Homeowners associations (HOAs) are essential in preserving the value and operational efficiency of residential neighborhoods. A significant financial aspect of an HOA is the reserve fund. In this blog, we will discuss the purpose of a reserve fund, the significance of a reserve study, and the differing requirements across various states.
What is an HOA Reserve Fund?
A reserve fund is a dedicated account that an HOA or condominium association establishes to finance major repairs and replacements. Unlike the operating fund, which handles routine expenses, the reserve fund is intended for substantial, long-term projects like roof replacements, pavement resurfacing, and structural repairs. The requirement to maintain a reserve fund varies based on state laws and the association’s governing documents.
The Importance of a Reserve Study
A reserve study is a detailed analysis that assists an HOA in planning for future expenses. This process includes assessing the current state of the association’s physical assets, estimating the costs for their eventual repair or replacement, and creating a financial strategy to ensure sufficient funding. A thorough reserve study provides the HOA with the necessary information to determine the required amount in the reserve fund for future financial responsibilities. In some states, performing a reserve study is not only recommended but also required by law.
States Requiring HOA Reserve Funds and Studies
In the United States, the requirement for an HOA to maintain a reserve fund varies by state. As of now, twelve states mandate that condominium associations allocate funds for reserves. These states are:
- Connecticut
- Delaware
- Florida
- Hawaii
- Illinois
- Maryland
- Massachusetts
- Michigan
- Minnesota
- Nevada
- Ohio
- Oregon
Similarly, the requirement to conduct a reserve study is also state-dependent. The following twelve states require condominium associations to perform reserve studies or maintain a reserve schedule:
- California
- Colorado
- Delaware
- Florida
- Hawaii
- Maryland
- Nevada
- Oregon
- Tennessee
- Utah
- Virginia
- Washington State (encouraged but not mandated)
HOA Reserve Fund Laws by State
Alabama
Florida
For more detailed guidance, homeowners and HOA board members should seek professional legal advice. At Avizo, we are pleased to assist with reserve account budgeting.
For additional information, please visit the HOA FAQs provided by the Alabama Secretary of State.
Ellie LaPorte
An Analyst with various roles on our team, Ellie provides expertise in tax, assurance, and client accounting services. She is always learning new ways to assist our customers in achieving their financial goals and optimizing their business operations.
