I think they’ll just go with that one for now, and I’ll let you go ahead and go, Robert.

 

Robert Nordlund  18:45

I want to break into two more topics, but I look at the clock, and you were right. It is time to take a break.

 

Julie Adamen  18:50

It felt like it. I could feel it.

 

Robert Nordlund  18:52

So let’s do that. So to everyone, thank you for watching. Now it’s time to hear from one of our generous sponsors. After which we’ll be back with more common sense for common areas. Is

 

Russell Munz  19:02

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Robert Nordlund  19:34

And we’re back. Well, Julie, right before the break, you spoke about prospective buyer may want to walk around the association and talk to people, see what they have to say. What if a prospective buyer bumps into you, a board member? Do you have a different role in that kind of situation?

 

Julie Adamen  19:52

Well, you do in the sense that as board member, you number one have to act in the best interest of the association. You’re a fiduciary. Trustee, right? And someone says, “What do you think about it here? And you say, “I hate this place. I don’t even want to be here. What are you thinking about moving here? That would leave you open for some liability. Kevin, am I right on that?

 

Kevin Davis  20:11

Yeah, and it’s interesting. And we go back to the grumpy association. You said before, if you’re a grumpy association, somebody says, “You know what? I want to move in this place. It looks great. A grumpy person can say that. Well, you know what? Sure, you want to do that? Does it make sense? Now, all of a sudden, once you say that, guess what happens to that? Guess how happy that seller is going to be. Yeah, they’re gone. And if that seller loses, that seller loses that sale. They’re going to hold that board member responsible because again, that board member has that fiduciary responsibility to act in the best interest of the association. So that board member either has to say, “Well, good luck. I hope you live here, or just you got to be positive, or else you have that responsibility.

 

Julie Adamen  20:50

Absolutely. I mean, remember, Ed Robert, we’ve talked about this in many of the podcasts. Is that as the board member, you’re an ambassador, and you’re not just an ambassador in the meetings. You’re an ambassador the whole time you’re on the board. That’s just the way it is, and you always want to project something positive and say something positive about the community. Oh yeah, this is great. We would love to have you here. If you really don’t feel that way and you think things are a mess, I think Kevin gave you a pretty good diplomatic way to say it. Well, I think you know. I think you’ll love it here, or not that you’ll love it here. How about I wish you the best of luck and would love to see you here. Something you know positive, but well, you want to stay in here.

 

Kevin Davis  21:28

I think you’ll fit in in really well. Fit

 

Julie Adamen  21:29

in, yeah. I hate to think about that. That board members despise where they live. I’ve known some that do, and that’s why they’re on the board because they want to make changes to however it is. But still, you’re the ambassador, you’re the fiduciary, and you don’t want that seller to lose a sale because of something you said or your personal feeling. You know your personal feeling. So yes, board members, honestly, you should always be out there shaking hands and kissing babies. That’s really what you have to do. You’re a politician, and you’re a politician for the community.

 

Kevin Davis  21:59

And again, it’s important that we go back to the grumpy. To me, there’s two associations. I love what you’re saying with the golden retriever. I mean, those are guys not even worry about. It’s those grumpy associations where they, yeah, they’re the ones who feel like you know I’m doing a good job and they don’t appreciate me. So all of a sudden, a new buyer comes in and they start talking about themselves, how wonderful they are! How we want to we want to pair all the roofs, or we want to retake care of the trees, and they don’t let me. I mean, you’re right. You are an ambassador to the association. Act as such. That way, again, if a buyer comes in, you want them. You want to help the seller at all costs.

 

Julie Adamen  22:38

Yes,

 

Robert Nordlund  22:39

I like that. Facilitate the home sale because even though it’s the seller that’s selling their unit, you as the board want to facilitate that happening. So the two bedrooms go from 500,000 to 510,000 to 520,000, whatever the numbers are at your association. You want to have a healthy environment, Julie. I want to go back to something you talked about as you’re walking around, you spoke about it being a tidy place, no disrepair, and I was thinking about an association I went to where I used to play a bunch of tennis, and I went to this one place that had a crack down the middle of the tennis court that was like an inch and a half, and I was thinking, not only am I going to stumble, but the ball is going to jump sideways, and I’m not playing a lot of tennis at this point in my life. But what does that tell you? And what do you where do you learn more about that?

 

Julie Adamen  23:29

Well, what you know, it tells me that hmm, hmm, maybe this place doesn’t have the money. Maybe they don’t have the foresight to get it fixed. Maybe they’re going to get it fixed, but it’s just not yet. So, what would I do? I would actually ask for a couple of things and ask them from your seller, because the seller will easily get them or should easily be able to get them. I’d ask for about a year’s worth of the last minutes, not the you know. So, just the last minutes. I would also ask for a copy of the reserve study, the most recent reserve study. Now, you may be able to get those through your realtor along with the governing documents. I’d get those as well, but and I’d read them. People, I know, I know you don’t want to read them, but it’s when people move into an association and all of a sudden they’re like, “Oh my God, what do you mean I can’t do this? It’s because you got this big stack of documents that you didn’t read. I mean, and you don’t have to be a lawyer to read them, and you don’t have to read all the preambles and all that stuff, but go through and read the stuff that is actually going to affect you, and then you’ll be, you know, what is that? Forewarned, forearmed is for warrant, forewarned is forearmed. That’s right. Sorry, backwards. My dyslexia. But I’d ask for all of those if I can get them, because if you read the minutes, you might see that for the last three or four months they have been getting bids to have those repaired, and when’s it going to happen? Or they may be talking about yes, we’re going to have that done next summer, and we’re going to pay for it with our reserves. Then you get an idea what’s going on. Also, another thing about getting the minutes, it can give you a huge insight into what the community is actually like. Another thing about the part of that vibe. The even reading how they actually are done, if they’re done well, if the minutes have typos, I mean that could be nothing. But are they actually recording things that should be recorded? Are they recording all kinds of other stuff? So it’s it’s it would be a give you a huge window into it. And again, the vibe.

 

Robert Nordlund  25:18

Yeah, because you’re looking for a place that is being run as a clean nonprofit corporation, and not just randomness here and there. But I think looking at those minutes, you’ll find out just like you say, we are getting ready to paint, we are getting ready to roof, we have these projects going on, and we have negotiated that we’re going to do this big asphalt project in September or whatever the number is, and we’re hearing about the tennis court, but we’re letting it go because we’re going to turn them to pickleball courts next year. There may be good answers, and you want to find that out.

 

Julie Adamen  25:51

Good or bad answers, you want to find them out absolutely,

 

Robert Nordlund  25:53

and they’re they’re laid out right there for you.

 

Julie Adamen  25:55

They’re right there. What I want to say is that what you want to look for is if your association is being run very mom and popish, that gives me a little bit of pause in buying in a community association. Self-managed ones can run really well, and they can run professionally. But if you’re trying to look for minutes and they don’t exist, or you can’t find them, or they’re in somebody’s you know desk at their home but they’re gone for the next seven months, that kind of gives me pause. And one last thing, and I’m going to push this over to you, Robert, is that when you ask for the reserve study as a potential buyer, and I know a lot of you are board members out there, but a lot of you are not. A lot of you just regular homeowners listen to this. So, what are they looking for, Robert, in that reserve study?

 

Robert Nordlund  26:39

Yeah, a couple things. Look at the date on the cover. You want to see a reserve say that’s newer than three years. If it’s older than three years, it is not meaning. It’s not meaningful at all. Number two, look through it. There should be an executive summary, so it should be near the front. Look for something that they call percent funded, and that is the measure of has the association been taken care of itself? A good association will be 70% funded or higher, and that’s a that’s a good thing. If an association is 30% funded or lower, then you can anticipate that there’s a special assessment coming, and that may be a negotiation point with the seller that there is going to be a special assessment for that roof. It’s going to be between five and $10,000 per unit, and therefore I want to get five or $10,000 off of the sales price. It doesn’t mean it’s a bad association; it just means that it gives you an opportunity to negotiate what you’re going to pay for. Now, if they don’t have a reserve study and there’s, or if it’s way out of date, there’s another way around, and that’s look at the budget. You should be able to get a copy of the budget and look to see how much they are funding reserves. Kevin mentioned it earlier. Fannie Mae and Freddie Mac have raised the minimum standard. It will be in effect January of 2027. That condominium associations need to be setting aside up from 10% beginning January 2027, condominium associations need to be setting aside at least 15% of budget towards reserves. Okay, that’s a simple thing to look for. No reserve study. Look and see if they’re in the right ballpark. Literally yesterday, I do quality reviews on the reserve studies we produce here. Yesterday, there was a reserve study that came through, and I was surprised at how big of a special assessment we were recommending. It was about a $14,000 per unit special assessment, and I’m nervous about that because I want to make sure we’re giving good, wise counsel to our clients. And I looked, I found out, oh, it’s an older association, and they’ve been funding reserves at 6% of budget, and when you’re under funding reserves for year after year after year after year, it just means that the costs are going to be covered by a special assessment. They’re not covering the costs in the the ongoing budget, so you have to be careful about that. So look for something above 15% That’s a nice ballpark number-and that’ll let you know that at least they’re in the game. So those are a couple things to look for.

 

Julie Adamen  29:09

I want to chime in on that just real quickly. Is that we’ve talked about this before in the podcast? Is that for board members? You know, you’re fiduciary, right? You know, you’re in charge of these monies and property on behalf of others, and you have to, you know, handle it like that. But don’t forget, it’s not just for you and where you are now. It’s not just for that, you know, time period that you are on the board or you live there. You are fiduciary for the current owners and the future owners as well. So if you are funding, like you were just talking about, at 6% all that time, you are just handing the future owners a big pile of poo. Just you really need to understand that in the future, these people are same thing happened at Champlain Towers. I mean, they just only kept it where it was and which was zero for a long time because it benefited that group, the people down at the end that didn’t work so well.

 

Robert Nordlund  29:56

Yeah, reserves is all about it’s like a usage fee. It’s paying your. Fair share over time of what you’re using, just like when you check into a hotel, when you rent a rental car, when you’re at your gym, that’s a usage fee, and you need to see reserves as a usage fee where everyone’s paying their portion of the deterioration. And if you’re not, if you’re underfunding reserves, it’s going to fall on the shoulders of someone in the future, and that’s very unfair and unsettling to the association as a corporation. To the audience, I want to put a shout out to you. If you’ve got some ideas of what do you think are some nice distinctives, some great questions to ask, why don’t you shoot them back to us at podcast at hoa insights.org. If you have a story about that, you bumped into a prospective buyer, what you said, what you were careful not to say, how you represented your association, Julie, Kevin. What does this whole idea mean for board members about trying to make sure your association is saleable, unit by unit.

 

Julie Adamen  31:01

Go ahead, go ahead, Kevin.

 

Kevin Davis  31:02

It’s interesting for me because since we’ve been doing these podcasts, I look at three things. If you do these three things really well, you have a well-managed association. As we enforce the rules, maintain association, and control your finances, then you have a well-maintained association. That’s to me is overall key. There are things you have no control over. You don’t have control if you have adequate insurance or not, because it’s up to us. The problem right now, overall, is that board members, you have lenders, you have insurance people saying, “Guess what? We want you to have skin in the game. We want to make sure that you are doing the best job you can do. I’m not going to loan you. I’m not going to insure you. That’s where we at today. So it’s up to these board members to understand that, so they can say, “Guess what? We’re well maintained. We select our assessments and we enforce the rules.

 

Robert Nordlund  31:48

Pretty simple, Julie.

 

Julie Adamen  31:49

Yeah, it is. Well, I mean, it sounds simple, and it is that part is simple. But the problem, what we have, is that pesky people factor. Very, very pesky. You, you as a board member may know exactly what we need to do, but you need a 20% increase in assessments probably for the next five or six years. You know what needs to happen, but you still have to bring other people along with you, and that means other board members and the homeowners as well. So the people component is so difficult. It’s like this is funny. I was just talking to somebody who’s it’s my son actually who’s in the industry, and what they don’t tell you when you get into being in the management side of it, it’s very similar to the board side. When you’re in the management side, you come in, you’re a younger person. People say 30 to 28 to 35, whatever, and it’s not the work. Though the work is very quick and fast, and things you have to do. It’s the people and the people in our industry, managers, assistants, those kind of people don’t get taught about the people stuff. Same with board members. You know, people who are your neighbors, they’re great and they’re waving at you as you go out. You become a board member and they not be may not be so great to you anymore. And that’s a huge shock that board members find out pretty quickly, usually, especially in the pit bull associations. So, but it’s or the yappy dog associations. So, if you’re in a, you know, if you’re in one that has is more friendly and your reserves are funded and the place looks nice, you’re going to find that it’s not so bad. But when you need to make changes, your most board members aren’t quite ready for what’s coming at them and how to look at that and how to process it. So that’s the tough thing. Let

 

Kevin Davis  33:26

me add to this. It’s funny. My first condo I moved into, I got on the board. I mean, I we all loved each other. We were the happiest people to associate and waving everybody. It was a small association. And guess what? Up to my first annual meeting, and I was in shock. I mean, I couldn’t believe that first annual meeting where it felt like we didn’t do anything right, we didn’t do anything we promised, and we were the worst guys in the world. I mean, that was-I had one year on the board. That was it. I’m done. I never served on the board again. But yeah, you’re right. They were waving at me, but for that annual meeting changed everything. Well, were

 

Julie Adamen  33:57

they waving with all of their fingers? Is that what I’m asking? Yeah, yeah,

 

Kevin Davis  34:01

yeah. They were until that annual meeting, and all of a sudden, I only saw

 

Speaker 1  34:05

one.

 

Robert Nordlund  34:07

When the money’s tight, then when there’s scarcity, then things get weird. Yeah, we’ve spoken in the past about some of the the 4c’s. You have to care about your association. Need to be curious. Need to have the courage to do what you need to do, and then to communicate that down through the homeowners, and you do that with committees. You do that through Julie, as you said, just always representing the association well, building community in your little portion here on Earth, and that’s an incredible responsibility and an incredible opportunity. And we just want to encourage you all towards that. Well, Kevin and Julie, it was great having all three of us together on the program. It’s a bit of a scheduling challenge, but it’s a heck of a lot of fun when we do it. Any closing thoughts before we wrap?

 

Kevin Davis  34:53

I enjoyed sharing that information to the Wall Street Journal, and it’s nice. I send all my friends and family. I’m quoting the Wall Street Journal, so that was great, and I really enjoyed it. It was fun.

 

Julie Adamen  35:05

Yeah, I agree. Yesterday, I got an email from my son who works for a management company in in Scottsdale, and the owner of the company just got a copy, just got a hard copy of it from her significant other, right? And she laid it on people’s desks, and he took a picture of it and emailed it to me. I’m like, you know, it was quite a while ago. I almost forgot about it, and I go, this is cool. Yeah.

 

Robert Nordlund  35:27

Time moves on. Well, we’re here in this journey and this challenge also with you, and we certainly hope you learn some HOA insights from our discussion today that helps you bring common sense to your common areas. We look forward to having you join us for another great episode next week.

 

Announcer  35:47

You’ve been listening to HOA Insights: Common Sense for Common Areas. You can listen to the show on our podcast website, hoainsights.org, or subscribe on any of the most popular podcast platforms. You can also watch the show on our YouTube channel, check the show notes for helpful links. If you like the show and want to support the work we do, you can do so in a number of ways. The most important thing you can do is engage in the conversation. Leave a question in the comments section on our YouTube video. You can also email your questions or voice memos to podcast at hoa insights.org, or leave us a voicemail at 805-203-3130. If you gain any insights from the show, please do us a huge favor by sharing the show with other board members you know. You can also support us by supporting the brands that sponsor this program. Please remember that the views and opinions expressed by the podcast do not constitute legal advice. You’ll want to consult your own legal counsel before making any important decisions. Finally, this podcast was expertly mixed and mastered by Stoke Light Video and Marketing. With Stoke Light on your team, you’ll reach more customers with marketing expertise that inspires action. See the show notes to connect with Stoke Light.

