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Inadequate reserves signal danger

By RICAHRD WHITE

© St. Petersburg Times, published April 28, 2001


Question: Our reserves are not fully funded. There is insufficient money in the painting reserves to pay for needed painting. We have discovered that some of the wood on the gables must be repaired or replaced before we paint.

Some board members want to borrow from the roofing reserves so a special assessment can be kept low. Are we allowed to do this? Our fees are low, and the board doesn't want to raise them.

Answer: It will take a vote of the members at a properly called members' meeting to approve using other reserve funds. I would suggest you use a special assessment to cover the added expenses rather than using all your reserves.

Low maintenance fees are a sign of an inadequately managed association. Inadequate reserves are a warning of future problems. Take action to have your budget reflect good management operations to meet necessary expenditures.

Assessment for others' negligence

Question: We have just been notified of a special assessment because several units are behind in paying their assessments. We also anticipate $5,000 in legal fees as we pursue foreclosure on these units.

Is it legal for the association to make me responsible for other owners' negligence? I can understand a special assessment for emergency maintenance but not because another owner is not paying the maintenance.

Answer: Yes, it is legal. Would you expect any other answer? Who else would pay your association's legal expenses? This is the cost of doing business. Most of the legal fees can be recovered in a foreclosure.

Apparently your board did not establish a strict policy on collections. It now seems to be on track, and you will find that delinquent accounts will be reduced in the future. Back your board, pay the special assessment and blame the delinquent owners, not the board.

Reserve fund transfers

Question: Our condo association uses cash-basis accounting. The assessments, both operating and reserve funds, are collected monthly.

Some owners prepay the assessments, and the association deposits all the money into the operating account. The reserve portion of that payment is transferred to the reserve fund only in the month it is due.

If an owner pays six months in advance, the prepaid reserve funds could be used in operating funds for six months. Is this considered commingling of funds?

Administrative Code 61B-22-005(2) says the money must be transferred to the reserve account within 30 calendar days from the date of deposit. I believe this covers all funds collected. Money received is considered earned when it is received in cash-based accounting.

Our attorney says the funds need be transferred only when due. Which is right?

Answer: Follow the advice of your attorney. My understanding is that the reserves should be transferred in total, as the budget calls for, within the month they are scheduled.

It would be almost impossible to correctly fund as payments come in or fail to come in. The matter of delinquent or advance payments should not be considered for depositing reserves. You need to transfer the budgeted amount regardless of whether the collections are received or not.

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Write to Richard White, c/o Community Living, St. Petersburg Times, P.O. Box 1121, St. Petersburg, FL 33731. Sorry, he can't take phone calls or provide personal replies by mail, but you can e-mail him at CAMquestions@bigfoot.com. Please include your name and city. Questions should concern association operations; legal opinions cannot be offered. For specific legal advice, contact an association attorney.

To discuss provisions of the state condo/co-op acts, call the state Bureau of Condominiums office in Tallahassee at (800) 226-9101 or (850) 488-0725 or call the Tampa bureau at (800) 226-6028, (800) 226-4472, or (813) 744-6149. Or write to the Bureau of Condominiums, Education Section, Suite 200, 4524 Oak Fair Blvd., Tampa, FL 33610. Please note that this office provides no information about homeowners' associations. The state has no bureau or department covering those associations.

You can access the Bureau of Condominiums Web site at http://www.state.fl.us/dbpr/html/lsc/co_page.html.

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