# Waiving Statutory Reserves?



## rjp123 (Aug 20, 2014)

I got my proxy notice today and was curious as to people's thoughts on waiving the reserve fees.

For my SoBe unit the different between paying the statutory reserves and waiving them is ~$75 for 1 bd and ~$110 for 2bd.  When you are paying $1100 and $1500 for maintenance fees, this is only 5%-7% more.

I am curious as to why anybody would waive these...  You only set yourself up for an assessment at some point in the future and then everybody complains because of the surprise.

Personally I'd rather fully fund the reserves every year and get the work done when it is needed then play the "kick the can forward" year after year and have special assessments pop up as surprise.

I vote "No" to waiving statutory reserve fees, every year.


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## presley (Aug 20, 2014)

I've never seen a choice to waive reserve fees for any of my timeshares.  Maybe that is unique to the one you own?  I've owned Sea World, Marbrisa and a couple affiliates.  The reserve fee is always require.


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## csxjohn (Aug 20, 2014)

It could be that the reserve fund has enough in it that the board feels it can cut back a little for now.  If they waive it, I'd put the extra in the bank in case an Sa does hit.


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## rjp123 (Aug 20, 2014)

SoBe's recommended reserve is currently under-funded, and the board *always* recommends to waive it - which doesn't make sense from a governance / fiduciary perspective.


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## presley (Aug 20, 2014)

rjp123 said:


> SoBe's reserve is currently under-funded, but the board *always* recommends to waive it - which doesn't make sense from a governance / fiduciary perspective.



I agree that it doesn't make sense, but I'd be concerned that I'd get stuck paying twice.  If you pay the reserve fee, but 90% of other owners don't, there will still be a special assessment.  Will they charge you for that?  Or, do you have some type of guarantee to not have to pay again like a credit for the reserve funds you've already paid?  

It also sounds like it might be good to vote in a new board.


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## csxjohn (Aug 20, 2014)

rjp123 said:


> SoBe's reserve is currently under-funded, but the board *always* recommends to waive it - which doesn't make sense from a governance / fiduciary perspective.



Do they ever get enough votes to suspend them?  Could just be a political ploy to say "see, I tried to keep your MFs down."


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## rjp123 (Aug 20, 2014)

presley said:


> I agree that it doesn't make sense, but I'd be concerned that I'd get stuck paying twice.  If you pay the reserve fee, but 90% of other owners don't, there will still be a special assessment.  Will they charge you for that?  Or, do you have some type of guarantee to not have to pay again like a credit for the reserve funds you've already paid?



You don't get to choose if you pay or don't pay.

Everybody votes to waive or not waive every year as part of our HOA meeting.

If 50%+1 vote to waive, nobody pays the statutory fees.  

This means if every year everybody votes "waive" (vs. pay) then you continue to roll a budget deficit year after year.


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## buzglyd (Aug 20, 2014)

csxjohn said:


> Do they ever get enough votes to suspend them?  Could just be a political ploy to say "see, I tried to keep your MFs down."



That sounds about right to me.

I would not vote to waive either.

Unfunded or underfunded reserves are a disaster waiting to happen.


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## rjp123 (Aug 20, 2014)

csxjohn said:


> Do they ever get enough votes to suspend them?  Could just be a political ploy to say "see, I tried to keep your MFs down."



That must be it.  It doesn't make sense otherwise to me.  It's not a big deficit as I said (5%) but still doesn't seem very good from a fiduciary perspective.


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## Joe33426 (Aug 20, 2014)

buzglyd said:


> Unfunded or underfunded reserves are a disaster waiting to happen.



This. 

Nothing good happens from waiving reserves. This is why Florida Statutes require Boards to seek membership approval in order to waive the fully funded requirement.  

The only reason to waive reserves is to keep MFs down for political and/or financial reasons (e.g. Developer selling units or in control of the Association).

Even if the Association overfunded reserves, the calculations under Florida Statutes would take care of that issue and not need a waiver.


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## 1Kflyerguy (Aug 20, 2014)

wow, i would not like that either.

The HOA for our former primary residence, would not ever vote to raise our dues.. I think they were $35.00 per month for the first 20 years of the development.  Shortly after i moved in, i joined with a few other residents to raise the dues, but we only managed to convince the community to go to $50.00 per months... 

Fast forward a few years later and the roofs all start failing, everyone is shocked that the reserves won't cover the roof..

you pay eventually..