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]]> 179 | Could Your HOA Reserves Affect Fannie & Freddie Approval? http://www.reservestudy.com/179-could-your-hoa-reserves-affect-fannie-freddie-approval/ Mon, 12 Oct 2026 21:31:03 +0000 https://www.reservestudy.com/?p=16550 LISTEN ON YOUR FAVORITE PLATFORM Podcast Spotify Apple Rss Summary Fannie & Freddie are changing, again! Here’s what you need to know about the new requirements! Transcript   179 | Could Your HOA Reserves Affect Fannie Mae & Freddie Mac Approval? Robert Nordlund  00:00 Fannie and Freddie want to know how the association is doing […]

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LISTEN ON YOUR FAVORITE PLATFORM

Podcast Spotify Apple Rss

Summary

Fannie & Freddie are changing, again! Here’s what you need to know about the new requirements!

 

179 | Could Your HOA Reserves Affect Fannie Mae & Freddie Mac Approval?

Robert Nordlund  00:00

Fannie and Freddie want to know how the association is doing because when I heard about the tragic collapse of Champlain Tower South, I thought, “Oh no, there’s probably a lot of people that have lost their lives there. And we did learn that 98 people lost their lives. What the lenders learned is that 134 of their mortgages lost the security because the building went away. The building, as you and I know, got bulldozed. So Fannie and Freddie, when they say these are our standards, everyone turns around and listens, and it does create shockwaves. And they have raised the standards, and because they’re the lender, they get to make the rules.

 

Announcer  00:44

HOA Insights is brought to you by five companies that care about board members: Association Insights and Marketplace, Association Reserves, Community Financials, Kevin Davis Insurance Services, and the Inspectors of Election. You’ll find links to their website and social media in the show notes.

 

Robert Nordlund  01:00

Welcome back to HOA Insights: Common Sense for Common Areas. I’m Robert Nordlund, and I’m here today for episode number 179 with something we don’t do too often-just some news for you in my area of specialty. I’ve had reporters recently reach out to me, CAI chapters and other industry professionals reach out to me to learn what’s going on with Fannie Mae and Freddie Mac revising and tightening their lending requirements with respect to reserve funding and reserve studies? So, as long as I’ve been answering those questions to all those different people in all those different places, my staff recommended that I do a podcast episode to make sure you had all the right information on what’s going on with reserve funding and lender compliance? So, for you new listeners, I want to let you know that this here is a weekly program with new episodes each week, dropping on our website hoainsights.org, on all the major podcast platforms, and on our YouTube channel. We regularly feature discussions among our co-hosts, insurance expert Kevin Davis of Kevin Davis Insurance Services, and management and leadership expert Julie Adamen of Adamen Inc. We also feature discussions with subject matter experts on fields that are important to your role leading your association forward. I have a number of signed books from those experts on my bookcase, and we also regularly have episodes featuring an actual board member, so they can tell their story of the things that they’ve been doing at their association that you can relate to and learn from. Last week’s episode was one of those board hero episodes, episode number 178, and we heard from Sherry Fassett, and was able to tell her what I thought was a fascinating story about trying to keep her problems small, let not letting them grow on her. Well, we enjoy hearing from you, responding to the issues you are facing at your association. They help shape the episodes that we do. So it’s those kind of questions that have driven this episode. So, if you have a hot topic, a crazy story, or a question you’d like us to address in a future episode, you can contact us at 805-203-3130, or email us at podcast at hoa insights.org. But again, today’s episode is all on me. There are some lending standards that have changed. Now I’m talking about mortgage lending, not a loan for your association. I want to say regular old mortgage lending, so when Unit 13 sells, that new buyer can get a mortgage. There are some lending standards that have changed that you need to know about in a timely manner. I’m recording this in early September. It will be produced September or October, I believe, and distributed. They’ve had one change of the two-part change that’s already passed, and we got another one coming in January. And I just think the podcasts. I agree. The podcast is a great way to get this news out, both to you, our listeners, and everyone you share this program with. is a great resource. We’ve got great things going on here at HOA Insights, Common Sense for Common Areas. We have merch that you can grab at our website hoinsights.org, or the show notes and free good stuff there, like board member Zoom backgrounds. So it’s not all things for sale, but truly, there’s been some real rumblings in the lending industry that have caused shockwaves throughout the community association industry, and they are changes made by Fannie Mae and Freddie Mac. And so I’ve got some notes here, actually some excerpts from answers I’ve given and articles I’ve written. But the first thing you need to know is who is Fannie and Freddie. Who are they, and why do I care? Fannie Mae and Freddie Mac are two large government-sponsored enterprises, GSEs, and they purchase approximately 70% of horn mortgages in this country. Okay, and they purchase the mortgages from banks and other lenders, and so those banks can get cash, which they then lend to consumers like you and me. So Fannie and Freddie fuel the mortgage industry. They are essential to mortgages and home ownership in the United States. So they buy loans from lenders, and lenders go off and do what they do. It’s like they they sell loans. Fannie and Freddie takes her inventory and moves on.

 

Robert Nordlund  05:48

But in the olden days, the best way for you or I to get a mortgage was to, of course, have a strong FICO score. And Fannie and Freddie knew that the status of the association was involved, but it wasn’t all that significant. They felt that the what’s the worst that can happen? Maybe the owner gets a special assessment once every few years. No big deal. Well, with the collapse of Champlain Tower South in 2021, and with the significant inflation that we’ve had for a few years, and the significant increase in insurance costs, the bills are getting pretty high for community associations. And now, Fanny and Freddie want to know how the association is doing because when I heard about the tragic collapse of Champlain Tower South, I thought, “Oh no, there’s probably a lot of people that have lost their lives there. And we did learn that 98 people lost their lives. What the lenders learned is that 134 of their mortgages lost the security because the building went away. The building, as you and I know, got bulldozed. So Fannie and Freddie, when they say these are our standards, everyone turns around and listens, and it does create shockwaves. And they have raised the standards, and because they’re the lender, they get to make the rules, it’s their money, it’s their rules, and it’s pretty much as simple as that. So that is the who is Fannie and Freddie, and why do they matter? They lend the money, and the lender dictates the terms. And so there’s two stages. Fannie and Freddie have standards for all the lenders, and the lenders have to at least meet those standards with the mortgages they want to sell over to Fannie and Freddie. Okay. Now, why are they doing this? Well, it’s all about sustainability. They want the property to continue to be there and not disappear like it did at Champlain Tower South, and they want the mortgage payer, the homeowner, to have the cash flow to be able to pay their mortgage. They don’t want a special assessment of what we’re hearing now-10 or 50 or $100,000-to make it so they’re just going to walk away and default on the loan, or have a hard time paying their mortgage, things like that. So Fannie and Freddie have a virtuous objective. They want what’s good for the association, and they want what’s good for the the home buyer. They want stability. There’s a number of good news pieces. I want you to make sure that you understand that one is that Fannie and Freddie have kept their standards similar. They compare notes, and the standards are identical. That’s one good thing. Another good thing: they’re nationwide standards. It’s not the checkerboard of reserve study legislation that we see across the country, and their changes are indeed minor, and not only are they minor, but they’ve made their changes with respect to reserves in two stages. And part one, change number one, began in August 2026, and it tightened up the standard by which associations request an exemption to their minimum percent of budget funding requirement. Now I should back up. All their lending standards apply to condominium associations and co-ops. They do not apply to single-family home associations, where the only common area is maybe the roadway, the gate, the tot lot, the clubhouse, things like that. These lending standards only apply to condo and co-ops where the residential structure is involved. That’s because the common areas are so much more significant in those types of associations. So, part one began in August 2026, tightened up the standard by which someone would request an exam. And you say the exemption from what? As we speak, the minimum standard for funding reserves is 10% of budget, and that’s pretty darn simple. When I first learned of that standard many years ago, I thought it could be so much better. They could be looking at the percent funded. They could be looking at so many other parameters, but you have to think like a lender here. They want to process a loan. They want to get it out. So 10% of budget is a wonderfully simple number. If your budget is $500,000 per year, they want to see at least in your condo. They want to see at least 50 grand going to reserves. Easy. Every association has a budget.

 

Robert Nordlund  10:43

Every lender can hire someone to make a 10% calculation. No big deal. But Champlain Towers South met that 10% of budget minimum requirement, and we all know what happened to them. 10% was not enough. In case you or anyone else wants to get an exemption from their minimum standard, which is today 10% of budget, you can appeal it, and you can appeal it showing a reserve study that has been prepared credibly within the last and dated within the last three years, and you could use that to say, “Hey, our reserve site says we only need to fund $6,000 a month, and that is to make the numbers easy, 6% of our total budget. Okay, you used to be able to do that. Now, what they tightened up is Fannie and Freddie are caring a little bit more about that request for exemption, and they’re saying we’re no longer going to look at a request for excuse using a baseline funding plan. Baseline funding plan is where the reserve fund can approach zero. I’m doing this with my hands, so you on who are listening aren’t seeing all my hand motions. But baseline funding is indeed a minimum standard. Where the minimum standard is there is still cash in reserves. You haven’t gone through it all. It’s very risky because anything that goes out of balance, an expense that is a little bit higher or a little bit earlier, means that the association won’t have enough money. And Fannie and Freddie want sustainability. They want associations with enough money to take care of the place. So they’ve said if you’re going to request an exemption, it has to be using the highest funding plan in that reserve day that you have. Baseline not included. So basically, what they’ve done is say that you can’t use a minimum standard as an excuse to pay our minimum standard, so no more baseline funding as of August 2026. So that schedule has already crossed. The other change is phase two, and looking at my notes here, this begins in January 2027, actually January four, where the minimum percentage of budget for condominium associations funding reserves increases from 10% to 15% not a big deal, but a 5% increase. And what’s important about this is you have to appreciate that we know at association reserves the average condominium association needs to be setting aside about 25 percent of its budget towards reserves to have enough money to maintain the place and not be special assessing the owners. And so Fannie and Freddie’s increase from 10 percent to 15 percent is really just a tweak, and it’s only aimed at the non-conforming boards who are emphasizing minimum funding of reserves. Fannie and Freddie want sustainability, so they want to say, “Hey, folks, let’s get it together. You need to be in the ballpark. And they’ve changed the rules so that ballpark is now starts at 15% So, for those of you saying that this change of some government-sponsored enterprises far away from me is going to make my life 5% more expensive, I say no, because your cost of running things and sustaining your association is driven by Mother Nature and Father Time, not Fannie Mae or Freddie Mac, and they are undefeated since the beginning of time, and they don’t negotiate with associations that claim to have a tight budget or want an exception. So, if you think that it’s going to become 5% more expensive, you’re wrong because those costs are still there. That increase from 10% to 15% of your total budget only means that future special assessments will be smaller. Or less frequent, you’ll most likely still have special assessments, but they’re forcing some of your funding into the ongoing monthly budget. So you’re saying, okay, does that really have to happen? And the answer is yes, it really has to happen. That’s one of those easy things that, if you go back to school, the teacher would say, “Everyone done with the test. Pencils down. It’s easy to see who’s compliant, who’s not, and the other part of that is understanding that these are minimum standards for Fannie Mae and Freddie Mac. Lenders are still free to say, “Hey, and I’m wringing my hands here. It’s our $500,000, or $100,000, or 2.7 million, or whatever that we’re lending to this nice family or this nice person.

 

Robert Nordlund  15:57

We want to make sure we’re getting paid back over 15 or 20 or 30 years, we’re going to insist on A and B and C and D, and that may mean some definition of adequacy-a percent funded. That may mean looking at your reserve study. That may mean checking actual to budget to make sure you’re actually making those reserve transfers. All those kinds of things. So the lenders are still free to have a higher standard than the the 15% So it is going to happen. It’s real. The costs are real. And let me leave you the one more thing before I take a quick break for a sponsor ad, and that is understanding that January 2027 is going to come very soon, and so for everyone working on a calendar year budget, it’s pretty easy. Just every condo association listening needs to understand that you need to have at least 15% of your budget going towards reserves. Period. Make sure that they can check the box very easily. Round it up a few dollars, so they’re not having to get their calculator out and working too hard. Make sure that you’re doing that. Now, the interesting question is for associations that have, let’s say, a September one fiscal year start, or maybe a June or July one fiscal year start in January. They’re going to be looking to see if you’re above the 15% line or not. So, if you are, if you have a off fiscal year start that is different than December, excuse me, January one, you need to care about this now. If your budget year for a condo started July one, you need to look right now and make sure you’re above 15% If not, you better change your budget right now. The consequences are too significant. It means that 70% of the people interested in buying a home at your association won’t be able to, and it’s a very change from the olden days when to get a good loan, all you needed to do was have a strong FICO score. Now, the association needs to be part of the qualification standard. You can have an 800 FICO score, and if the association doesn’t qualify, the lender won’t lend, and that’s just the reality that we have here. So you can do a simple thing by making sure that your association is at or above 15% of budget going to reserves. And let me add an asterisk to that. We find that for single-family home associations, the same is generally true. That you need to be setting aside about 25% of budget towards reserves. So while Fannie and Freddie may not care, the free advice you can get on this podcast is that look at your budget, see if you’re well above 10 or 15% going towards reserves. You start to feel good about life, and lack of special assessment when it gets more like 2025, 30% That’s your homework for after this podcast. And at this point in time, I’m going to take a quick break to let you hear from one of our generous sponsors. After which, I’ll be back with more on this topic about the new lending reality for condominium associations. Basically, helping you have the insights that you need to have more common sense about your common areas.

 

Paige Daniels  19:25

Numbers matter, and we need numbers like game scores and bank balances to let us know where we stand. The same is true for your association: is yours thriving or struggling? Let me introduce you to the FiPhO health score, like your own personal FICO credit score. Now, in one simple number. Owners and boards can learn the combined financial, physical, and operational health of their association. The good news: it’s free at ourfipho.com That’s our f-i-p-h-o.com. Learn how your association measures up.

 

Robert Nordlund  19:56

And we’re back. Well, right before the break, we’re talking about the new 15th. Minimum standard for condominium associations for funding reserves, and I just want to make sure on two things. One thing is your question. Jeez Louise, that sounds hard. Is it really 15% And your guys are going to know this. The simple answer is 15% but there is a little asterisk on that. The 15% of budget is 15% out of not the total budget, but just about everything except the reserve funding. So you can make your total budget a little bit smaller, which makes it easier to hit 15% with a lower number. Okay, so yes, I you can go to our website. We have some links on that, and I will put a link in the show notes on how you can read about that. But remember, that requires math and understanding on the part of the lender, and it requires math and understanding on the part of the board, and likely a discussion between the two, and all while the unit owner of unit number 13 is trying to sell their unit and asking you what the problem is and why you didn’t make it easy for them. But I want to make it clear that you’re missing the point. Remember that before the break, I said that your association likely needs about 25% of budget to pay for everything that’s there at the association: all the maintenance on the roof, the paint, the asphalt, the pool, the elevator, the carpet, the exercise room, all those kinds of things, the pool deck, the air conditioning, the hot water system, whatever is there. Whether you’re a townhouse association, mid-rise, high-rise, any condo, your job as a board member, as a fiduciary, is to provide for the needs of the association to budget, and you know that you’ve got an operating budget, and you’ve got a reserve budget, and I want you to start thinking and using the words. Both of these are current costs. A operating budget clearly has a current cost. Every month, you get a bill for electricity, water, the pool service, the management company, all those kinds of things. So the current costs. Too many times, people think about reserves as something for the future. It’s a roof in seven years or 13 years or whatever. That’s incorrect. Reserve funding is the deterioration cost. It’s a usage cost for all those common area assets that are deteriorating a little bit each day, week, and month. It is the current cost of deterioration, and it’s the board’s obligation to pay that current cost of deterioration of reserve components, just like the board’s obligation to pay the current cost of things in the operating budget. So, think about that as I transition to the idea of what are we going to tell our homeowners, and how do we react to this? Well, number one, look at your budget, and the vast majority of condominium associations out there are likely already funding well over 15% If you are responsibly funding reserves, looking at your reserve study, and following that, you’re likely funding well over 15% This may, this whole fuss may not apply to you. I am talking to the associations that are doing their level best to do everything they can to minimally fund reserves and create special assessments for their homeowners, because again, underfunding reserves has nothing to do with costs. The costs are driven by Mother Nature and Father Time, not how much money you put into reserves. The roof is still deteriorating. The asphalt is still deteriorating. You can ignore it, but they don’t care. And there’s stories in the news. I’ll probably have one in the show notes about a recent association that just got a $27,000 special assessment or levied a $27,000 per unit special assessment for roofing. Their units at their condo association have a lot of tile roofs. It’s a condo association. It’s not a HOA or planned development, and they just ignored it for 30 years. And again, the sun and the moon and the weather-they really don’t care. It was a bill that they had failed to pay for 30 plus years, and the bill finally came due. It’s like living on credit cards. It’s wonderfully simple. It’s wonderfully inexpensive, until the bill comes due. So, your action, if you are below that level, number one, raise your assessments.

