January 2025 CT

“The funding plan is what causes most board member and community angst.”

• Many insurance companies for an association request and review the reserve study. If an association is under funded, not following the plan, or has a lot of deteriora tion, the carrier may increase premiums or choose not to write the policy altogether. • Fannie Mae/Freddie Mac underwrites approximately 70% of all home loans. They have specific requirements for reserve studies that went into effect on September 18th, 2023. The trickle-down effect of these laws to local banks and mortgage lenders is still happening today. Buyers may very well be denied mortgages if an association does not have an updated study and/or is not following it. A unit owner that is unable to sell to a buyer that is denied a mortgage will likely be at your next board meeting. • If an association is seeking a loan for a project, the association lender will require a copy of the reserve study. The lender will review the reserve study and use it during their loan underwriting and evaluation. The overall strength of an association plays into loan terms, interest rates, and amounts. CONTINUES ON PAGE 42

plan is the result of all the other factors (starting balances, deficits, the components, their useful life, their remaining useful life, interest, inflation, etc…) The funding plan lays out how much should be transferred into the reserve fund on an annual basis. The funding plan is the line item in the budget that often causes increases to maintenance fees, so it is no wonder why a proper understanding and selection of the right one is important. With a better understanding of the “what” and “why” behind a reserve study, let’s examine the possible results of not following the recommended plan. It would be nearly impossible to describe every possible result of not following the reserve study, so I intend to provoke some high-level thought instead. • While the state of New Jersey has not publicized any procedures for enforcement or penalties for noncompli ance, it is well within their right to do so.

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JANUARY 2025