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## phil1ben (Aug 28, 2014)

I own at South Beach. I also vote each year to reserve the statutory amount and I am out voted every year. Instead of buying themselves IPADS I would rather they vote to fully fund the reserves. My maintenance fees for 7000 points are now slightly over $1,500. 

Still has been a very worthwhile resale purchase. The one and only timeshare I have ever bought, or ever will buy, but feel I am getting good value for my resale purchase.


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## SueDonJ (Aug 28, 2014)

We also vote whether or not to waive fully-funded reserves for our South Carolina resorts.  The way it's been explained to me is that fully-funded means that there will annually be enough money in the reserve fund to cover a complete refurbishment of the individual units interiors (soft and hard goods) as well as all exterior items (roof, windows, etc.)

Marriott management schedules soft/hard re-furbs on a five/ten year basis and exterior items as recommended through audits and/or warranty expectations.  Instead of recommending fully-funded reserves, they recommend pro-rating the anticipated costs and spreading them over the schedule.  Ownership at my resorts always votes to waive the fully-funded provision; as yet, we haven't been subject to any Special Assessments and the quality of the resorts hasn't suffered.  In fact, the resorts' quality is consistent and upgrades/maintenance are performed as promised using the accumulated reserves as anticipated.

I believe the same is true at the majority of Marriott resorts.  The very few Special Assessments I've heard of over the years have been due to un-anticipated one-off repairs and/or a failure of the BOD's to properly anticipate and collect the pro-rated reserves based on Marriott's brand standard, not as a result of the waivers.  I would consider voting for fully-funded reserves, though, if the budget reports and annual MF's didn't appear to be consistent with refurb expectations.


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## Jason245 (Aug 28, 2014)

SueDonJ said:


> We also vote whether or not to waive fully-funded reserves for our South Carolina resorts.  The way it's been explained to me is that fully-funded means that there will annually be enough money in the reserve fund to cover a complete refurbishment of the individual units interiors (soft and hard goods) as well as all exterior items (roof, windows, etc.)
> 
> Marriott management schedules soft/hard re-furbs on a five/ten year basis and exterior items as recommended through audits and/or warranty expectations.  Instead of recommending fully-funded reserves, they recommend pro-rating the anticipated costs and spreading them over the schedule.  Ownership at my resorts always votes to waive the fully-funded provision; as yet, we haven't been subject to any Special Assessments and the quality of the resorts hasn't suffered.  In fact, the resorts' quality is consistent and upgrades/maintenance are performed as promised using the accumulated reserves as anticipated.
> 
> I believe the same is true at the majority of Marriott resorts.  The very few Special Assessments I've heard of over the years have been due to un-anticipated one-off repairs and/or a failure of the BOD's to properly anticipate and collect the pro-rated reserves based on Marriott's brand standard, not as a result of the waivers.  I would consider voting for fully-funded reserves, though, if the budget reports and annual MF's didn't appear to be consistent with refurb expectations.



Based on what you have written, I would say that you don't fully understand this.

http://www.davis-stirling.com/FullyFundedReserves/tabid/1605/Default.aspx#axzz3BhuCER8O

Above is a link explaining what fully funded reserves mean.

By not having reserves fully funded, you have an increased probability of being hit with a special assessment. the longer your reserves are underfunded and the greater amount they are underfunded, the greater the likelyhood of a large assessment. 

Generally boards prefer to keep their annual MFs static in order to avoid complaints from the owners. When combined with inflation, this results in big assessments 5-10 years later when things start to break down (Eg Elevators), and the reserves are significantly underfunded.  Anyone planning on being an owner long term should generally vote for fully funding. Short term owners (generally Condos, not TS owners), tend to vote to not fully fund as they plan to get out very soon anyway and are gambling that they will be gone before the assessments start to hit. That being said, the vast majority of TS owners probably don't fully understand how this works, and probably want to pay as little as possible (ignorance), resulting in them always voting for lower MFs. Since it is hard to sell/give away many TSs, and given the lack of significant savings in the US, I can only imagine that these types of Assessments result in a number of forclosures which could have been avoided. 

My recommendation if your association is underfunding reserves, call up and find out how much they are underfunded/owner, and start putting that amount away in a savings account every month (break it up into manageable pieces) for the special assessment that will hit you down the road.