 

Robert Nordlund  24:56

If you are below that level and your fiscal year end is other than December. 31st, make a change right now mid year because by january 4 of 2027, mortgages are not going to start being approved at your association, and that is going to tank community spirit, and that is going to tank property values, and that’s just a bad thing going on. Okay, so what to do? Raise assessments. As you raise assessments, you need to communicate effectively to your homeowners. You’re not the bad guy. Fannie Mae and Freddie Mac are not the bad guy. It is just plain expensive to own a home nowadays, and we’re just spreading the costs out. These are the very real costs. You can’t see a reserve study, if you don’t have one within the last three years, of course, my recommendation is to get one so you know what to do. But at least fund the minimum, because you can say that this is going to reduce the frequency and size of future special assessments, and it is not for the future. We are paying the ongoing cost of deterioration that is occurring this year. You will have people who say, “I’m not going to be here in seven years when the roof needs to be replaced, and you say, “Fine, we’re sorry to see you go, but while you’re here, you need to be paying your fair share of the deterioration bill. It’s a usage fee for using up some of the life of the roof while you’ve been here, make sure that you are communicating that effectively to your board, and then collect those assessments. It means nothing if you budget for reserve funding and don’t have the budget to make those transfers. So make sure that you’re actually budgeting accurately for the other things that you have to pay, and make sure that you’re collecting those assessments, that you have a good collection policy, that you have supporting a legal or accounting or there’s specialized companies out there that that’s all they do. They help you collect and maintain your cash flow. So make sure that you have the systems set up so that that can happen, and that everyone understands that oh darn owning a home is expensive, and underfunding doesn’t save us any money because the roof is still going to fail, and we all need to pay pay our fair share of that cost. And so, me or someone else will not get hit with an unfair special assessment for all the deterioration that occurred while I was a homeowner at the association. So that’s the essence of what I want to cover here: the new lending reality for condo associations, the no baseline funding exceptions, no using the minimum standard to request an exception from a minimum standard, and the Fannie Freddie minimum climbs to 15% and it’s a wonderfully simple thing for any lender or lending agent to be able to calculate. And remember that the lenders are free to hold higher standards. They may, if if I was a lender, I would hold higher standards because I want to get paid back on my loan, and you would too. And you know the insights of what’s going on at your association. You know, uh-oh, we don’t have enough money. We’ll probably need a special assessment in a few years, and there’s probably a few people that won’t be able to pay that. You and I know that, so let’s be realistic. And what I want to leave you with is let’s fund honestly and avoid a crisis, so it all boils down to doing the right things, the things that are already likely required very clearly in your governing documents. So thank you for joining me today, allowing me to share my experience with reserve costs, reserve funding, and having worked with Fannie and Freddie leadership for years on these issues and helping them craft workable minor steps of change that won’t rock the industry too much. Sustainability of the property and the owner’s financial situation is in everyone’s best interest, which means that funding reserves honestly is the right thing to do, so you don’t create a crisis now or in the near term. Mother Nature and Father Time are unstoppable forces. Fortunately, in the field of reserves, you can see the expenses coming, so you can prepare.

 

Robert Nordlund  29:34

Well, I certainly hope that you learned some HOA insights from today’s episode, today’s program that helps you understand the significance of your budget decisions at this time to prepare you for next year, and I hope that gives you an advantage to other associations that are unawares. I hope it brings common sense to your common areas. If you know of other associations that are unaware of this issue, please share this podcast with them. Is what we try to do week after week after week, and we look forward to having you join us for another great episode next week. Thank you very much.

 

Announcer  30:11

You’ve been listening to HOA Insights: Common Sense for Common Areas. You can listen to the show on our podcast website, hoainsights.org, or subscribe on any of the most popular podcast platforms. You can also watch the show on our YouTube channel. Check the show notes for helpful links. If you like the show and want to support the work we do, you can do so in a number of ways. The most important thing you can do is engage in the conversation. Leave a question in the comments section on our YouTube video. You can also email your questions or voice memos to podcast at hoa insights.org, or leave us a voicemail at 805-203-3130. If you gain any insights from the show, please do us a huge favor by sharing the show with other board members you know. You can also support us by supporting the brands that sponsor this program. Please remember that the views and opinions expressed by the podcast do not constitute legal advice. You want to consult your own legal counsel before making any important decisions. Finally, this podcast was expertly mixed and mastered by Stoke Light Video and Marketing. With Stoke Light on your team, you’ll reach more customers with marketing expertise that inspires action. See the show notes to connect with Stoke Light.

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]]> 178 | How One HOA Board Tackled Six-Figure Surprise Repairs http://www.reservestudy.com/178-how-one-hoa-board-tackled-six-figure-surprise-repairs/ Tue, 06 Oct 2026 02:34:13 +0000 https://www.reservestudy.com/?p=16474 LISTEN ON YOUR FAVORITE PLATFORM Podcast Spotify Apple Rss Summary What happens when an HOA board gets hit with six-figure surprise repairs? One board member shares how her community handled it. Transcript   How One HOA Board Tackled Six-Figure Surprise Repairs | 178   Sharry Fassett  00:00 It’s always a process with a new board. […]

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LISTEN ON YOUR FAVORITE PLATFORM

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Summary

What happens when an HOA board gets hit with six-figure surprise repairs? One board member shares how her community handled it.

 

How One HOA Board Tackled Six-Figure Surprise Repairs | 178

 

Sharry Fassett  00:00

It’s always a process with a new board. Always, you have to get to know each other. To be quite honest, I’m I’m a strong female personality, and that’s not always the easiest for some men to to handle. My board members have been awesome, and in our, it’s a process. We do have people who maybe don’t agree with the direction this board is going, but I would say 85% of the homeowners here are happy.

 

Announcer  00:36

A regular highlight of the HOA Insights podcast is our Board Heroes feature, where we dedicate one episode each month to celebrate the remarkable efforts of HOA board members. To us, a board hero is one of the 2 million elected volunteers who deserve recognition for excelling in a role that often goes unnoticed. Today, we’re excited to spotlight one of these exceptional board heroes and share their inspiring story. If you match our definition of a board hero or know someone who does? Please reach out to us. Our contact details and those of our sponsors are provided in the show notes.

 

Robert Nordlund  01:06

Welcome back to HOA Insights, Common Sense for Common Areas. I’m Robert Nordland, and I’m here today for episode number 178 with a board member I’ve been corresponding with for months, trying to find a good time for her to tell her story. It’s really nothing unusual. The normal problems of a 25-year-old property coming to grips with its common area deterioration. Yet, how the board deals with these issues and the homeowners is going to be different at every association. So, the story is always interesting. Well, if you’re a new listener, we’re here weekly with episodes to help you with the hard work of being a board member, week after week we bring you fresh content from our regular co-hosts, insurance expert Kevin Davis, or management and leadership expert Julie Adamon, or sometimes subject matter experts, or like today, one of the board heroes we are proud to celebrate. You can catch all of our prior episodes on our website, hoa insights.org on any major podcast platform or on our YouTube channel, and if you like the show, by all means subscribe and join us in our mission to improve board member leadership all across the country, one association at a time. Now, subscribers and positive reviews boost the show’s location in search engines, and that makes it easier for more board members to find the Common Sense for Common Areas podcast and get hold of a rescue line to help them with their association. Well, if you haven’t been to our website hoainsights.org, you’ll find we have some great merch for sale, like the mug I have here on my desk reminds me of how much I get a kick out of doing this podcast, and we have some great free stuff there, like board member Zoom backgrounds that you can download for free for your next online meeting. It’s worth a quick visit. Well, we enjoy hearing from you, responding to the issues you’re facing at your association. So, if you have a hot topic, a crazy story, or a question you’d like us to address, you can contact us at 805-203-3130, or email us at podcast at hoa insights.org. But today’s episode is on me. Sharry Fassett is a board member at her condo association in Arizona. She’s a podcast listener, and she’s one of those people that reached out to me and said, “Robert, I’ve got a story. So let’s hear from Sharry. Welcome to the program.

 

Sharry Fassett  03:29

Thank you. It’s a pleasure to be here.

 

Robert Nordlund  03:32

Well, it’s great. Thanks for being one of those people that says, “Hey, I’ve got something going on at my association. Is it worth sharing some of the lessons that I’ve learned, and I I really enjoy that. So tell me, how long have you been a homeowner at your association?

 

Sharry Fassett  03:49

At this association, I’ve been 10 years.

 

Robert Nordlund  03:53

Okay, tell me more. So you you’re a second timer or third. You’ve done this before.

 

Sharry Fassett  03:57

Yes, yes, I was on the HOA board at a plant community, which is very different than a condo. Now I’m in a condo community for 10 years before that.

 

Robert Nordlund  04:08

Okay, so you’ve done this before, you’ve done it again, and again, and again, and again. Okay, good. And you were on the board at the plant community, right? Yes. Okay, for some of our listeners, they would call that a HOA, single family homes. Okay, but you’re in a condo now, and you’ve been a board member before, also.

 

Sharry Fassett  04:32

Yes.

 

Robert Nordlund  04:32

What drives you to be a board member?

 

Sharry Fassett  04:36

I don’t know. I I I guess it’s I basically care. I care about the community I live in. I obviously care about my investment, my legacy that I’m going to leave my family when I pass. So I want to maintain my my investment in the community. But I care about the people. When I see things not going well, sometimes. I can’t help myself, and I-if I think I can help, I jump in. I

 

Robert Nordlund  05:03

like that. I got involved at my association forever ago because I realized I was mortgaged up to here, and I couldn’t let this real estate investment of mine sag. I needed to do everything I could to make it appreciate, to maximize, because I was I was riding on this thing, okay. How long have you been on the board at this place?

 

Sharry Fassett  05:29

I think I got on about nine months after I moved in, and

 

Robert Nordlund  05:33

right first election,

 

Sharry Fassett  05:35

yes. Okay, and then I at some point stepped down because I had some family issues to to live to live with and deal with. Then I would then I got back on. I ran again and got back on when things had cleared up. And then I filled in again for some an unfilled position. Somebody stepped down. I filled their term. And this last time was three and a half years ago when I said I would step in for six months and help when someone stepped down, and I’m still here.

 

Robert Nordlund  06:11

On one hand, it sounds like there’s a healthy rotation of board members. It’s not like you were there for almost 10 years and everyone else is almost there for 10 years? You’ve got a rotation of board members. Tell me about well, how many board members are there at your place? Okay,

 

Sharry Fassett  06:27

we have five now.

 

Robert Nordlund  06:29

Well, were there not five?

 

Sharry Fassett  06:31

That one time there was three.

 

Robert Nordlund  06:34

Oh yikes, that gets kind of thin. Okay, so when there was some holes, you volunteered to step in, and you’ve been helping. Tell me about how the board has evolved over the years with different personalities. How has the leadership really changed there?

 

Sharry Fassett  06:54

Okay, it’s it’s changed a lot. When I first came here, one of the reasons I got active was the first board meeting I went to was a screaming match that lasted till 1130 at night and I was I was blown away I’d never seen anything like it and and so I thought you know this is not the way boards should run so now it is a very. It’s on Zoom, so there are no more of those kinds of things going on.

 

Robert Nordlund  07:28

Why did Zoom keep it from being a screaming match?

 

Sharry Fassett  07:31

You know, I’m not sure. I I can tell you that when you’re in person in a crowded room and things get heated, sometimes some personalities want to take over the room. They won’t quit talking. With Zoom, it’s a little bit easier to set manageable expectations. Please talk about this once, then give everybody else a chance. And I think there’s also something about the attendees being on camera. You are, everyone is looking at you. Say what you want in a respectful way and listen in a respectful way. And so I’ve noticed a real change in the decorum, but it also could have been the leadership changes. I have a real desire to keep things civil and a real desire to make things transparent and open, and listen to every homeowner because that is their one chance, really, to speak to the community. So I really want everybody to feel like they like they have that opportunity.

 

Robert Nordlund  08:37

Yeah, you got me thinking now that in a lot of board meetings, there’s an audience. There’s the homeowners, and often a board in the front or on a couch or something. So there’s the them and the us, and I wonder if that creates a potential for adversarial adversarial relationship. Rather than on Zoom, it’s almost like you’re in a big circle and you’re all looking each other in the eyes. Is that maybe one of those just the physical dynamic? And I, yeah, and I can also imagine someone getting heated and standing up and that kind of stuff, and you lose a lot of that physical ability to communicate when you’re on Zoom, because like you and I here, we’re just chest up, and I’m not going to stand up, or you’re going. My head’s going to get out of the camera, that kind of stuff. So I, I wonder. But okay. Well, of interest, I’ll

 

Sharry Fassett  09:34

just add a point here: is that the Arizona legislature has just now told property management companies, they want to see more in in-person meetings, and so now we are required to have our annual meeting be in person. What we’re doing is having we’ve gone to a hybrid, so we do both. We do Zoom and in person for. Annual meeting.

 

Robert Nordlund  10:00

Do you have the ability to have a group of homeowners on site, or do you go to a local public library, or where do you meet?

 

Sharry Fassett  10:10

So far, it’s been in the clubhouse, and we’re fine.

 

Robert Nordlund  10:14

Okay, how many people? So your association has roughly 100, a little over 100 units. 119

 

Sharry Fassett  10:21

homeowners and. we get probably about 30 at the annual meeting.

 

Robert Nordlund  10:27

That’s healthy. Often I hear of 10 people just sign their proxy and throw that in. So roughly, I guess that’s a quarter of the total 3060, 120, yeah,

 

Sharry Fassett  10:45

and sometimes more.

 

Robert Nordlund  10:47

Very nice. How about for a monthly meeting? Do you you still have them in the clubhouse with a camera?

 

Sharry Fassett  10:53

No, we have them in Zoom.

 

Robert Nordlund  10:55

Okay, monthlies are in Zoom.

 

Sharry Fassett  10:57

We get about 20 at 20. If if there’s a hot issue, we might get more, but I would say 22 maybe.

 

Robert Nordlund  11:09

Annual is 30. Okay, good. I still think that’s probably a pretty healthy level. Okay, you tempted us with at the beginning you didn’t like the the way the board meetings were being run, there was animosity, anxiety. We’ve talked here on the show about how the level of incivility has gone up since COVID. You’re smiling for everyone not watching on Zoom. Talk to me about that.

 

Sharry Fassett  11:36

Yes, COVID changed a lot of things, including making people go to Zoom and also decreasing their comfort level in social situations, it’s it’s been a really interesting impact on everything in life. I I think if I was younger, I’d write a book, and that would be it. I’m at

 

Robert Nordlund  11:59

an age where how do I say this? My my kids are passed out of college, and so there. I have younger nephews and nieces that have been in college in these last few years, and to think of paying that amount of tuition to sit and do their college meeting or college classes via Zoom-that just hurts because there’s so much that you learn just in the dynamic of being around each other. And I remember one of the first concerts my wife and I went to must have been 20. See, COVID was 2020, so maybe it was 2021. We started going back to concerts, and the people behind me were just talking, and we were just amazed. And I was like, “Have you forgotten how to behave in a social setting? We are at a concert. You don’t talk like I wanted to, you know, take a mute button and press pause or stop, and you just can’t do that, but you’re right. Interesting dynamics. Okay, so

 

Sharry Fassett  13:03

well, I can give you just one little example. I was I was the in home school teacher for my granddaughter, and who was in I think fifth grade or so about that time.

