I noticed that term in our documents. I’m not sure what fee simple means and I’m pretty sure I don’t own the dirt under it. I’ll be putting in a call to our attorney to discuss this as it applies to our situation.
In reading the documents, the only restriction I saw was that they can only be rented for 6 months or more - so no short term rentals. I made a note to ask how many rentals exist. They have to be recorded with the association, so this should be known. Not sure, but I don’t think there’s any specific limit on the number.I would check:
1) how often can an owner rent out their unit?
2) is there a limit on the % of units that can be owned by investors (I.e. only set up as rentals)
3) what percent of the owners is required to amend your covenants? Our percentage is set so high that we have been unable to amend our covenants to allow more restrictions on rentals. This is leading to our community slowing becoming more and more investors with renters who have less committment to keeping the community looking great.
Yes, I've heard of those but didn't mention them because they are unusual. We have friends that live in a setup like that.
Thanks for the information. Re: "House Rules", yes, they did provide a document like that. It was a very good summary of the basic day to day rules. Having a pick up truck, I was glad to see that there is no requirement to park my truck in the garage. I may try to do that but I think it will be a tight fit. I may, in time, get a different vehicle. I'd like to have both of my vehicles in the garage.
Retired CPA here. A CPA would NEVER opine on the adequacy of dues or the adequacy of reserves. That's just not what they do. They will only opine on whether the financial statements are fairly presented in accordance with generally accepted accounting principles. And generally accepted accounting principles will not address the adequacy of due or the adequacy of reserves.
In Florida, reserve studies were not required in the past. however, after the Champlain Towers South collapse, they enacted a requirement for reserve studies for structural integrity components for buildings 3 stories or higher every 10 years. Michigan does not require reserve studies.
The percentage of renters can be a big deal. Three almost four years ago I worked hard on this for our complex built around 1993 as our rentals were not capped. It is true if the complex is near or over 50% rentals, it may not be accredited for FHA mortgages. In our area with a lot of military this was a big deal. After months of working on the legalese and after another month of making phone calls, getting proxy votes once sent out to homeowners, etc. to obtain the 2/3rds majority vote, we managed to pass the Declaration and By-law Amendment that capped our rentals at 20%. In order to get these votes, we had to grandfather in all current owners. It was the only way and a couple of other efforts with prior HOA boards had failed. After the amendment passed, we paid to have someone poll all owners and s it turned out we were at only 27% to begin with even though we had been led to believe we were close to 50%. All good though. With the sale of several units since I am sure we are either close or under the 20%. Second homeowners that do not rent is our largest percentage of ownership.
We call them "Rules and Regs". Our By-laws grant the authority to the BOD to create "Rules and Regs" such that they are as legal and binding as By-laws. Check to see if your By-laws do the same.
I've seen the party wall extend through the roof in some older townhouses, but it doesn't seem to be current practice. While it produces two long seams that have to be flashed, I would believe that it is worthwhile for fire prevention.
FEE SIMPLE is a big deal in the Islands. It means you own the land rather than lease it. My condo is fee simple but I only own my % of the whole average - not under my unit - since I'm on the 15th floor (real difficult to w*rk that out).
I've worked on modeling our reserve fund for 30 year period, including working with annual Reserve Fund audit professionals (as required by law here in WA state). As a rule of thumb, audit professionals recommended a minimum of 70% ratio (fund $$ balance divided by total asset values (components to be maintained or replaced); in a pinch (non-insured emergency) we could likely obtain a bank loan. But they always include disclaimers in the annual audit making clear they recommend 100% is the ideal (but most HOAs don't reach the ideal in an effort to keep monthly fees down). The most expensive flaws we found in our reserve fund were missing assets the HOA is responsible for (per gov docs). For instance, an expensive item missing were repairing/replacing trip/fall hazards involving cement work (sidewalks owned by HOA, not the city) and vinyl siding replacements. I'd say, review the CC&Rs carefully for reasonableness; clarify how monthly fees are calculated and whether there is a cap related to CPI; check financial statements to understand current and longer term liabilities (is the HOA in debt for past issues); review past 2 years annual reports to members; request the current asset components included in Reserve Fund, make sure all items are present and timed appropriately (roof replacements in my state are every 20 yrs for shingles, the reserve should be collecting for 1/20th every year for replacement costs (watch for stretching useful life beyond reason). Request the 'detailed versions' for Reserve Fund Reports past two years. There are a lot of online resources to help think this effort through. If the Reserve Fund gets into trouble, a special assessment (sometimes large) could end up in your lap -- you would have no recourse against prior owner to share the burden, and it's very difficult to win a lawsuit against an HOA in court. Whatever information/reports you need won't be available from escrow, but the condo seller is entitled to get all this info for your review (don't try to get it directly from HOA or their property managers, get the current info from property seller or their agent). Good luck!