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## SueDonJ (Aug 28, 2014)

Jason245 said:


> Based on what you have written, I would say that you don't fully understand this.
> 
> http://www.davis-stirling.com/FullyFundedReserves/tabid/1605/Default.aspx#axzz3BhuCER8O
> 
> ...



Well then I don't know how to explain how things happen at my resorts because ownership votes every year to waive fully-funded reserves but all of the things mentioned in that link still apply.  Both resorts are older than the ten-year major refurb point and, maybe more importantly, are beyond the period when Marriott as developer paid a subsidy.  MF"s appear to be sufficient and increase reasonably every year.  Scheduled audits are performed by qualified experts to anticipate repairs/upgrades, Marriott as manager provides input to the boards that ensures the brand standard is upheld, the BOD's keep the Owners in the loop with twice-yearly reports, and the reserves that are collected have been sufficient to cover both minor and major anticipated expenses.  

Like I said, Special Assessments at Marriott resorts have been few and far between, and in the cases I know of are explainable, IMO, by something other than a waiver of fully-funded reserves.  If we Marriott Owners weren't provided with a yearly line-item Operating Budget along with a report from the individual resort BOD's that discusses anticipated repairs/maintenance issues relative to the reserve fund, then I might change my vote in favor of fully-funded reserves.  But what they're doing now, whatever it is, is working.

There are Marriott Owners, I'm sure, who already vote for it.  There are also others who will never think that Marriott and/or the BOD's are fiscally responsible regardless of whether fully-dunded reserves are in play or not, although usually the complaint from those folks is that Marriott collects too much.  I don't agree but in some cases I can at least understand what led to that train of thought, especially among those who have been hit with a rare SA.


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## Jason245 (Aug 28, 2014)

SueDonJ said:


> Well then I don't know how to explain how things happen at my resorts because ownership votes every year to waive fully-funded reserves but all of the things mentioned in that link still apply.  Both resorts are older than the ten-year major refurb point and, maybe more importantly, are beyond the period when Marriott as developer paid a subsidy.  MF"s appear to be sufficient and increase reasonably every year.  Scheduled audits are performed by qualified experts to anticipate repairs/upgrades, Marriott as manager provides input to the boards that ensures the brand standard is upheld, the BOD's keep the Owners in the loop with twice-yearly reports, and the reserves that are collected have been sufficient to cover both minor and major anticipated expenses.
> 
> Like I said, Special Assessments at Marriott resorts have been few and far between, and in the cases I know of are explainable, IMO, by something other than a waiver of fully-funded reserves.  If we Marriott Owners weren't provided with a yearly line-item Operating Budget along with a report from the individual resort BOD's that discusses anticipated repairs/maintenance issues relative to the reserve fund, then I might change my vote in favor of fully-funded reserves.  But what they're doing now, whatever it is, is working.
> 
> There are Marriott Owners, I'm sure, who already vote for it.  There are also others who will never think that Marriott and/or the BOD's are fiscally responsible regardless of whether fully-dunded reserves are in play or not, although usually the complaint from those folks is that Marriott collects too much.  I don't agree but in some cases I can at least understand what led to that train of thought, especially among those who have been hit with a rare SA.



Assuming there is a fully funded reserve, owners should almost never be hit with a special assessment (with the exception being a poorly done reserve analysis) and that assessment should be very small.

I translate that (in my mind)  to being an assessment of $500 or less no more than once every 15 years. 

Anything more freqeuent and larger than that is IMHO a Board that is fiscally irresponsible or a group of homeowners who either have significant funds saved to account for these assessements or are ignorant of the consequences of their action (up to the possible point where they end up forclosed on by the association).


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## Tamaradarann (Aug 28, 2014)

*Does Everything need to get done?*



Jason245 said:


> Assuming there is a fully funded reserve, owners should almost never be hit with a special assessment (with the exception being a poorly done reserve analysis) and that assessment should be very small.
> 
> I translate that (in my mind)  to being an assessment of $500 or less no more than once every 15 years.
> 
> Anything more freqeuent and larger than that is IMHO a Board that is fiscally irresponsible or a group of homeowners who either have significant funds saved to account for these assessements or are ignorant of the consequences of their action (up to the possible point where they end up forclosed on by the association).