 

Robert Nordlund  13:15

So that’s just a responsibility that you took on.

 

Sharry Fassett  13:17

Yes, and

 

Robert Nordlund  13:18

cool, good for you.

 

Sharry Fassett  13:19

And before the teachers learned how to manage Zoom, they didn’t know how to manage the whole thing, so it was a mess. It was the year she learned to play violin. Imagine trying to teach a child to play a violin on the internet.

 

Robert Nordlund  13:35

Yeah, you can’t pull your fingers like this. No, like that. No, like that. Not that way. The other way,

 

Paige Daniels  13:42

yeah,

 

Robert Nordlund  13:42

that’s got to be tough. And you’re sitting there listening to it all.

 

Sharry Fassett  13:46

Yeah,

 

Robert Nordlund  13:46

I played the trumpet for years and years and years, and usually once a year they’d need a few brass players to sit in with the orchestra for the Christmas concert or something like that. And in the early years, that was really hard because squeaky violins to this day really bug me, and so a fifth grader learning the violin brings back some tough memories. Okay, why was there tension and yelling not just because of personalities, but what lit the fuses of the people at the meeting? Were there things going on at the association.

 

Sharry Fassett  14:21

Are you talking about when I first came here, or

 

Robert Nordlund  14:26

tell me? Tell me what the bumps. Yeah, it’s always

 

Sharry Fassett  14:29

money.

 

Robert Nordlund  14:30

That could be the summary of this episode.

 

Sharry Fassett  14:32

Where’s the money? Where did it go? What did you do with it? Why don’t we have it? Why wasn’t this Done, and we want more.

 

Robert Nordlund  14:44

Okay, so in this last three and a half years, what are the kind of things that you and the rest of the board have been wrestling with, big projects wise?

 

Sharry Fassett  14:52

Oh my gosh! Well, there have been several. The first one, after I shortly got off the board, I. I go. I went back into the invoices because, as a returning board member, you go back to get the feel where you are in the organization, what’s going on.

 

Speaker 1  15:07

Yep.

 

Sharry Fassett  15:08

Found the water bills were sky high. Started digging. Found we have nine water bills at this association.

 

Robert Nordlund  15:16

Okay, nine different meters.

 

Sharry Fassett  15:18

Yes, and so located it to the pool clubhouse area. Kept thinking, no, this can’t be. the The usage had gone from 50,000 gallons a month to over 200,000 gallons a month, worse than winter. And what was going on? Well, there was we had to get a pool leak company in, and we found four pool leaks. We had to drain the pool, repair the repair the pool, fill it back up, make sure it was okay. I knew nothing about any of that. It all had to be researched and consultants hired. I mean, we hired a great leak company, so that was the first thing. And and six months later, the pool surface started cracking, and that was a that’s a violation for county ordinances. And county runs our pool license, gives us our pool license. It started cracking probably from the exposure.

 

Robert Nordlund  16:15

Oh, when you had drained it.

 

Sharry Fassett  16:16

Yes, and and and we’re you know we were doing the repairs. It failed early, but out of warranty, of course. Anyway, we had to redo the pool completely, restore the pool, restore the pool deck because some of the leaks were under the deck. That was the first thing, so that was the first unexpected thing.

 

Robert Nordlund  16:38

Yeah, when you start adding, well, good for you to catch something that was gradually creeping up on you-the leak-and then you had a surprise. The pool got expensive, and not only the pool resurfaced, but when you add the deck to it, was that a six-figure project or

 

Sharry Fassett  16:55

not? Not not not quite. Maybe not 100,000. Yeah. Okay. It did all add up, and it all was not planned. So there was there was that, and I will say that the board before me, before I came in, had noticed the the water bills going up, and unfortunately had not correctly diagnosed the problem. They had thought it was the irrigation and turned off the irrigation in the summer, and we lost 140 plants. So now, now we also had to restore the landscape. We’re still doing that a little bit at a time.

 

Robert Nordlund  17:35

Yeah. So you had to figure out which of the nine meters was getting expensive, and someone guessed it was landscaping, and they didn’t research it because I’m imagining the pool in the clubhouse was a different meter than the landscape meter.

 

Sharry Fassett  17:50

Yes. Yeah.

 

Robert Nordlund  17:51

Darn, darn. So close, but that’s a swing and a miss.

 

Sharry Fassett  17:56

They they saw it and they tried to do the right thing. And honestly, I will never criticize another board member. I think everyone gets on the board and they try their best to operate in a very difficult world. If you don’t diagnose the problem correctly, you’re you’re going to cost more money.

 

Robert Nordlund  18:15

I like that to diagnose the problem correctly. It was a good first guess to think that gee we’re throwing all the water on the landscape, and my guess would have been you’ve got a landscape line that’s broken, and so rather than just going spray, spray, spray, you’ve got a geyser somewhere, and that’s a good way to lose a lot of water.

 

Speaker 2  18:36

Yes, it is.

 

Robert Nordlund  18:37

So good first guess, but a swing and a miss. What else? There’s got to be more that was going on.

 

Sharry Fassett  18:43

Next thing that happened was we got a we were following our reserve study and we were we yes and we were prepared to do a coating of our flat roof. We had the money in reserves for it, and when we asked for a proposal, we got a report back from our roofer that all the roofs needed replacing tile and built-up roofs. All of them were failing, and so that was quite quite a surprise. And then we found out that there had been a study done five years earlier that told the board that, but it happened at the same time that COVID hit. That they got the report. They were busy trying to figure out how to have meetings. Did we have to shut down the pool? Everybody was afraid if they went outside, they were going to die, get this disease, and die. I mean, at a horrible time.

 

Robert Nordlund  19:45

Oh yeah.

 

Sharry Fassett  19:45

And so it was lost. So we we said we’ll have the study done again. We had the study done again. It verified that that’s, and then we hired a consultant, a roofing consultant. Okay, I like

 

Robert Nordlund  19:57

those two things. Let me slow you down.

 

Sharry Fassett  19:58

Yes,

 

Robert Nordlund  19:59

you already. Earlier about one of the key things was diagnose the problem correctly. So you did exactly that. You got a professional subject matter expert to double check and confirm. And then not only that, but when it came down to do the project, you got a consultant because we’re only board members. What do we know?

 

Sharry Fassett  20:20

That’s right. I don’t go on roofs.

 

Robert Nordlund  20:22

That’s fair. My

 

Paige Daniels  20:23

age.

 

Robert Nordlund  20:24

That’s fair.

 

Sharry Fassett  20:25

Yeah. So we’re actually in the process of that. We’ve we’ve now designed. We’ve had the roof designed. We’ve had we’ve had gone through a bidding process, and we’re in the process of selecting our vendor. So that’s where we are with that. But at the same time, we also got notice. We had changed fire service providers. Now, anybody that has sprinkler systems, which in Scottsdale almost everybody does now, understands that twice a year we get inspections that are required by the city, and I was familiar with that, and we did them regularly, and then you fix things. What we didn’t know was that when your property is 25 years old, it it kicks in another inspection, and that is that someone must either test or change out all the sprinklers inside the units. Now we have over 2000 sprinkler heads, so you can imagine that the cost is is is going to be substantial. But here’s here’s the other piece that that hit everybody. You know, nobody knew about it. Our property management company didn’t know about it. Our reserve study guy didn’t know about it. So it hadn’t been reserved for. We didn’t know it was coming. It hit us just right upside the head. So, so every we had this new fire service company, and somebody goes, “They’re just trying to make money.

 

Robert Nordlund  21:53

Yeah, this

 

Sharry Fassett  21:54

this isn’t real. This is not real. Why doesn’t anybody know about it? And so suspicion. So there’s suspicion, and so turns out they were real, and they were which takes

 

Robert Nordlund  22:05

us back to diagnose the problem correctly.

 

Sharry Fassett  22:07

Yes.

 

Robert Nordlund  22:08

Okay.

 

Sharry Fassett  22:09

We we even talked to the city about it, and the city here’s the thing: the city enforces the other fire regulations. They don’t have the manpower to enforce going into every unit and checking the sprinklers, right? They don’t have it, so they don’t want any part of that part. But they will enforce you if you don’t do what your fire service guy tells you to do. So we had to face the choice: do we test at a cost of 30 some 1000 a few sprinklers from each system, which was 119 sprinkler heads, or do we replace all of them just outright, and that was I think the cost on that was 110,000. So it was a choice that the board had to make, and the board decided that we were going. It was more cost effective to change them all out at 110,000, because if you did that, you were good for 25 years. If you tested and failed, you had to do it anyway. And if you tested and passed, you had to do it again in 10 years. So the the math is there.

 

Robert Nordlund  23:10

And we’re talking about life safety. And when you’re talking about life safety, well, when you’re, yeah, that’s where you want to spend money, Sharry. This is absolutely been fantastic. What I’m seeing is I like the way your board is looking at things. I like the attitude that you come in with. You’re talking about you want to keep things civil and transparent. That’s going to come in as important later when we talk about this, I like you talking about diagnosing the problem correctly, but you’ve got a handful of problems here, and the question is, why are you still a board member and why haven’t you been recalled? So we will get to that after we take a break, but it’s time now to take a break to hear from one of our generous sponsors. After which, we’ll be back with more common sense for common areas.

 

Paige Daniels  24:02

Are you part of a homeowners association or condominium board? Making the right financial decisions for your community’s future is crucial. At Association Reserves, we’re proud to serve communities nationwide, specializing in reserve studies tailored to your community’s unique needs. Our expert team helps you accurately assess your property’s assets, forecast future expenses, and develop a solid funding plan. Whether you’re a small HOA or a large condominium association, we’ve got you covered. Visit ReserveStudy.com to learn more and get a proposal for your association.

 

Robert Nordlund  24:33

And we’re back. Well, Sharry, during the break, I was noticing that you are smiling, and the stories you’ve been telling of problems growing again to our audience. That’s not surprising. That’s kind of real life. But how are you holding up? How are you dealing with the pressure of more projects, more expenses? How are you doing with this?

 

Sharry Fassett  24:57

Honestly, I’m getting tired. And I I approach my 80th birthday next year, at the same time that my term is over, and my intention is to retire at that point. So I’ve been very very open with the board and preparing them. They are taking more leads in in projects, and they’re excellent. One man is taking the lead on the roofs. One man is taking-he’s financial guy and excellent. He’s taking. We’re working on money issues, and we have a gentleman who owns his own remodeling companies. Excellent building consultant. We have an engineer on our on our board, so I’m blessed with good people.

 

Robert Nordlund  25:45

Sounds like some professionals that you’re able to say. Let me show you how I’ve been looking after this and handing it off because the association is going to be there long after you or I are involved, and so I like that idea of you wanting to hand it off in better condition than it was when you started, how’s the relationship with the homeowners? You seem to be rolling with the punches, the pool, the roofs, the fire sprinklers. How are the homeowners doing? Because I trust that you’re communicating clearly that hey folks, this is real. We need the money. How’s that relationship going? Is it strained, or are they understanding it is what it is?

 

Sharry Fassett  26:33

Well, let me give you an example with the fire sprinklers. Like I said, there was some distrust. You know, these people are just ripping us off. We don’t need to do this. We even had a homeowner that threatened to go to court over it. At one point, we had made the decision to to replace them all at 110,000. The board got was had open discussion again.

 

Robert Nordlund  26:55

Monthly board meeting, open discussion.

 

Sharry Fassett  26:57

Yes, correct. And I said, look, the homeowners are not comfortable with this decision. We’ve got to back up and revisit this. We had more education, we had more discussion, and it was clear that the homeowners didn’t weren’t there. So we are testing. That’s what we’re doing. We so we reversed our decision, and we’re testing. We just finished collecting all the sprinklers, and you talk about homeowners, what the relationship is. I went every time they went into a home. I went with the team to like the sprinkler heads. I watched everything that happened. I kept track. I was there every day.

 

Robert Nordlund  27:38

Okay, so it’s not just a bunch of guys with logoed shirts doing something. The homeowner was peaceful because Sharry, their board member, was there in their unit, giving some kind of assurance that this is legit.

 

Sharry Fassett  27:57

Correct, and and that I was watching out for their place. Many of them are are seasonal homeowners, so they weren’t here. They would give me their codes or whatever. I told them once we are done with your unit, those codes go away. I do not retain.

 

Robert Nordlund  28:12

And you’ve probably built up that level of trust over years.

 

Sharry Fassett  28:16

I I hope so.

 

Robert Nordlund  28:17

Well, they gave you their code to their unit,

 

Sharry Fassett  28:20

so that’s how we handle that, and I think for the for the most part, our homeowners. I always believe in telling them what I know when I know it. But I also don’t speculate what if if we can get back to the roof issue. People right away, as soon as they heard this, well, how much is that going to cost us? I don’t know yet. We need to design the roof. We need to interview. We need to get bids. We have a process to go through. I’m not going to guess. I’m not going to give people fodder to to gossip about. I want them to know what I know, and I communicate everything I know that way.

 

Robert Nordlund  28:57

You’ve told us about you. How are you in the board? Are you working together effectively as a team? Are you on the same page, same style, things like that?

 

Sharry Fassett  29:09

With my board members,

 

Robert Nordlund  29:10

yes,

 

Sharry Fassett  29:10

it’s always a process with a new board. Always, you have to get to know each other. To be quite honest, I’m I’m a strong female personality, and that’s not always the easiest for some men to to handle. My board members have been awesome, and in our, it’s a process. We do have people who maybe don’t agree with the direction this board is going, but I would say 85% of the homeowners here are happy.

 

Robert Nordlund  29:44

That’s a good number. Okay, and I say this thinking about the numbers: you can outvote 15% It’s expensive. You’ve had a lot of things there going on, and at every association, I’ve asked different people. What’s your gage of the percent of people that never should have bought into a condominium association, and that’s usually single digits, three to 5% something like that. So there will always be people that don’t like what you’re doing. So we have to let go of that. But boy, to have roughly 85% of the people on your side, that shows that you’ve been-I want to say-doing the right things and building a lot of political capital. Is that the right word to say? Political capital.

 

Sharry Fassett  30:29

I have to say, we we work very hard at it, and I think people know that this board cares, and we listen, and we do care.

 

Robert Nordlund  30:39

You got me writing a lot of notes here. We talk about here on the show sometimes the 4c’s, where you need to care, you need to be curious. I like your idea of diagnosing the problem correctly. You need to be courageous, but I liked what you said about you don’t just act like a bull, battering forward with respect to the sprinklers. You had a, you felt the temperature of the water, and you came back. Okay, so courage, enough courage, and enough courage to say, let’s revisit that, and then communication to just to be able to say, and like you said before, I don’t know enough yet. I’ll tell you as much as I know. Then my brain is going to well. What more would you want from a board member? Is that pretty fair about what’s going on there?

 

Sharry Fassett  31:34

Yep, I think I think you’ve got the four CDs are exactly right. Exactly right. I

 

Robert Nordlund  31:40

still need to ask, what’s happening with the homeowners? Every time there’s something going wrong, you need more money. So, have the homeowners? Has it been special assessments? Has it been raised assessments? What really has been able to fund all these projects?

 

Sharry Fassett  31:57

We’ve been very fortunate because prior to me coming on the board, we had a board that was very fiscally conservative, and they managed to hold on to reserves very well. So we had that in place to start with. However, the worst is yet to come as as soon as we find out in terms of what the roofs are going to cost, and we have an idea now. And as soon as we pick a vendor, we’ll know exactly. We’re redoing the reserve study. We have updated the reserve study every year, trying to make it tight, trying to make it correct, because it’s real easy to forget to update your reserve study when you do a major project. It’s important that you. It might be early. It might be a little bit late, but you need to adjust your reserve study and

 

Robert Nordlund  32:51

rebalance things.

 

Sharry Fassett  32:52

Correct. Correct.