I'm not surprised what you received is inadequate. Over 4 years, as Director, Treasurer, and Reserve fund chair, I had one buyer asked for the Reserve Fund report (out of about 10 properties changing hands each year, so roughly out of 40 buyers, only 1 asked for Reserve Fund reports. And even that report lacked sufficient detail to truly evaluate the fund's health. And I never had a buyer ask for current financial statements, not just the balance sheet. You need the past year's operating statements to understand where the money is being spent, and how well the budget projected those expenses, and you need more than the balance sheet, make sure you get the full financial statements (ideally 2 sets, one for each of the past two years, like 12/2023 and 12/2024).Thanks everyone. I just got done reading all the documents I was given and I think they're lacking. They answered a lot of my questions, but not the detain mentioned here - specifically the reserve study or a plan of future expenditures versus reserves. I also saw an amendment requiring an audited financial statement and all I was provided was a print out of an internal balance sheet. Worse, printed in January 2025 and dated November 2024. Going to have to call out the seller on that one for not providing the documents needed in a timely manner based on the selling agreement. More work to do.
For clarification by way of example: a roof has a useful life of 20 years, the current replacement cost of this roof is $12,000. The reserve fund should be collecting 1/20th of $12,000 annually. At any point in time, the reserve fund should have 1/20 x the roofs age ("consumed portion" of roof). Therefore, a roof last replaced in the year 2000, would be 9 years old in 2009. In 2009, the reserve fund should be holding 1/20 x cost x 9 = to be held in the reserve fund (and typically invested in bank CDs or gov bonds, something bullet proof). If I'm studying that reserve fund, I want to see the "roof replacements" line item at 1/20 x $12,000 = $600 x 9 = $5,400 in the reserve fund account. For simplification purposes, I have not future-valued the $12,000, but reserve funds do, so each year an inflation figure (typically matching the federal governments calculation of annual CPI (our fund currently uses 2.8% annually compounded so that your always dealing with the most current marketplace costs. Again, using this example, if $5,400 is in the reserve fund, your reserve fund coverage is 100% for this line item. All items so evaluated, added together form the 'Reserve Fund Ratio". According to most auditors we've used, 70% is the minimum they consider reasonably healthy funds, but ideally the fund as a whole is 100% "funded" (which applies to the sum of "consumed portions", not the full 20 year replacement cost, that is not until it reaches the replacement year).
You were on the ball. How did you determine how much for coverage A? Your responsibility for your interest in the building ? The typical HO-6 provides 10% of coverage C, your personal property limit. So, if you took out $75,000 of coverage for your personal property, you'd get an automatic $7,500 for your responsibility in the improvements and betterments. How did you decide how much to take for your improvements and betterments ?
The advantage that we've seen in 15 years is that most of the Bd members have been in the same position (grounds, building maintenance, etc.) for several years. They know their duties. Why they are willing to do the j*b, year after year, is beyond me. I like to think it's because they know their j*b and know they are good at it and know that's good for their bottom line.
Most major changes in covenants will have to come up for a vote of the owners. Keep in mind that the board members are owners too and are subject to the rules and changes. Not likely they go out of their way to make it more difficult for themselves without some serious thought for the consequences. EVERYTHING to do with maintaining a building has gotten more expensive. Trying to figure out how to manage those costs can not be a fun j*b.
Membership's vote is required to change governing docs here in Washington state, otherwise the changes are null & void. Our Board is only authorized to change Policies without consent, which are junior to the governing documents (can't approve a policy that stands contrary to gov docs).
