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Homeowners Associations Are Short on Cash

Beware of large special assessments to cover unexpected costs while associations are underfunded.

Robert Riddick of Moreno Valley, Cal., has belonged to the Sunnymead Ranch Homeowners Association for 22 years and served on its board for the past eight. For $97 a month in dues, Riddick and his wife, Helen, have access to a pool, tennis courts, fitness center and other amenities. The association has the reserves to maintain those services. “We’re fortunate,” he says.

A growing number of homeowners groups aren’t as financially sound. A recent report from Association Reserves, a consulting firm, estimated that 70% of association-governed communities are underfunded, up from 60% a decade ago. Associations with inadequate reserves may impose large special assessments for emergency repairs, says Association Reserves founder Robert Nordlund. Residents who don’t pay could face liens against their property; in extreme cases, the association may foreclose. Such measures ensure that members pay their fair share, says Frank Rathbun, of the Community Associations Institute, a trade group.

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Buyers interested in an association-governed home or condo should ask for a copy of the group’s most recent reserve study. Also ask what percentage of members are more than 60 days delinquent on their fees, because that affects the association’s cash flow. “You’re buying into a nonprofit corporation,” Nordlund says. “You need to find out if that corporation is stable.”

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