As a homeowner in a community governed by a Homeowners Association (HOA), it is important to understand the importance and legal requirements of having a reserve account. A reserve account is like a savings account for the community, set aside to cover unexpected expenses, such as major repairs or replacements of common property. Your HOA should have a reserve study handy to help better understand how much money should be set aside.
In Utah, it is required by law (per Utah Code 57-8 and 57-8a) for all HOAs to have a reserve account and to ensure that it is properly funded. This means that as a homeowner in an HOA community, you are legally required to contribute to the reserve account, based on your reserve study, and your HOA is legally required to manage and maintain it.
Properly funding the reserve account is critical for the financial well-being of the community. Think of it as a "rainy day fund" for your community - without it, your community may find itself in difficult positions when unexpected expenses arise. For example, deferred maintenance can lead to further deterioration of common property and higher costs in the long run. Additionally, your community may face lawsuits from residents or mortgage companies.
On the other hand, communities that properly fund their reserve account are "EVER-READY" and always prepared for the unexpected. They have peace of mind knowing that they have the funds set aside to cover unexpected expenses, and they can avoid special assessments or loans to pay for these expenses.
As a homeowner in an HOA community, it is important to understand the importance and legal requirements of having a properly funded reserve account. Not only is it important for the financial well-being of your community, but it is also the law. So, next time you're discussing the budget for your community, remember that setting aside some money for long-term expenses is like having a "safety net" for your community. It will give you peace of mind and make sure that you're prepared for whatever life throws your way.