"Red Flags" that Signal Potential Reserve Account Problems

Homeowners associations must conduct periodic reserve studies in order to have a realistic estimate of the costs of repairing and replacing major common area components such as roofs. Ideally, an association will have funds set aside in a reserve account to cover the cost of all major repairs and replacements so that the funds are available when needed. Having the necessary reserve funds necessitates: (i) an examination of the association’s repair and replacement obligations; (ii) a determination of the costs and timing of replacements; and (iii) a determination of the availability of the necessary cash resources (reserve funds).