 

Robert Nordlund  32:53

I should say I don’t know, but I don’t think your association is a client of ours. Is that correct?

 

Sharry Fassett  33:00

That’s correct. We we’ve had the same person for 20 years.

 

Robert Nordlund  33:04

We would love to tempt you, but what I like is Sharry’s just telling the way it is. It really is valuable. It’s not like she’s trying to make me happy, and we don’t have a sweet inside deal here going on. But yeah, your reserves are going to be the biggest expenses you pay for.

 

Paige Daniels  33:22

Yes. Okay.

 

Robert Nordlund  33:23

So, are you have you kind of leaked the idea that it may be special assessment time?

 

Sharry Fassett  33:30

Oh, it’s not really leaking. I’ve been really honest with the homeowners up front. We don’t have the money. We’re going to have to find the money, and we’re working on it. We’re working on different ideas, and and like I said, I’ve got a great financial guy on my board. I’ve got a real sound board, and I think we’ll come up with with what works. Our motto is the highest and best for our community. The highest we can get, the best we can get for our community overall. That means some people aren’t going to get what they want here. Some people aren’t going to get that, but we will be the highest and best here, and that’s what we aim for.

 

Robert Nordlund  34:07

You’ve got a motto to go along with the name of your association. This is what we do. This is how we do things, and then you demonstrate it, and you have done that same thing consistently over time. And I guess I’m not surprised after hearing all this that you have the kind of people who would say, “Yeah, you can get into my unit. Can you stay there while they’re in? And you say, “Yeah, I’ll be there while you’re in.

 

Sharry Fassett  34:32

Will you sweep the floor?

 

Robert Nordlund  34:36

Did I turn the dryer on? Can you that kind of stuff. Punch the dishwasher for me. Get that going. No, I I like that. It’s hard being a board member. It’s expensive to the association to hit the 25 year mark. A lot of projects happen around that time period. But you seem to be, and you spoke right at the beginning about you like. Civil and transparent, and that goes such a long way. Thank you, Sharry. It’s great having you on the program to help our board member audience see that while challenges are commonplace, you can deal with them. It’s important to try to keep your cool, deal with problems as they come, and kind of summarize my notes. Diagnose the problem correctly. Consider several points of view. Don’t chase unanimity. You’re probably never going to have unanimity. Any closing thoughts to add at this time?

 

Sharry Fassett  35:31

No, I just encourage everybody to participate in in your community and participate as a board member. Be ready to learn. You you need you’ll learn a lot.

 

Robert Nordlund  35:41

A lot. Well, I thank you for what you’re doing for your association. I think the homeowners there are lucky to have you on the board.

 

Sharry Fassett  35:48

Well, thanks.

 

Robert Nordlund  35:49

But I’m tickled that you are working with the other board members to make sure it’s a smooth transition, as it is your time to step away.

 

Speaker 2  35:57

You

 

Sharry Fassett  35:57

start mentoring the day they get on the board that you start mentoring.

 

Robert Nordlund  36:01

Yeah, I got a twinkle in my eye because I have a feeling that you’ve got five board members now, and probably one of them is going to step off or something, and they’re going to say, “Sharry, can you come back? It’ll be just for six months.

 

Sharry Fassett  36:13

My family doesn’t even believe me anymore that I’m going to retire. I keep saying I’m going to retire, and they say we don’t even believe you anymore. Yeah,

 

Robert Nordlund  36:20

well, you’re doing a great thing, and when you say retire, what you’re doing is making a whole lot of people a whole lot of money by maximizing property values at your association. There’s a lot of value to that. Sharry, it’s fantastic to have you on the show. To our audience, we certainly hope you learned some HOA insights from our discussion today, that helps you bring common sense to your common areas. We look forward to having you join us for another great episode next week.

 

Announcer  36:50

You’ve been listening to HOA Insights: Common Sense for Common Areas. You can listen to the show on our podcast website, hoainsights.org, or subscribe on any of the most popular podcast platforms. You can also watch the show on our YouTube channel. Check the show notes for helpful links. If you like the show and want to support the work we do, you can do so in a number of ways. The most important thing you can do is engage in the conversation. Leave a question in the comments section on our YouTube video. You can also email your questions or voice memos to podcast at hoa insights.org or leave us a voicemail at 805-203-3130. If you gain any insights from the show, please do us a huge favor by sharing the show with other board members you know. You can also support us by supporting the brands that sponsor this program. Please remember that the views and opinions expressed by the podcast do not constitute legal advice. You want to consult your own legal counsel before making any important decisions. Finally, this podcast was expertly mixed and mastered by Stoke Light Video and Marketing. With Stoke Light on your team, you’ll reach more customers with marketing expertise that inspires action. See the show notes to connect with Stoke Light.

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]]> Proactive vs Reactive Maintenance: Which Saves Associations More Money? http://www.reservestudy.com/proactive-vs-reactive-maintenance-which-saves-associations-more-money/ Thu, 01 Oct 2026 20:37:18 +0000 https://www.reservestudy.com/?p=16425 Often, our webinars address particular parts of a reserve study: how to read them, legal responsibilities, or other specific concepts. But, we're going to be addressing the underlying strategy, the three basic options you have to solve the problem of Mother Nature and Father Time, day after day after day, moving all your common areas from new condition all the way to needing to be replaced. By the end of the program, you'll have a clear understanding of the choices you're facing, the pros and cons of those options, and you'll be armed with sound bites you can use to communicate what you are doing to your homeowners.

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Proactive HOA maintenance can save an association from much bigger problems later. Robert Nordlund and the team explain why delaying major reserve projects may feel like a way to save money in the short term, but often leads to fewer choices, greater urgency, and higher costs when the work can no longer wait. Every community is dealing with the effects of time and deterioration, whether it is roofing, pavement, siding, elevators, pools, or other common area components. Because many of these projects are predictable, boards have an opportunity to plan ahead instead of waiting for something to fail. This webinar explores how timing affects HOA maintenance decisions and why taking action earlier can give boards more control over their projects, finances, and long-term planning.

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Robert Nordlund:

Welcome, everyone, to today’s program. We often present reserve study webinars, basically on a monthly schedule, to set you up for success at your association, and that’s what we’re going to try to do today.

Before the end of today’s program, we’re going to help you with the decisions you make for your association when it comes to executing reserve projects. Now, it may seem that not performing a project saves you money, but throughout this program we’re going to caution you about the implications of timing, the decisions that you make, and leaving those projects undone.

We want to start with a clear understanding that owning real estate is expensive. It doesn’t stop when you purchase the home or property. Maybe you could say that’s when the costs start, because Mother Nature and Father Time see to it that everything is in a continual state of deterioration. That’s going to drive your responsibility for repairing and replacing all the common areas.

That’s where we want to go today, because the common areas are the board’s responsibility. That’s driven by the governing documents and the whole institution of community association living. Someone is in charge of the common areas, while every individual is in charge of their own separate space. That responsibility isn’t something you can transfer or discharge to someone else.

The deterioration we spoke about never takes a day off. The roofing, pavement, siding, elevators, pool, carpet, or whatever you have that’s common area at your association is deteriorating day after day.

There’s nothing you can do about that. Mother Nature and Father Time are part of life here on planet Earth, but fortunately, they’re very predictable.

I want to make sure it’s clear that this webinar is about your reserve components. It’s not about optional things. It’s not about costs that the board may decide to add to life at the association. We’re talking about the cost of deterioration of major, predictable projects: replacing a roof, resurfacing or sealing the pavement, painting the trim, painting the ironwork, painting the siding, and other major projects like those.

Since these projects are predictable in timing and predictable in cost, there’s no excuse for being surprised. You can plan ahead, and that brings us to the question: Should we be proactive on these projects, or should we be reactive?

Again, laying the foundation, delaying doesn’t make a project go away. It’s still there waiting to be done, and the board members have the responsibility to get it done and care for the common areas.

For all the managers here in today’s audience, you’re responsible for assisting and encouraging the board. Sometimes that means providing proposals. Sometimes it means reminding them that it’s a requirement in the governing documents to take care of the common areas. Sometimes it means encouraging them to get the finances together or form a committee. There are so many ways a manager can help, but they’re there to assist and encourage the board toward fulfilling its responsibility.

We want to say this very clearly: A delay doesn’t remove the project. Not doing it doesn’t mean it goes away. It simply means it still needs to be done, likely next year or the year after.

But delaying a project can remove your good choices.

Sean came to us many years ago as a college graduate with a football background. When I think about timing, I think about how different a football game is when you’re behind in the second quarter compared to when you’re behind with two minutes left in the game.

Sean, can you walk us through how timing makes a difference?

Sean Andersen:

Absolutely. As most of us who watch football know, being down 28–7 in the second quarter isn’t the end of the world. We’ve got time. We can work our plan and ultimately still win the game.

If we’re down 28–7 in the fourth quarter, we have very specific things we can do to even approach success. Unfortunately, a lot of that involves throwing Hail Marys. It involves throwing the ball downfield as much as you can and hoping for the best. As any of us who watch football know, that very rarely works out. It’s always miraculous when it does.

As we’re looking at the life of our communities and the life of our components, we want to make sure we’re going into the fourth quarter well prepared. We’re going to execute our plan, make sure projects are getting done, and make sure we’re planning for them in advance so we’re not throwing Hail Marys just to get a roof replaced before the rain comes.

Robert Nordlund:

Yeah, and I was thinking that if we had an attorney on the program with us, the attorney would probably be reminding us that hoping for the best isn’t the way to fulfill your responsibility as a board member.

Sean Andersen:

Yes, absolutely.

Robert Nordlund:

Okay, well, we’re not attorneys, but we want you to keep that in mind.

Let’s talk about the choices you have with respect to those projects. We’ve outlined them today in three ways.

You can prepare in advance. You can do it right on time at the last minute, saying, “Oh gee, we need to do this. Let’s get it done.” Or you can do it late.

Preparing in advance means you can choose the best timing. Do you do it in the summer? Do you do it in the fall or spring? Can you negotiate with the provider to fill a gap in their workflow when they need a job to keep their crew busy for two weeks? You have opportunities to achieve the best result.

Doing it right on time means you may be rushing. You might need to get that roof or painting project done before it starts raining or before winter arrives. When you’re trying to get something done before the weather changes, that can raise the cost because you’re paying to fit a job into a narrow window.

Doing it late commonly means you have fewer choices. It can turn into a bigger and more complicated job because maybe you need to repair it quickly and then replace it later. All of that can lead to higher prices.

Sean, can I get you to talk through preparing in advance and what that looks like among your clients?

Sean Andersen:

Yes. As we were preparing this, I immediately thought of a client of mine down here in Orange County. A number of years ago, they were caught completely off guard by failing roofs, and they needed to do a special assessment.

The board felt they really didn’t ever want that to happen again. They didn’t like the idea of a special assessment. It caused a lot of consternation in the community and a lot of loss of trust in the board.

The board understood that they had this document, the reserve study, that was going to help them. It’s a budget planning tool. They were going to use that and start planning ahead for these major projects.

In particular, they had painting and asphalt projects coming up next, so they got ahead of them. They referred to the reserve study, looked at the projects that were coming up, and on their own timeline began gathering three bids for each component. They started vetting the vendors and doing the projects in a well-thought-out and timely manner.

At the same time, they held town hall meetings and wrote newsletters informing people, “Hey, look, we have this asphalt project coming up. We have the painting project coming up.”

Ultimately, all these projects were done successfully. They had that one special assessment, but they increased their reserve contributions to the point where they exceeded their rate of deterioration. The strength of the reserve fund increased, and they were able to complete these projects on time.

They were able to do it in a way that the association members were very happy with, and now the community is very well funded and very well maintained. Property values have increased significantly there. Having that planning really did bear a lot of fruit for them long term.

Robert Nordlund:

How many years was that process? Was that about five years?

Sean Andersen:

It was about an eight-year process.

Robert Nordlund:

An eight-year process. Okay, so it does take time.

I’m also hearing a couple more things. We billed this webinar as being about proactive versus reactive project execution, but there’s so much more involved.

You mentioned the financing—making sure the money is there—and that may mean raising assessments years in advance so everyone is paying their fair share over time rather than facing last-minute special assessments.

I also like the communication aspect, where everyone understands where their money is going and what’s being done. They may think, “Oh darn it, the assessments went up another $25 a month this year,” or whatever the number is, but at least they know that next year the buildings are going to be painted.

Is that pretty accurate?

Sean Andersen:

No, that’s exactly correct. When you have that kind of communication, the more communication you have, the more people can anticipate what’s coming.

Really, the math works out so that it’s not so significant. If your assessments are going up $25 a month, it’s annoying. But if you can have a situation where I’m saying to myself, “My assessments are going to go up $25 a month; however, mathematically, that’s going to help me because my property values are going to go up because my property is so much better maintained,” then people can understand the benefit.

The more communication we have, the better. It makes sure people are prepared for this and that the projects get done on time.

Robert Nordlund:

Yeah, I think I can hear my mom’s voice saying, “Don’t be penny-wise and pound-foolish.”

If you can spend that $25 a month, it’s not that your home suddenly got more expensive. It just means you won’t have an emergency special assessment in three or four or five years.

Sean Andersen:

Yes, exactly.

Robert Nordlund:

It’s the same cost.

Preparing buys you the things that money can’t buy. It gives you time to develop the specifications, get competitive bids, shop around for a provider that suits your timing, suits your budget, suits your style, and works well with the association.

It gives you a board that decides instead of a board that’s forced into reacting.

Okay, let’s talk about doing it right on time, but at the last minute. Walk us through this, Sean.

Sean Andersen:

This could be a situation where you’re doing it right on time, but “right on time” might mean that if you’re looking at a roofing project, you’ve waited until December and now the rainy season is coming.

Your options are very limited. You need to get those bids in a hurry. You need to get somebody hired in a hurry. You don’t have the time to sort through the bids, discuss things with the vendors, and optimize costs.

If you’re doing that roofing project in September, you might get a better deal. There are times when vendors want to make sure their crews are busy, and if we can keep them busy, they might drop that price quite a bit.

It’s always better to be prepared and not leave things until the last minute. You don’t want to go into December with a leaky roof that has to be done immediately, because then it really becomes a matter of, “Who can we get out here to do the job? We need to do it now.”

Robert Nordlund:

You know, Sean, you’re showing that you’re from Southern California.

There are a couple of properties I’ve worked on in alpine regions where they had me come out for the site inspection because they wanted it done well before Christmas. I think it was September or October.

I remember doing the roof inspection and feeling snowflakes on my shoulder and realizing that I might be the last human being on that roof for six months because pretty soon it was going to be covered with snow, with no opportunity to even do an inspection.

So yes, there’s a timing issue. You can get worked into a corner, and you simply don’t have a lot of options when you don’t have the time.

I keep coming back to that football idea. Running out of time means you have fewer opportunities.

If you’re doing something at the last minute—whether that’s September, October, November, December, or whatever it is—and you’re in a time jam, the painter, roofer, or asphalt company may say, “We just don’t have the time to mobilize and do that. But can we do one section? Can we do one part? Can we make some repairs?”

The short-term repair trap is that a patch is only a patch. You still have to replace the component later.

You don’t want to get into a jam where you end up replacing something you just repaired. All those mobilization costs tend to add up.

So be careful with that.

Sean, talk about doing it late. What does that look like, and what are the problems with that?

Sean Andersen:

Doing it late is that situation we talked about earlier where you’re constantly throwing Hail Marys.

The project is going to have problems from the start. Take a roofing project, for example. All of a sudden, there might be a lot of scope creep.

If we’ve done it late, maybe we’ve had a lot of leaks, and now all of a sudden we have to make structural repairs to the buildings themselves because we’ve had water intrusion.

Now the project has become much more expensive. We’re hoping to get it done on time, and we’re looking at emergency pricing for materials and manpower. Everything is getting more expensive.

This could have all been avoided by some wise planning.

We want to avoid a situation where we have fewer choices and we’re forced to say, “This one roofer is available now, and we have to do it now.”

Robert Nordlund:

But he’s expensive.

