Prepared by: Cornelius (Ed) Hardy – SOA Board candidate
Following is additional information on the financial status of the SOA reserves not included in the Nevada Member Summary of the 2012 Update prepared for the 2013 fiscal year by Browning Reserve Group (BRG). It should be noted this reserve study, dated September 11, 2012, was an Update Without Site-Visit of the study completed for the fiscal year ending December 31, 2012, dated November 30, 2011. Such a reserve study is an update with no on-site visual observation.
This information should be considered in connection with the planning for the transition from developer control of the board of directors to the homeowners, scheduled for January 1, 2013.
A summary of the Fully Funded Balances and Estimated Reserve Balances for the year ending December 31, 2012, included in this report prepared for the year 2013, is as follows:
2012 Fully 2012 Est.
Funded Reserve Percent
Balance Balance Funded
General Common Area $1,305,434 $ 848,086 65.0%
The Club at Town Center 1,226,028 710,646 58.0
Streets and Gates 1,694,241 1,597,928 94.3
Total $4,225,703 $3.156.660 74.7%
The SOA reserves are segregated into these three separate funds and the homeowner assessments include designated amounts for these funds. Accordingly, these designated funds in the separate reserve accounts can only be spent on components included in the respective reserve accounts. Also, the reserves are not allocated to the specific components included in the separate funds.
The scale used by BRG in measuring the financial picture of the reserves is 30% to 70% is FAIR and above 70% is STRONG. Based on the above, the General Common (65.0%) and The Club at Town Center (58.0%) are not adequately funded! The new Homeowners Board should address this problem at transition, and develop a plan to increase the funding of these two reserve accounts.
With regard to Developer responsibility for reserves to be turned over to the homeowners, following are excerpts related to Developer Transition included in an article “Clearing up the Confusion,” Revised – May 2012, prepared by Don Barry RS PCAM Nevada RSS 0003. Mr. Barry, a Nevada certified reserve analyst, is currently a faculty member for the CAM (Community Association Manager) certification courses and has been a regular presenter at the Nevada State Ombudsman Training Seminars for Board Members.
“It seems reasonable to assume that whatever the reserve study report depicts as a fund balance at the point of transition is what the developer should turnover to the homeowners. Whether those funds are comprised of money from the developer or is a combination of funds contributed by owners to that point along with ‘Capital Contributions’ is not relevant at this time. What is relevant is that the reserve fund passed to the owners is adequately funded as determined by the projections of the reserve analysis.
So … What is ‘adequate funding’?
If considering the following: One way to interpret Adequate Funding (and the way the author interprets it) is to look at the following:
- The statute requires that the association (whether developer or homeowner controlled) establish an adequate reserve.
- The statute requires that the developer deliver to the association a complete study of the reserves of the association.
- The reserve study, through analysis of the maintenance requirements of the association and the reserve component inventory, provides the required funding levels for the association at any point in time, within the 30 year window.
- These funding levels provided by the reserve study provide for the ongoing long term maintenance of the reserve components in order to maintain the value of the community.
Therefore, if the above is factual, ‘adequate funding’ should mean funding to the levels established in the reserve study. If the study establishes a reserve fund requirement of $45,000 at the point of transition, the developer should be turning over a reserve account funded to that level.”
Based on this conclusion by Mr. Barry, the amount due from the Developer at the time of transition would be $1,069,043, (December 31, 2012), which is the amount required to fund the total cash reserves necessary to repair, replace, restore or maintain the major components (in the aggregate) during and at the end of their first remaining useful life, which totaled $4,225,703 as of that date. The estimated ending balance of the reserves totaled $3,156,660 at that date.
For a more complete report on The Status of SOA Reserves, click here.