Strings Attached New FHA REserve Requirements Put Pressures on Associations

lthough they are supposed to have a so-called reserve account to cover anticipated capital expenses—roof replacements, exterior maintenance, elevator upkeep, and the like—many condominiums, especially in the last few years of economic hardship, have scrimped on reserve funding in order to ease the monthly burden on unit owners paying condo fees, leaving many reserve accounts under-funded.

This is risky enough—an unforeseen problem with the roof could pose an enormous special assessment—but now the Federal Housing Administration has imposed tighter restrictions on its guidelines for condominium/ homeowners associations.

The rules went into effect in 2010, and this year—which some fear might be the high mark for foreclosures—HOAs will have an important decision to make: to comply or not to comply.

A Little Background

Now under the bailiwick of the Department of Housing and Urban Development (HUD), the FHA was an offshoot of the National Housing Act of 1934. Its purpose was to insure the home mortgage loans made by banks—like the FDIC does with individual deposits—and thus both stimulate and stabilize what was, in the Great Depression, a shaky and moribund housing market.

Witnessing a financial and real estate crisis of depths not seen since the days of its creation, the FHA took action in 2010, changing its compliance requirements for condominiums. The changes were twofold. First, every HOA must put ten percent of its operating budget in a reserve fund.


Related Articles

Tapping Reserves in a Time of Financial Crisis

An Option to (Carefully!) Consider

Underfunded Reserves

The Dangers of Running Short

Funding Your Reserves

Banking Against Surprises



  • Can't imagine any association that does not earmark at least 10% of their annual budget to reserves. New rule is worthless if for no other reason than it does not require any amount to be in a reserve account therefore the 10% requirement could be meaningless if should have a lot more in the reserve account and have less than needed plus 10%.