Sean Andersen:

And he’s very expensive because he can be.

Robert Nordlund:

Oh yeah. If they’re mobilizing, they’ve got to get cold-weather crews, and there’s the danger of being up on a roof when there’s bad weather. I’d want to get paid well for that, too.

Now, talk to me about seeing this project coming. In a reserve study, you can see a project 15 years away, 10 years away, five years away. It starts to become significant and real as you see it getting closer—five, four, three, two, one, zero.

Doesn’t the average board get a lot of warning if they’re looking at their reserve study?

Sean Andersen:

Yes, absolutely.

As you and I always say, we can see these projects coming, and we can predict them.

If you have a 25-year roof and you know it’s a 25-year roof, your reserve analyst may tell you, “Hey, your roof is 10 years old. Hey, your roof is 15 years old. Hey, now your roof is 20 years old.”

You should really be paying attention to that, because as we get closer to that 25-year mark—or even the 24-year mark—the roof is really going to start showing its gray hairs.

But it may start showing those gray hairs at 15 years, so we want to be paying attention to it and keeping our eye on that roof so we’re ready to execute the project when the roof is getting ready to fail.

Again, we don’t want to wait until it’s absolutely dead and leaking all over people’s interior units.

Robert Nordlund:

“Holy moly! How did that happen?”

Sean Andersen:

Yeah. “I couldn’t see that coming.”

Robert Nordlund:

Exactly.

So when do you start really paying attention? When it hits 10 years of remaining useful life? Five years? Is there a magic number?

Sean Andersen:

I don’t know that there’s a perfect magic number, but I would say five years is probably the closest we have to one. That’s when the true gray hairs really start showing, and the component starts letting us know, “Hey, I’m starting to get to the end of my life here.”

Robert Nordlund:

Yeah. So you may want to do a minor repair at the northeast corner of Building Three, but that’s because it’s old.

Sean Andersen:

Yeah.

Robert Nordlund:

No big deal.

Late means you no longer get to choose because you’re already in a jam. By then, the circumstances are dictating when the work happens, who’s available to do it, and what it ends up costing. You simply don’t have a lot of choices.

The idea we want to build here is that when you do things on a prepared basis, you have time. You can work things through, and that’s generally the least expensive type of project.

There’s doing it on time but at the last minute, where you’re limited by the price, calendar, and provider availability.

Then there’s doing it late, where you’re crammed into emergency pricing, crews are dealing with inclement weather or a bad time of year, and you have any additional damage caused by the delay added to the project.

That’s why preparing early gives your association more choices and puts the board in control of the project rather than allowing the circumstances to control the board.

Robert Nordlund:

I want to turn to the audience here and get a poll. Can we get your help here, Jenn?

Type one, two, or three in the Q&A and let us know. Generally, are you preparing in advance? Do you have committees that help the board get things done on time? Are you doing things at the last minute, number two? Or are you often running late, number three?

Jenn:

Type your answer—one, two, or three—into the Q&A. The chat box is disabled, so it should be pretty easy to get that one in there.

They’re coming in strong with the ones. Love it.

Robert Nordlund:

No surprise. They’re the planners. They’re ready at their mouse and keyboard.

Jenn:

Lots of ones across the board here.

Sean Andersen:

That’s great news.

Jenn:

There we go. We’ve got our first three. Hey, you’re here. That’s a step, right?

Robert Nordlund:

Yep.

Okay, well, we’re learning something about our audience, and that’s good to know.

This is the reality of life in a community association. You may be preparing in advance. You may be doing things at the last minute. You may be running late. We want to help you frame the conversation so you at least know what you’re talking about.

As we get to this point, we want to say it very clearly: delaying doesn’t lower the cost. It moves the cost and often raises it.

You save nothing by waiting. It’s not like the project goes away. It may fall onto next year’s board of directors’ shoulders, and it will likely get more expensive. You have to be very clear on that.

But we also want to be careful because not every project punishes a delay in the same way.

You have the classics, where delay costs real money. The cost may increase significantly—25%, 50%, or more. Then there are the more forgiving projects, where a delay isn’t necessarily a big deal. And finally, there are the crisis makers, where a delay costs you more than just dollars.

Sean, let me turn it over to you here. Talk through the classics.

Sean Andersen:

The classics are asphalt, painting, and roofing. Coincidentally, those are also usually some of the most significant components in a reserve study, so they’re going to have a major impact on your funding plan.

They all have very predictable lives and very predictable costs, so ignoring them is going to have significant consequences.

I always encourage my board members and managers to look at the component significance table because it’s a very important table. It’s going to tell you which numbers are truly driving the reserve study.

The consequences of ignoring those components are that the costs simply escalate.

For example, in this situation, an asphalt resurfacing project wasn’t done. It was ignored. Obviously, they hadn’t been doing their slurry seal every four years, so eventually the base failed.

Now, all of a sudden, instead of having a resurfacing project, you have a reconstruction project.

Instead of costing approximately $5 per square foot, it might cost $8 or $9 per square foot for reconstruction. That’s a significant difference in cost, all because things were pushed off and ignored.

Robert Nordlund:

And is that maybe driven by thinking that a seal coat at 25 cents per square foot was just cosmetic and making a big mistake there?

Sean Andersen:

Yeah, exactly.

We’ve said before that asphalt slurry seal is like sunscreen. It protects the skin. It keeps it from failing.

We want to do that because, as you and I both know, the premature failure of an asset can be significantly more expensive than simply maintaining the asset.

We want to make sure we’re not doing that. To me, this represents a very big waste of money based on bad decision-making.

Robert Nordlund:

Yeah, and we want to help you, our audience, see this, understand it, and learn from the mistakes of others.

There are also some projects that can forgive a delay. Sean, can I have you talk through those?

Sean Andersen:

Absolutely. Coincidentally, these are also usually some of the least significant assets in the reserve study.

Take a clubhouse water heater. It’s not necessarily the end of the world if it’s not working. We still have time to go get bids to replace it. If people don’t have hot water to wash their hands in the clubhouse, it’s inconvenient, but it’s not the end of the world.

A seldom-used pool or spa can sometimes fall into that category as well. It’s not necessarily affecting people’s daily lives if they temporarily don’t have access to it.

The same could be true for something like a wood fence replacement.

Robert Nordlund:

Well, let’s be careful there. What if that clubhouse water heater is actually the boiler for the association?

Sean Andersen:

Oh, well, yes. That’s a very different situation. That’s a very big deal.

What we’re talking about here are projects with relatively low consequences to people’s daily lives and relatively low consequences to the funding plan. They’re easy to reschedule.

With that clubhouse water heater, for example, we may have some time if it’s starting to fail. It’s not the end of the world.

That’s very different from the boiler that allows everybody to have hot water in the mornings.

Robert Nordlund:

That’s a big deal.

Well, let’s talk about that. Some projects create a crisis, and we’re not even talking about the cost here.

Open that door for us. Talk about these projects.

Sean Andersen:

As you know, Robert, these are bad scenarios no matter what.

Even in the best-case scenario, an elevator modernization is a headache for a community. The same can be true with access controls and fire and life safety systems.

If these projects go sideways, you have a significant problem.

We talked earlier today about elevator modernizations and how long they take. It takes a long time to hire somebody and execute these projects.

If an elevator is failing, that’s going to be catastrophic for a community, and it can become extremely expensive to get somebody out there to fix it because it’s something that’s literally integral to how people are living their lives within the community.

Elevator modernizations, boilers, and similar projects are things we absolutely cannot wait on until they become an emergency.

Robert Nordlund:

Yeah. On elevators, isn’t that now potentially a six-month to one-year project?

Sean Andersen:

Yes. Yes.

Robert Nordlund:

So it’s not like, “Well, we’ll wait until next Tuesday. They’ll come out and fix it.”

It’s not necessarily going to be down for just a couple of days or a week while they’re modernizing it.

It’s amazing how some of these projects are really big deals.

I don’t want to focus this entire presentation on how projects get more expensive because sometimes the bigger problem is how incredibly disruptive they can be to the association.

An elevator being out of service isn’t simply a budget problem. It’s a resident problem. It’s a manager problem. It’s going to be all that people are talking about.

The same thing happens if the boiler goes out and there’s no hot water, or if there’s no heat and it’s winter. Nobody is going to be concerned about what it costs. They’re going to say, “We want a solution.”

And they’re going to want to know why the board didn’t get it handled correctly.

Some projects aren’t things you can simply throw money at because it takes time to get the parts, get the project scheduled, and get the work completed.

People can get pretty grumpy when they’re not getting warm showers.

Sean Andersen:

Yes.

Robert Nordlund:

Okay. Well, when can you stretch a 10-year life into 12 years?

Can you do that for the clubhouse water heater or a clubhouse kitchen remodel? Is that a big deal? What’s the cost? What’s the benefit?

Sean Andersen:

It’s not necessarily a big deal.

Those projects also tend to be a little more subjective. Take a clubhouse remodel, for example. Stretching that from 10 years to 12 years isn’t necessarily a problem. It’s not going to create a major issue, and it’s probably not going to cause significant ill will in the community.

On the flip side, when I talk to boards about this, I remind them that they’re also not necessarily getting the savings they think they’re getting by pushing the project out a couple of years.

It’s not a big deal either way.

Where it becomes a big deal is when we’re pushing projects like roofing, painting, and asphalt out by two years.

Robert Nordlund:

Well, I’m just doing the math in my head.

If it’s a $2,000 water heater that’s averaging $200 a year and you stretch it from a 10-year component to a 12-year component, you’ve saved the association $400.

Spread that across 100 units, and that’s trivia. It’s going to be eaten up in inflation.

No offense, but the landscaper, pool service, or janitorial expenses are probably going to consume that savings. It’s going to amount to almost nothing.

I want to make sure you understand that if you have a question about something like this at your association, reach out to your reserve study provider.

If you’re unsure, you don’t have to make the decision by yourself. Reach out to your reserve study provider and get some wise counsel.

To say this plainly, a delay does not eliminate the expense. Sometimes it only adds costs.

Those costs may be measured in dollars. Sometimes they’re measured in appearance, which affects your property values. And they can definitely be measured in community spirit and goodwill.

Be careful about the different ways a delayed project can really come back to bite you.

Let’s move on to the next part of our discussion: your decisions.

We want to make sure you understand that this isn’t all about numbers.

We’ve talked about elevated costs if you delay. Sometimes there are elevated problems. But let’s look at it from the board member’s point of view.

The deterioration is real. We know the reserve study says it’s coming. Eventually, you can see it yourself.

As Sean said, you can start to see the roof getting old. You can start to see the paint getting old. You can see those kinds of things.

But the decision to execute the project is human.

What we find very interesting is that, from a board point of view, the process often follows something similar to the five stages of grief.

There’s denial: “Oh, it’s fine. That’s not true. It has more time left.”

Then there’s anger: “Well, the last board should have dealt with this. Why do we have this problem?”

Then there’s bargaining: “What can we do to stretch it one more year? Can we patch it? Can we fix it?”

Then there’s depression: “We just don’t have the money.”

So many associations are literally in that position.

Eventually, we get to acceptance: “Okay, what’s the plan? What are we going to do?”

That’s where we want to take you today, because sometimes there’s a big element of simply having courage.

Sean, can I get you to introduce this idea of having the courage to look into the subject and take action?

Sean Andersen:

Yeah, absolutely.

A lot of times we’re talking about large projects with big price tags. It takes courage to do the right thing, create a plan, and complete those projects.

I always admonish my board members and managers to remember that the reserve fund is not a savings account.

We don’t ever want to get into the idea of it being a savings account because that creates an instinct in all of us that says, “If it’s in a savings account, I don’t touch it.”

That money is there to be spent.

As board members and managers, we want to be spending that money appropriately. We’re collecting these assessments so people’s homes are well maintained and we’re completing projects on time.

As Robert knows, I was a board member at the previous community where I lived. I was the board treasurer.

Our buildings hadn’t been painted in 10 years. They were wood buildings. They needed to be painted.

Robert Nordlund:

That’s probably showing at that point.

Sean Andersen:

Oh, it certainly did. There was wood rot occurring.

I needed to take the bull by the horns and say, “We’re going to do this painting project.”

We got three competitive bids. I started the process of talking to people about it. We had discussions in board meetings and said, “Hey, look, this is going to cost 10 times more if we don’t do it.”

The other board members were a little nervous about moving forward because it was a big price tag. There was also a minority of people in the community who were really pushing back and saying, “Oh no, we don’t have the money for this.”

We absolutely did have the money for it. We were well funded enough that we could do the project.

Ultimately, we did it. We were able to stop the bleeding with the dry rot. We repaired the wood, and today the community is very well painted and very beautiful.

Property values increased. The property looks very good. It’s aesthetically pleasing when you go onto the property, and there are no more wood rot problems there.

It really did take a lot of courage.

I got a lot of blowback from my neighbors about being reckless and spending money. A few years later, when I was doing their reserve study, I didn’t get that blowback anymore.

Everybody was very happy with it.

Robert Nordlund:

Did you sell that condo unit, or do you still have it?

Sean Andersen:

Oh, we sold it.

Robert Nordlund:

Okay. And I would imagine you were very happy that you pushed for spending the money to paint it, and that reflected nicely in what you got for the sale price.

Sean Andersen:

Very much so. That’s exactly correct.

Robert Nordlund:

Yeah. I sometimes like to think of it this way: the money goes from your wallet to the association, then into the building, and eventually it comes back to your wallet in the form of equity—a better sales price and a better property value.

Then there are also those intangibles, like community spirit and pride of ownership.

Let me give you a tool to help you wrestle with the question of when to repair something versus when to replace it.

Let’s use the hypothetical example of a $200,000 roof project that gradually deteriorates over the course of 20 years. It starts new, and after 20 years, you need to replace it.

Now, what do you do if you have a $50,000 repair project around year 13?

Do you repair it, or do you replace the roof, Sean?

Sean Andersen:

This is clearly a good time to do the repair project. You’re well within the timeframe where it makes perfect sense to make that repair.

Robert Nordlund:

Yeah. And I have a feeling that if you do the repair project, that may push the replacement out to year 21 or 22.

Sean Andersen:

Yes. Again, that’s a win-win situation right there.

Anytime we can do repairs that are going to increase the remaining life of the component, it’s an absolute win.

Robert Nordlund:

Yeah. But let’s look at another scenario where we’re doing that same repair project in year 18.

What does that tell you?

Sean Andersen:

That tells me they should be replacing their roof.

It tells me the roof is failing a little earlier. By doing this repair project, they’re eating soup with a fork.

They need to be thinking, “It’s time. It’s time to start getting bids to replace that roof.”

The section they’re going to spend all this money repairing may need to be replaced within a year anyway.

Robert Nordlund:

Yeah. You don’t want to repair something and then just turn around and replace it. That’s not a cycle you want to get into.

Again, if you have questions about what to do in a particular situation, reach out to your reserve study provider. That’s what they’re there to help you with—to give you wise counsel and help you read between the lines about what’s a better or worse decision.

There are some guiding principles, and we just wanted to show you one of those.

We’re talking about decisions. We’re talking about courage.

When’s the best time to plant a tree?

Well, 20 years ago.

It would have been nice if the prior decades of boards had been reserving sufficiently.

But the second-best time is today.

Start getting your association pointed in the right direction. Being a board member takes courage. Start today and work your multi-year plan.

Robert Nordlund:

So, what does a delayed project really cost?

It costs dollars in wasted homeowner money when things get more expensive. It costs political capital when the board’s credibility takes a hit. It costs community spirit and pride of ownership when the property doesn’t look that nice. It can affect resale values because the property doesn’t look that nice.

Then there are safety concerns, whether we’re talking about balconies, a roof, the pool, furniture, or other common-area components.

Of course, the first thing that comes to my mind is Champlain Towers South. The deterioration there was documented, and repairs over the years were debated and deferred. Ultimately, the building experienced a significant collapse, and 98 lives were lost.

We don’t want to do that.

When you look at pictures of that building, you’re often looking at the collapsed portion, and that is horrible. We know there were people who were killed instantly under that rubble.

