HOA Coverage

HOA Regulation is Stepping Up: New State Laws Force HOA Property Inspections, Reserve Funding

Lawmakers hands have been forced because too many communities have underinvested in maintenance and repairs, leading to expensive surprises

For decades HOAs across the country had fairly wide leeway to choose how they invest in maintenance and how, or whether, to fund reserves for future expenses. All too often HOA and condo boards used this freedom to prioritize low fees today at the cost of higher maintenance bills and building risks tomorrow. The tide might be turning, as states are increasingly aware of physical and financial risks that communities can face and are implementing laws to force communities to prioritize structural integrity and financial health.

Florida, California, Maryland, New Jersey lead the charge

Lawmakers in Florida, Maryland and now New Jersey have recently implemented sweeping changes in HOA laws that will make HOA and condo living more expensive for many residents. California condos are also required to undertake strict inspections and repairs of certain structural elements like balconies, decks and other external structures. Maryland recently required HOA communities to get reserve studies and fully fund their reserves according to the recommendation of those studies. Florida and New Jersey require periodic "structural integrity" inspections performed by licensed engineers to ensure that structural HOA weaknesses do not imperil health and safety. They also require  sufficient reserve funding for structural and other maintenance projects.

What does that all mean? HOA boards and owners can't keep their heads in the sand

It is no secret that buildings need maintenance. In most states HOA boards of directors have had the freedom to determine when and how they would fund the inevitable maintenance needs of their communities. Many communities chose to underfund future maintenance costs in the interest of saving money today and keeping HOA fees low. Many more did not provide any funding for reserve funds, electing instead to charge special assessments on homeowners for capital projects and surprise costs.

Some takeaways for owners in FL, MD and NJ:

  1. Boards in these states no longer have the flexibility to decide whether they want to save money for reserves.
  2. HOA living in these states will likely get more expensive in the short term. Less than 30% of communities have enough saved for future needs, as determined by professional reserve studies. That means that most communities will have to charge special assessments soon to catch up to where their reserve funds should have been all along. Ouch!
  3. HOA living in these states will likely get more expensive in the longer term. Most communities will have to increase monthly maintenance fees to adequately fund reserves (most haven't been). That means higher dues ongoing to support higher savings rates
  4. The tragic collapse of the Champlain Towers was a wake-up call for communities and legislators across the country. Expect more states to enact reserve study requirements, structural inspections, adequate funding, and other homeowner and community health requirements.