Retirees, A Healthy Condo Has a Flush Reserve Fund

Reserve funds for a third of homeowner and condo associations have insufficient cash, experts say. Here are some cautionary steps you should take.

Modern apartment buildings
(Image credit: Getty Images)

Champlain Tower South in Surfside, Fla., was in dire need of repairs when the 40-year-old building partially collapsed in June 2021, killing 98 people. In 2018, an engineer's report identified significant structural damage, and a tentatively settled class action lawsuit alleges that work on a nearby building destabilized the Champlain structure. But there's another culprit: the inadequate funding for essential repairs at aging condo buildings -- a national problem.

More than half of an estimated 4.1 million condo units in the U.S. were built before 1990, according to the U.S. Census, and the reserve funds for a third of homeowner and condo associations have insufficient cash, estimates engineer and CEO Robert M. Nordlund. His firm, Association Reserves, has conducted more than 60,000 reserve studies. These detailed reports analyze the funding needed for condo repairs and improvements. Association Reserves studied Champlain Towers in 2020 and found both substantial deferred maintenance and inadequate reserves.

All condo owners contribute to their association's reserve fund through their condo fee, but when the reserve fund isn't enough to cover urgent work, owners are handed a big bill in the form of a special assessment, which is especially painful for retirees on fixed incomes. At Champlain Towers, homeowners had been hit with a $15 million assessment when the structure failed. "Many owners were shocked to face a huge special assessment and bank loan to pay for repairs and replacements that were predictable," says Nordlund.

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There's no reason for condo owners to be blindsided. If you see something in your building that causes concern, say something, says Dawn Bauman, a senior vice president of the Community Associations Institute. Even better, she says, put your questions, concerns or requests for information in writing, addressed to the board.

If you're not attending board meetings, read the meeting minutes, which are generally posted online or sent to owners. "Be concerned if there are no meeting minutes, some are missing, or the board has been preoccupied by minor issues at the expense of important decisions that affect home values," says Nordlund. He publishes a free guide, "7 Tips That Will Turn You Into an Informed Owner or Buyer" at

Some of the same benchmarks that Nordlund tells buyers to look for can also help condo owners determine if the association is prepared for future repair bills. Condo fees, for example, should have been raised at least three times in the past five years, but condo owners often pressure the board of directors to keep the fee low. Without adequate funding, maintenance and repairs are deferred only to become more expensive later, increasing the odds of a crisis and the need for a special assessment. Eric Glazer, a lawyer in Orlando, Fla., who specializes in condo law, says that retirees often like to brag about who has the cheapest condo fee. "The winner is actually the loser," he says.

Another benchmark can be found in the reserve study, which should have been prepared by a credentialed specialist within the past few years. Owners should ask for a copy and check the percentage of anticipated needs met by current savings. This percentage "is the only way to link a condo's financial and physical health," says Nordlund. A condo is in good shape when the needs are more than 70% funded.

What if you want to sell and know that something is amiss in your building? By law, you need only disclose defects that you know about within your unit, not those in the building or common area. Still, if many of your neighbors also list their units for sale, that can alert buyers that something's up.

Fannie Mae and Freddie Mac have imposed new guidelines for lenders to ferret out buildings that are too risky for mortgage loans. Lenders who want to sell loans to Fannie and Freddie must determine if a building has significant deferred maintenance, special assessments that adversely affect the condo association, insufficient reserve funding or no reserve study. The guidelines are temporary and subject to revision, but Bauman expects they will become permanent, making it harder for sellers of units in troubled buildings to get out.

Patricia Mertz Esswein
Contributing Writer, Kiplinger's Personal Finance
Esswein joined Kiplinger in May 1984 as director of special publications and managing editor of Kiplinger Books. In 2004, she began covering real estate for Kiplinger's Personal Finance, writing about the housing market, buying and selling a home, getting a mortgage, and home improvement. Prior to joining Kiplinger, Esswein wrote and edited for Empire Sports, a monthly magazine covering sports and recreation in upstate New York. She holds a BA degree from Gustavus Adolphus College, in St. Peter, Minn., and an MA in magazine journalism from the S.I. Newhouse School at Syracuse University.