But also look at other portions of the property. Look at the roof and how deteriorated it appears. There are large, dark portions that are aged and ready for attention. This building had significant deterioration.

You want to stay on top of things for so many reasons.

That brings us to the conclusion portion of today’s program, and I want to wrap up the whole webinar in one sentence:

Delaying a predictable project doesn’t save the association money. It can create an avoidable crisis that causes owners to pay more.

So be very careful.

Again, those costs may be measured in dollars. They may be measured in community spirit. They may be measured in equity and home values. And we certainly don’t want them to affect safety.

You also need to beware of what I call the “cost vortex,” where you start delaying one project because you need to complete another project somewhere else. That means you’re delaying yet another project, and before you know it, you have continual delays and continual underfunding.

Worse leads to worse.

Sean, do you sometimes see what we call the “death spiral,” where some of your associations look like they’re about to fall into that situation?

Sean Andersen:

Yeah, we really do.

The California balcony legislation really brought this to a head a number of years ago.

Robert Nordlund:

You’re talking about the California balcony bill from—was it about 10 years ago?

Sean Andersen:

It was about eight years ago.

It really brought to the forefront the amount of deterioration that was happening. The state mandated that these inspections take place, and those inspections showed that significant repairs were needed.

What ended up happening was that a lot of communities that had artificially kept their dues low and pushed off components hit this death spiral you’re talking about.

They were going from crisis to crisis to crisis, trying to find money to pay for things.

What ends up happening is that I find those kinds of communities, when they hit this death spiral, actually have dues that are higher than they otherwise would have been because they’re paying a premium on everything.

They’re going from crisis to crisis to crisis.

Robert Nordlund:

They’re spending money inefficiently.

Sean Andersen:

Inefficiently, exactly.

They’ve made these choices, and now the assessments are significantly higher, and they’re also looking at special assessments.

It really is a worst-case scenario.

This cost vortex or death spiral is an important thing to talk about because I see it quite a bit when communities fall well below that 30% funded level and things start spiraling.

Robert Nordlund:

Yeah. I’m just thinking about it.

They have high assessments. The assessments are increasing. They’re so much higher than they were 10 or 20 years ago. They’re getting a special assessment, and the place looks lousy.

They’re thinking, “Why am I putting money into this place?”

It’s a tough situation.

I heard someone else describe it this way: on top of delays and underfunding, when you get into this situation, you can get far enough behind that you no longer need a doctor—you need an undertaker.

We want to avoid having you peer into that death spiral.

We want you to address the reality of the issues: the financial side, the communication side, the courage, the execution, and making sure you’re taking great care of your property.

Because owning and maintaining real estate is expensive. There’s no two ways about it. It’s going to cost a lot of money.

When we look at our clients, we typically find that reserve funding takes about a quarter of the average association’s budget, with a range from approximately 15% on the low end to 40% or 45% on the high end.

It’s a big chunk of money, and you have to appreciate that skimping on it doesn’t really save owners money. It simply pushes those costs into future special assessments.

There’s no avoiding the cost of deterioration driven by Mother Nature and Father Time.

So when you’re thinking about proactive versus reactive, proactive wins.

Look at your reserve study. Know what’s coming. See the trends and watch those projects coming year after year after year.

Prepare early enough, both physically and financially.

And let me add something, Sean. You were talking about communication. Help the homeowners know what’s coming. Help them understand that the board is leading them and taking care of their property.

When you do that, you have choices. Everyone knows that these projects are going to happen, and you can complete the project on your schedule rather than the emergency’s schedule.

To say it plainly: proactive costs less. Reactive costs more.

If you’re trying to save your homeowners money, get in front of these projects and be bold.

That brings us to the wrap-up.

We’re Association Reserves, and you can find us at ReserveStudy.com. We have more than 100,000 reserve studies under our belt, and you can learn more about us and find additional resources on our website.

You can also find videos like this webinar on YouTube. There are plenty of free resources available there.

If you’re a reader, we have a book called Understanding Reserves. It’s a great resource with graphics, stories, and practical applications that help you understand what it takes to lead your association safely and successfully into the future.

For the board members and homeowners joining us today, we also have a weekly 30-minute podcast designed to encourage and equip board members. It’s called HOA Insights: Common Sense for Common Areas.

You can subscribe on all major podcast platforms or listen at HOAInsights.org.

We discuss these subjects and a wide range of other topics affecting community associations. We feature Board Hero episodes, subject-matter experts, and other resources designed to help you with the hard work of running your association.

Again, it’s all free.

At this point, let me turn the microphone over to Jenn, who will coordinate our Q&A time with the remaining time we have.

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]]> 177 | How Much an HOA Loan Really Costs Your Owners?! http://www.reservestudy.com/177-how-much-an-hoa-loan-really-costs-your-owners/ Tue, 29 Sep 2026 02:33:42 +0000 https://www.reservestudy.com/?p=16409 LISTEN ON YOUR FAVORITE PLATFORM Podcast Spotify Apple Rss Summary A $250,000 roof project can cost owners much more with an HOA loan. See how borrowing changes the final bill. Transcript 177 | How Much an HOA Loan Really Costs Your Owners   Julie Adamen  00:00 If you have committee members out there, use them. […]

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LISTEN ON YOUR FAVORITE PLATFORM

Podcast Spotify Apple Rss

Summary

A $250,000 roof project can cost owners much more with an HOA loan. See how borrowing changes the final bill.

177 | How Much an HOA Loan Really Costs Your Owners

 

Julie Adamen  00:00

If you have committee members out there, use them. They can be your boots on the ground to talk to everybody. Your landscape committee is always out and about. The architectural committee is always out and about. And if you bring them in, you know, talk to the board. The board tells them everything that’s going on. You bring those people on board first, or maybe some of your more involved homeowners involved in clubs or whatever, they may not be a committee member. Bring them in. Utilize them as your foot soldiers, because the more of you that are out there, that are saying positive things, and yes, this is the answer to this, the better it

 

Announcer  00:33

  1. HOA Insights is brought to you by five companies that care about board members: Association Insights and Marketplace, Association Reserves, Community Financials, Kevin Davis Insurance Services, and the Inspectors of Election. You’ll find links to their website and social media in the show notes.

 

Robert Nordlund  00:48

Hi, I’m Robert Nordland of Association Reserves, and I’m Julie Adamen with Adamen Inc. And this is HOA Insights, where we promote Common Sense

 

Robert Nordlund  00:56

for Common Areas. Well, welcome to episode 177, where I’m again speaking with management and leadership consultant Julie Adamen of Adaman Inc. We’re following up on Julie’s episode number 168 with Rolf Crocker, where they discussed navigating forward, looking at special assessment and loan options. We’re going to do a dive into that subject again today, actually comparing the numbers so you can get an idea of how much each one actually costs your homeowners. Well, we’re here weekly, so if you missed last week’s episode 176 with board member and attorney Roger Minch, you missed some wise counsel on when to spend the money and get an attorney involved in something at your association. And if you don’t have an attorney on your team. Roger also gave some advice on how to select an attorney to join your leadership team. If you missed that episode or any other prior episode, take a moment after today’s program to listen from our podcast website, hoainsights.org, or search for HOA Insights on YouTube. But better yet, subscribe from any of the major podcast platforms, or subscribe to our podcast’s YouTube channel, so you don’t miss any future episodes, and so the podcast increases in the search rankings and becomes more findable to more board members. And of course, if you like what you hear, spread the word. There are about 2 million board members out there, and we want to help as many as we can, bringing common sense to their common areas nationwide. Well, those of you watching on YouTube can see the HOA Insights mug that I have, Julie, in the dishwasher,

 

Julie Adamen  02:33

dishwasher. Sorry,

 

Robert Nordlund  02:35

that we got from the merch store, which you can browse through from our HOA Insights.org website or the link in the show notes, or you can visit simply to pick up some great free stuff there, like board member Zoom backgrounds to use for your next board meeting. Well, we enjoy hearing from you responding to the issues you’re facing at your association. So if you have a hot topic, a crazy story, or a question you’d like us to address, keep in touch at 805-203-3130. We listen to all those messages, or email us at podcast at hoa insights.org. Well, today’s program is a follow up to episode 168, as I said a moment ago, on special assessments versus bank loan choices, and this time we’re going to talk about the numbers. So, Julie, to start off, can you summarize what you and Rolf covered?

 

Julie Adamen  03:27

No, no. Okay, well, make sure that also was there. That’s right. Bye, everybody. That was a while ago. It was. It was a while ago. A lot of things have happened between now and then. But in essence, what Rolf Crocker owns Omni Community management in the Sacramento area of California, and he and I have known each other for years and years. We speak together a lot, and so I asked him, “Let’s talk about this. I said, “Okay, and we really just riffed on it. But I’ll tell you, see, Rolf has the information from the management company aspect, which means in the trenches with the board members and trying to get these the problem of not having enough funds on hand to do a major repair or replacement, whether it is caused by a natural disaster or whether it is just wear and tear. Typically, it’s more of the wear and tear type thing, and the board that is now dealing with it is the only board that’s going to has dealt with anything in the last 10 years. That’s usually what happens. They’re they’re the ones you know in musical chairs you know how when the music stops they’re the ones left standing so they try to do something about it and our conversation was wide ranging but what we really came out with was first how you’re going to decide what you’re going to do obviously council is should be involved in that type of thing and how many associations do more of a hybrid than anything else right now because I think I don’t want to give away the part of the you know the the big part of the story here, but only about 50% of HOAs who apply for a loan get a loan. Now it used to be higher back in the olden days, so I would say 10 to 15. Years ago, and it’s there’s there’s myriad reasons why it isn’t that way anymore. That now you only have half a chance of getting in there, 50% chance of getting it. So people will often either get a lower loan, which they may qualify for, and then do a special assessment. How to enact the special assessment? How to commute? My big part, and Rolf has Rolf got had more of the nuts and bolts. My big part was about how are you going to sell this to the homeowners. Yeah, I mean, and you know you need it. You’re the board members. You have the fiduciary duty to make sure this happens. But how do you bring the others along with you? And it’s it’s no small task, and it’s not going to take like one email or one town hall and an email. It’s usually more than that. So anyway, that’s really what we talked about. And if you guys haven’t seen it, please go back and look at it. Ralph is a fountain of information as far as this type of thing goes. Been around the industry almost as long as Robert and I. I think he’s like three years less than than me. And so Robert and I are right at the same time. So yeah,

 

Robert Nordlund  05:58

couple less laps around the sun. Julie, I would I I enjoyed listening. I enjoy this podcast even as a listener, and I enjoy I enjoyed hearing you guys talk through that and what you said just right then that every association is subject to deterioration. Not every association is subject to like a natural disaster, and so every association needs to be aware of this situation because these big bills are coming. And my notes about this were: identify how you got into this situation, do your homework, make sure you have a good understanding of the problem, and build trust. And that’s all that communication. But boy, it was sobering to learn when we were speaking to the bankers in a prior episode, episode 155, and they were talking about getting a loan is not a sure thing. So I think there’s so many associations out there, like you say, that think, oh, I could do A or B.

 

Speaker 1  06:59

Yeah,

 

Robert Nordlund  06:59

and you only got half a chance of getting B, and so you’re pushed into some uncomfortable space. But it’s just it’s crazy,

 

Julie Adamen  07:08

you know, Robert. That you just said a really salient thing. It’s an uncomfortable space because it’s not black or white. All of a sudden, you’re in this gray area that you have to do something of both, and that in itself, I mean, even if, as a board member, you’re volunteer, obviously you get paid so well, but you’re not making any money doing this, and this is definitely going to take more of your time and energy and your emotional energy as well. So it’s not, oh, we could just get a loan and then we have to pay that back. But how do you pay it back? Let’s think that part through. How do you pay that back?

 

Robert Nordlund  07:41

Yeah, that’s it. I think part of it is we’ve gotten so comfortable with credit in our society. We, I pay for so many things with my credit card. We get points, and those points get me on airplanes, and I get to, yeah, I get a lot of free airplane travel with my points. We pay it off each month, and for us it’s a positive thing. But we are comfortable with credit not paying it at that time, and I think as a society we’ve gotten a little more comfortable that oh yeah I’ll I’ll just pay it off later

 

Julie Adamen  08:15

a little too comfortable

 

Robert Nordlund  08:16

a little maybe too comfortable now we most of us have mortgages we’re comfortable with that, and I think there’s still people getting comfortable with the fact that once they spend 500,000 or 200,000 or a million or 5 million or whatever they pay for their community association home, only the beginning of the expenses because that thing deteriorates, and they’re like, “Jeez Louise, I bought this $500,000 condo, and it needs one. Raising the assessments, yeah, raising the assessments, or they’re going to be a special assessment. I thought I bought it. It’s not like buying a new car where you get to expect that. What’s the first two year warranty or five year warranty or whatever? Yeah, where they’re going to take care of it. Okay, I like the idea of the hybrid solution. So it’s not an either or. There are going to be some people at the association that can just write a check. There may be some associations that want to provide a way for others to spread it out. There’s a lot of good in between, so it’s not just a A or B solution. But what were you going to say?

 

Julie Adamen  09:20

Even in the gray part there, yeah. So that was a really interesting thing I thought to think about because I haven’t been an boots on the ground manager in a long time, but I’m around it all the time, obviously. So I thought this was super interesting, and I think a lot of boards who are looking at this problem. Okay, let’s just say, for argument’s sake, let’s say that most associations who are actually going to qualify for some sort of a loan are also going to have to do a special assessment. So, everyone think this through. Okay, the special assessment everybody’s got to pay. Again, as Robert said, some people are going to be able to just you know write a check or you know send put their credit card in and it’s done for them. They don’t think about it, but a lot of people can. They’re going to have to make payments on that. Now, the other part of that is when an association gets a loan. Think this through: How do you pay that back? Well, you’re going to have to raise assessments, even if it’s for the next three or four years, which may as well be forever, to pay that back, so now you’re in a situation where you have people who can just write the check. People are still in the working world, or they have you know enough financial wherewithal just to take care of that. But what do you do about the people who can afford to live in your community on a day-to-day basis? And as assessments go up, you know, three or 4% a year. We hope that’s what you’re all doing, but if they they can afford that, when all of a sudden you put on another well, you’re going to have to pay $10,000 for the special assessment, and we’re going to increase dues another. Let’s just you know another 30% or 20% Let’s just say 20% for argument’s sake. 20% all in one year. So, as a board member, what are you going to do? It’s a sticky wicket. You have to deal with it because you’re fiduciaries. You absolutely have to for the betterment of the association as a whole, for the owners now and the owners in the future. So, what are you going to? Well, you’re going to likely. You don’t want to shove people out, you know, of their homes if they can make the payment over time. Okay, so you might have to have more than one type of payment plan. There may be people who can pay it off in six months. There may be people who can. Now I’m talking. I’m talking the special assess. Special assessment. You’re

 

Robert Nordlund  11:36

talking hybrid, hybrid, hybrid hybrid. Do the special assessment and increase in assessments.

 

Robert Nordlund  11:43

You got special assessment. You have an increase in assessment, and you have a community association loan. And even in the special assessment, there may be some people who write the $10,000 check, and some people who say, “I need a year. Can I take a year?

 

Julie Adamen  11:56

And you may have to offer two or three different types to do that. Now, hopefully, if you are hopefully at this moment you’re not self-managed, meaning the board is managing everything because this is going to make your your billing to the homeowners it might be three or four different or five different ways of doing this. Someone can pay it off in six months. Somebody else can pay it off in a year. So, or you may just say, well, if you pay it off in six months, that’s great. We’ll give you $100 off. You pay it off in a year, you don’t get the $100 off. There’s things you can do that way, but it has to be really well thought out. And I think this is just forewarned, is forearmed for board members who may be looking at this, maybe not this year, maybe not next year, but you know in the back of your mind that in 2029, you’re going to have to do something because you know the chickens come home to roost that year. And if you know it, start thinking about it now. I would say number one, get counsel involved. You absolutely, this is a part of your duty to do. Talk to your banking institution, and and you may want to talk to more than one because there are ones that do just your stuff, and others that actually specialize in banking for HOAs, but they also do loans for HOAs. Not all banks will do that. It’s very. I was talking to a guy. In fact, Chase. It was my J.P. Morgan, who was who’s one of my bankers, and he’s like, “Yeah, there’s a lot of loans going out. I’m like, “Yeah, it’s a it’s a pretty if if they have the money, it’s a pretty good gig for the banks. It’s interesting because they’re-I mean-they’re so huge. This is probably peanuts to them. But for it’s-it can be quite-it’s quite a business because how many associations are in the country, Robert?

