(And What It Can Cost Homeowners If It Isn’t)

It may surprise you that 42% of Delaware homeowners belong to a homeowner association (HOA).  That is over 288,000 people living in roughly 2,000 Delaware HOA communities.  As new planned developments spring up, that number grows exponentially.  That is a significant population utilizing common amenities and the most prominent reason for creating HOAs.  HOAs keep costs down for taxpayers and the government by taking ownership of common area amenities.  When you think of common areas, parks and gates may come to mind; however, shared amenities include roads and other infrastructure in some cases.  

The residents in HOA communities have a vested interest in how the HOA Board budgets for expenditures because funds come from resident pockets in the form of HOA assessments.  The HOA Board, elected by the homeowners, has a fiduciary responsibility to ensure the decisions they make are based on the best possible information and protect community assets. One way to preserve the community assets is with a reserve study.

What Is A Reserve Study?

Reserve studies provide essential insight into the financial health and wellness of the HOA and its components. In addition, Reserve studies inventory components and identifies problem points and rate of deterioration to help the HOA budget and collect sufficient funds for major common area expenditures.  

Reserve studies advise how much money should be in a reserve account to cover long-term expenses adequately.  It should be noted that reserve funds are not to be utilized for month-to-month budgetary items; that is what the HOA budget is for.  HOA Reserve accounts (similar to savings accounts) are specifically designed to hold the money needed for major repairs and maintenance.  

If the funds are insufficient in the reserve account, a reserve assessment can be charged to the homeowners to pay for the major repair.  This should concern all homeowners because if a repair is $60,000 and there are 100 homeowners, each owner can be assessed  $600 in addition to the regular assessments.  An underfunded reserve is not a win for anyone.  Delaware does require that HOAs complete a reserve study; however, be cautioned this does not mean:

1) The Reserve Account is 100% funded; and

2) Infrastructure components are on the reserve study 

The requirement in Delaware is under the Uniform Common Interest Ownership Act, and state associations must fund their reserves based on the current reserve study.  There is much room for error if all components are not listed in the study.  This leads to the question about specific elements, such as stormwater management systems or effective clean-out maintenance.

Stormwater Management Systems & Maintenance on the Reserve Study

Delaware has made it mandatory for land developers to create common interest communities (HOAs) to administer, maintain, and improve common elements.  According to the Ombudsman’s website, this includes stormwater management systems or other common space or infrastructure.  The Ombudsman oversees HOA Communities and HOA Boards.  

This is important because many reserve specialists are Community Association Institue (CAI) members or CAI Certified.  CAI is a world wide organization that advocates for the HOA industry and according to their website:

[They] Conduct research and serve as an international clearinghouse for information, innovations and best practices in community association development, governance and management. We believe homeowner and condominium associations should strive to exceed the expectations of their residents. We work toward this goal by identifying and meeting the evolving needs of the professionals and volunteers who serve associations, by being a trusted forum for the collaborative exchange of knowledge and information, and by helping our members learn, achieve and excel. Our mission is to inspire professionalism, effective leadership and responsible citizenship—ideals reflected in associations that are preferred places to call home.

CAI is an excellent organization with abundant information and resources; however, making an international blanket plan customizable to specific State requirements is challenging.  It is not uncommon for out-of-state Reserve Specialists to depend solely on CAI’s blanket policy when conducting a reserve inspection or study.  Relying on blanket policy is standard in States that do not have a set policy or when legislative language is vague or ambiguous.  

CAI’s position is that components must have a predictable remaining life to be included in a reserve study.  Burst pipes or piping may be considered unpredictable; however, they do:

• Have a shelf life
• Require routine maintenance, inspections, and cleanouts
• Are a considerable expense (major component)

It is essential the Board of Directors, and homeowners, include ALL major components that an HOA would be responsible for repairing, replacing, or maintaining.  This means that even if the homeowner is responsible for the plumbing in the building, the HOA is most likely responsible for the main and sewer.  This is worth considering with your reserve study specialist or, at a minimum, speaking with an expert in the industry.  

Standard Pipe Services has knowledgeable professionals well-versed in pipe rehabilitation, maintenance, and replacement and can offer significant insight.  We frequently work with HOAs and Reserve Study specialists.  Working closely with experts ensures that reserve accounts are adequately funded, which protects assets and homeowner wallets.

Contact [matts email] to set up a meeting to discuss a maintenance plan, budget requirements for your HOA, or expert advisement for HOA components on a reserve study.  We are happy to help.  Follow us on LinkedIn for more tips.  For a detailed explanation of how reserve studies benefit Homeowners Associations and homeowners, watch the video below.

Call or email us today and start your maintenance plan journey with an expert in the field!  Follow us on LinkedIn for more tips.