 

Robert Nordlund  13:33

Almost 400,000.

 

Julie Adamen  13:35

Almost 400,000. That’s right. And the more and more are being built every year by the amount of how many a year is it? 30,000, 20,000 a year?

 

Robert Nordlund  13:43

I don’t know, but it’s a big chunk of all new housing.

 

Julie Adamen  13:46

It’s a huge chunk of all new housing. Yeah,

 

Robert Nordlund  13:48

and every single one of those is getting older every year and facing bigger and bigger problems.

 

Julie Adamen  13:54

Absolutely, and all the ones that are in existence now. I mean, if you have to think about it, some of the oldest associations. I worked with one in Southern California. It was Leisure World Seal Beach, and that place was built in the early ’60s. So I mean, they’re a huge organization, but but I mean that’s a lot of aged aged infrastructure and aging. So but and don’t forget everybody. If you live in an older place, once you fix something, that clock just starts ticking again. These are all the the the balls you have to. I want you’re not juggling balls. You’re juggling chainsaws because they’re going around. But you have to think of it that way.

 

Robert Nordlund  14:30

I like your idea. I’d add the reserve state provider to that also because they’re the ones who see is that a hard gate for this big project, or how much squishiness do we have? What are our options? Can we phase it out? Can we spread it out over five years, or do we have to do it all at once? There may be some things like an elevator modernization that your reserve state provider may say you need you have four elevators, you need to modernize them, and that’s a big number. Reality, you may only want to take two out of service at a time, or one out of service at a time, and spread it out so you’ve got functional elevators. So there’s more than one way to skin a cat,

 

Julie Adamen  15:10

especially if you’re talking about a community like like that Leisure World or any over 55. I mean, Leisure Worlds they skew even older than that, is my understanding. I think the average resident’s in their 80s, and so you if you can’t have half of the elevators out at any one time because they all need them.

 

Robert Nordlund  15:26

Everyone needs an elevator. Yeah, that’s a life safety thing.

 

Julie Adamen  15:29

It is a life safety thing, and it’s convenience and life safety for sure. These are other things to take it. I’m just pointing that out as a thing to take in consideration as a board because if you’re in good health and you’re in your mid 50s or mid 60s, and you don’t mind going up and down the stairs. You can’t forget those homeowners that that can’t. So you do the best you can for everybody at once. And it’s I don’t envy you. I’m as some of you know already. I’m I’m currently running for the board place I live in, and we have that issue here. Though we don’t have any. I mean, we’re all single family homes. We don’t have elevators or anything like that, but we have a whole lot of amenities. So as people get into their 80s, what can, what can’t they do? What are we going to have to provide? I mean, they’re doing this already, but there’s all levels of service going on due to the age of the populace.

 

Robert Nordlund  16:15

I want to introduce one subject before we take a break, and it reminds me of my conversation with Roger Mitch on the last episode, and he was talking about developing a team for your association board member as an inner circle team, and then the professionals that support them as the the planets that orbit around the landscaper, the attorney, the accountant, the tax preparer, the reserve study provider, the insurance broker, all the the people that the board needs to make wise decisions. They need to be able to reach out to those person and get wise counsel. And it it just strikes me that the banker, a lot of people kind of don’t care about it. They may not know where their money is. They give the money to the management company. The management company puts it in the bank. They push the reserves over into a savings account, and they may not really care. But when you have a loan, the banker sits at your table, and they are going to be the one that says, “I’m sorry, but no, you can’t do that, or I’m sorry, but you must do that. And they’re the ones talking about saying, okay, I’ll give you this $1 million loan, but you must raise your assessments by 30% or in real numbers, $150. That’s just crazy. I think a lot of boards don’t appreciate that you add another seat at the board member table when you get a loan, because if the banker is going to stick their neck out with that kind of a chunk of money, they are going to be involved in what’s going on, and we’ll talk about it again after the break. But they’re going to dictate terms because they’re the money. It’s their money, and they say they’re going to want to be paid back. You alluded to it earlier. Used to be most association loan requests got approved because bankers saying it’s an association. Where is it going to go? You know they’ve got a pretty permanent income stream. Now we’re dealing with older associations that have bumps in the road, projects, ownership that is tired, maybe got used to those $375 a month monthly assessments, and are gonna rebel. What do we say? Torches and pitchforks when it goes up. So just be careful about that. So let’s take a quick break at this time to hear from one of our generous sponsors. After which we’ll be back with more common sense for common areas and looking at actually the numbers on the difference between loans, special assessments, and ongoing funding. See you in a couple of moments.

 

Kevin Davis  18:51

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Robert Nordlund  19:20

and we’re back. Thank you for joining us here, Julie. And I had a good conversation during the break. We promised getting to numbers, and so we want to get to the numbers. I’ve got a page from a PowerPoint here, and I’ll try to get that into the show notes. is from a webinar that we prepared just recently, and the bottom line is, there’s an amazing difference in the cost to your homeowners when you’re choosing between ongoing payments, part of budgeted assessments, special assessment, or a loan. And let me just read you these numbers. If you’ve got a 250,000. Roof project, that’s a 15-year life roof. So we’re not even saying that you’re going to collect interest over a long time, just 15 years. If you’re putting in interest at 3% interest, which is current rates now, your homeowners will be putting in about $198,000 for that $250,000 loan. How do you get to 250? Well, the bank puts their money in, and I love having the banker as your silent partner outside, paying you money. I love that. I love my clients paying $198,000 for a $250,000 roof. That’s cool. Special assessment last minute. You say, “Gee, we need $250,000, and over 100 units, that’s $2,500 a piece. They wince, they get out the checkbooks, and we talked about hybrids or hybrids and time and lots of stuff, but it’s going to cost each unit owner $2,500 at that association. Now, if you get a loan at current terms, a seven-year loan, 7% interest with the points at the beginning of it, paying that out over seven years will be $320,000. And so, you’re talking about your owners Paying $320,000 for a $250,000 roof, and those are big numbers. So again, as we spoke about early in the program, a loan is not a sure thing. It’s not just you know we could do A or B or C. I think you have to appreciate how expensive of an option a loan is, and I spoke before the break about how the banker is now sitting in your board as that sixth person on a group of five people. If you had to raise your assessments 100 bucks a month to because the banker said you need to about yeah you’re doing it because you need you need that million dollar loan because the roofs are going to leak, and you can’t pass that big of a special assessment, or whatever the the reasons are, about $70 of that 100 is going to go to your roof. About $30 of that 100 is going to go to the banker, and that’s just crazy to think. And the roof doesn’t care. The roof just needs to get replaced. It’s they’re tired. The roof needs to get replaced. They’re done keeping rain and moisture out of your buildings. If you really care about your homeowners, you’re going to put that 50 or $70 into the bank starting now, so you don’t get into that jam in the future with the banker taking their big chunk out of whatever you’re setting aside into reserves. Am I characterizing that pretty well, Julie?

 

Julie Adamen  22:44

Absolutely, I think, and it’s it’s it sounds scary. I mean, and and it is, and it can be. But the point is so well taken for you board members out there who know this isn’t coming up on you right now. But you look at your reserves, and they’re 30% funded, 25% funded, and you may be thinking, and I understand it. Well, I’m not going to be on the board in 10 years, so I don’t care. Well, yeah, if you’re still living there, you’re going to care because you’re going to pay. Number one, but number two, I just want to remind everybody that you are trustees, you are fiduciaries, and it’s not just for now; it’s for into the future. So, if the decisions you’re making now should positively affect the community as a whole in now and into the future, so you say, “Well, it’s not positive to raise assessments now. Well, yeah, it is. You can’t be myopic about it. You have to look at the big. In fact, this is your whole job as a board member. You’re you’re on the you’re you’re at the top of the Titanic looking for the iceberg. You’re not down underneath, you know, at the number four piston making sure it works. So you want to be able to see that iceberg coming and move off in the other direction. Believe me, everybody, I get it. You’re volunteers. You don’t get paid for this. It’s a big job. It’s much bigger than you ever thought it would be. But you signed up for it, and here we are. I it’s it’s our turn as board members to be the adults in the room. So I I just think your point is extremely well taken, and everybody needs to take that to heart. If you can mitigate something that’s going you know you can see coming down the pike in 10 years, maybe even seven. You should start doing something now.

 

Robert Nordlund  24:26

I really like that idea. You said that you may not be a board member, but you’re still going to be a homeowner. When I think back, I think I’m the house that we live in. I still think of that as our new house, but I think if I check the dates, I think it’s six or seven years now. Days go into months, go into years, and you may be on the board a few more terms, and you may have given yourself a heck of a problem. And like you say, if you’re not on the board, pretty fair chance you’ll still be a homeowner, and you’ll get that special assessment letter from the board. And you have the opportunity now, to for 2017 to increase your budget and put more into reserves because those costs aren’t going away.

 

Julie Adamen  25:10

2027, Robert. 2027.

 

Robert Nordlund  25:12

What did I say?

 

Julie Adamen  25:13

  1. Boy, they do go fast, don’t they? Yeah, we’re getting old here, people. This

 

Robert Nordlund  25:18

is recording. Yeah, you made your own

 

Julie Adamen  25:23

point. He made the point. He’s right. I made my

 

Robert Nordlund  25:25

own point. Yeah, take the steps there because it’s going to be good for you. It’s going to be good for the association. And not only is 100% of that money going to go to reserves, which goes to the roof, that silent banker is going to add their 3% compounding, and so that whatever money you put in is going to be that $20 you put in is going to grow to 25. It’s going to grow to 27. It’s fantastic. But Julie, we spoke about hybrids and hybrids and confronting this and being a fiduciary. The element that I caught from your conversation with Rolf was so much about getting the homeowners on board. So, talk to me about the communication years in advance. What are the honestly?

 

Julie Adamen  26:11

Yes, I would. If you can, I would start at least a year in advance if you have that opportunity. And I think one of the biggest problems that happens between boards and homeowners is that boards have all this knowledge, and then all of a sudden they’re like, “Okay, we have to do this now. We got an loan, blah blah blah. And the homeowners like, “What? And that creates that’s an unforced error on the part of boards. Boards, if you have that opportunity again, like we said, in in a year, two years ahead of time, but even if you have to start three or four months ahead of time, transparency is absolutely everything. That means email communication. That means town halls. That means possibly individual board members holding just conversations in you know in the clubhouse or in. I mean, here we have a clubhouse, restaurants, everything, and so you know we can just go to one of the restaurants, say I’m going to be there. I’ll answer as many questions as I can. Yes, is it a big fat pain? Yes, is it something you may not be comfortable with potentially? But I bet there’s a couple board members who would be, and so you guys can take on different roles to do this. But there is no such thing as too much communication here. None, none, none. You can over communicate in what you want to do. So, how would you how would you make them feel comfortable and feel like they’re in good hands? That’s your goal. Make the homeowners more. You’re always going to have the dissenters. Your job is to mitigate the number of dissenters because, as you know, a more happy populace is much easier to be a board member over or with. The unhappy, if if 40% are really unhappy. You’re going to hear a lot about it. If 12 or 15% you’re going to hear, but it’s not quite so bad. And then you have that whole other group of people saying, “Well, I I went to this town hall and I really understood what they were saying. And one more thing, I’ll use because I know we need to land the plane. But for board members, don’t forget if you have committee members out there, use them. They can be your boots on the ground to talk to everybody. Your landscape committee is always out and about. The architectural committee is always out and about. And if you bring them in, you know, talk to the board. The board tells them everything that’s going on. You bring those people on board first, or maybe some of your more involved homeowners involved in clubs or whatever. They may not be a committee member. Bring them in. Utilize them as your foot soldiers, because the more of you that are out there, that are saying positive things, and yes, this is the answer to this, the better it is. In the community I live in, the two groups that what I that you need to bring in here would be pickleball and golf. Pickleball’s bigger than golf now. If you can get a the pickleball committee and the golf group in on board, you can do really, really well.

 

Robert Nordlund  28:46

I think I want to just add two things to that. One is, you said use the committee members. I don’t mean use them badly, but see them as your ambassadors. They, you as a board member, may have a stain on you because of something that happened two years ago, and they may dislike you, but your committee members may be the effective ambassadors that you can use to communicate that. Oh yeah, well we’d like to do that, but you know, forefront in everyone’s mind is the roof project in three years, which is probably why our assessments are going to go up next year. They they can say those little things that all of a sudden people start to think and they realize, oh g. And that’s my second point is that you want you talked about starting early on the communication. I want to encourage start early on the funding. If you can raise your assessments 20 bucks a year this year with all of it going to reserves, so raising your reserve funding 20 bucks a month that multiplies over the years, and that’s going to make all your future problems get significantly smaller.

 

Julie Adamen  29:48

And communicate that as well. Exactly what you’re saying. Why are we raising dues? Well, we’re doing it to put them directly into reserves. We’ll show you all, and it’s because of this.

 

Robert Nordlund  29:56

Yeah, and we expect that if we start putting it in now. By then, we will grow our reserves by 50 grand, preparing us for the roof, and we’ll get this much interest off it. And it’s going to make our any future special assessment smaller. Whatever it is, start now because those costs aren’t going anywhere. Julie, thank you. We want to wrestle with this. It’s important. We want people to not create their own problems, and see the reality of the costs around them, and understand all these decision points that come with owning a piece of real estate that is under a constant state of deterioration. Any closing thoughts to add at this time?

 

Julie Adamen  30:36

No, not really. Well, yes, of course, Robert. I always have some thoughts that need to be said. Have you met me? I guess. I guess it would be that as board members, you know, I think we sometimes feel like we’re put upon. I mean, because we are. I mean, it’s there’s a lot on your shoulders, but you know, there are ways to mitigate how to to make sure things go as smoothly as possible, just like any other business. The problem is we’re all not getting paid to do this. But you, if you look at what you’re going to get back in the own value of your home, and and the value of your friend’s home, your entire community’s homes by being able to fund the reserves appropriately, take care of things as they come up, as you’re able to, and if you’re not able to do that, you’re going to look at all the different ways to solve the problem. Get the advice you need from your general counsel, from management if you have management, from your from your experts. Your team could be your insurance agent. You can talk to your reserve study specialist, and gosh, a lot of these people-not the lawyer, but a lot of people-just come in and talk to you free of charge because they want you to do the right thing. So utilize your resources, communicate early and often, try and start earlier than you can. Yes, the burden is heavy. I know you all feel like Sisyphus. You know you’re you’re pushing that rock uphill, just the boulder, just right uphill, and it always comes back and rolls on you. Kind of true, but you know, if you do it the way we’re talking about it, have forethought and and communicate with your people. Do it as transparently as possible. One of these days, you’re going to push it right up and over that cliff, and you’ll be able to sit down and have a cocktail.

 

Robert Nordlund  32:17

Yep, I hope that we have given some associations, some ideas, and so that when that roof project, or that asphalt project, or that painting project gets done without a special assessment, they have a twinkle in their eye because yeah, we we got this done right, and our owners are on board, our property values are great, the two bedrooms are now selling for X amount, which is more than last year. Those are things, and we want to be part of that solution. Julie, this is fantastic. Wonderful time. Yeah, this is good. We hope you learned some HOA insights from our discussion today that helps you bring common sense to your common areas. Thank you for joining us. We look forward to bringing many more episodes to you week after week after week. We’ll be here, and it’ll be great to have you and other board members you know join us on a regular basis. Spread the word. Thank you very much.

 

Announcer  33:13

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Announcer  35:00

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