I was a Director of Operations at a University for most of my career.  The items that are in the reserve appear to me to be major repair/replacement items that I needed to budget for.  Certain items like the repair or replacement  of a roof was a had to get done item since the damage that could result from not doing it was extremely bad.  However, other items such as painting could be delayed or not done as extensively if funding wasn't available.  Also, the life expectancy of equipment at time far exceeds the timeframe that is budgeted for.  I had many instances where I would not replace equipment that was working fine.  I had instances where boiler experts said that boilers that were budgeted to be replaced had 30-40 more life in them so I didn't replace them.


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## Jason245 (Aug 28, 2014)

Tamaradarann said:


> I was a Director of Operations at a University for most of my career.  The items that are in the reserve appear to me to be major repair/replacement items that I needed to budget for.  Certain items like the repair or replacement  of a roof was a had to get done item since the damage that could result from not doing it was extremely bad.  However, other items such as painting could be delayed or not done as extensively if funding wasn't available.  Also, the life expectancy of equipment at time far exceeds the timeframe that is budgeted for.  I had many instances where I would not replace equipment that was working fine.  I had instances where boiler experts said that boilers that were budgeted to be replaced had 30-40 more life in them so I didn't replace them.



I agree. that is why reserve analysis are done/should be done regularly (once every 3 years is best practice).  If something is budgeted for and ends up outliving that timeframe the MF can be reduced (which is much more palitable and feasable than a special assessment). 

Painting at a university is one thing, this is your vacation experience you are talking about. How would you feel going to a TS and the elevator not working, your room having dirty/torn carpets with chipped paint on the walls, the shower curtain having mold, the mattress being completly sunk in, there being an insufficient amount of hot water for you to take a shower in the morning, the toilet leaking, the dishwasher not draining...etc... 

These types of issues result in negative reviews of the resort, photos being posted on line, a decreased desire for people to go to the resort, and a reduced value perception of the resort. 

In the hospitality industry, perception is everything, and anything that hurts that costs you money.

I understand the whole, if it is at the end of the budgeted life but is still in good working order and should last another 10 years don't replace it mindset, but I don't understand the whole "it is budgeted to last 10 years, but we think it might last 20, so lets reduce MF under that assumption even though an expert has said it should be budgeted at 10 years".


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## SueDonJ (Aug 28, 2014)

Jason245 said:


> I agree. that is why reserve analysis are done/should be done regularly (once every 3 years is best practice).  If something is budgeted for and ends up outliving that timeframe the MF can be reduced (which is much more palitable and feasable than a special assessment).
> 
> Painting at a university is one thing, this is your vacation experience you are talking about. How would you feel going to a TS and the elevator not working, your room having dirty/torn carpets with chipped paint on the walls, the shower curtain having mold, the mattress being completly sunk in, there being an insufficient amount of hot water for you to take a shower in the morning, the toilet leaking, the dishwasher not draining...etc...
> 
> ...



But I'm still not understanding what's happening at my resorts, and apparently the majority of Marriott resorts, because none of those detrimental things that you mention are happening.  It appears that regular audits are done by professionals to properly gauge the life of items, the BOD's are approving budgets that responsibly account for expenses and spending based on those audits and Marriott's mandated (by the governing docs) "brand standard," things are replaced as needed whether according to the expected life or otherwise, the resorts/units are refreshed and refurbed on a regular cycle to best minimize any out-of-date or tired looks, etc ...

Yet we owners have consistently voted to waive the fully-funded reserves.    That's why I don't agree that voting for the waiver is an automatic klaxon-inducer (and I'm not certain if that's what you're saying or not?)  But certainly, if a board doesn't provide enough information to the ownership for them to make an informed decision, or if the resort/units aren't in good working order and regularly updated, then voting against the waiver would be more prudent.


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## Jason245 (Aug 28, 2014)

SueDonJ said:


> But I'm still not understanding what's happening at my resorts, and apparently the majority of Marriott resorts, because none of those detrimental things that you mention are happening.  It appears that regular audits are done by professionals to properly gauge the life of items, the BOD's are approving budgets that responsibly account for expenses and spending based on those audits and Marriott's mandated (by the governing docs) "brand standard," things are replaced as needed whether according to the expected life or otherwise, the resorts/units are refreshed and refurbed on a regular cycle to best minimize any out-of-date or tired looks, etc ...
> 
> Yet we owners have consistently voted to waive the fully-funded reserves.    That's why I don't agree that voting for the waiver is an automatic klaxon-inducer (and I'm not certain if that's what you're saying or not?)  But certainly, if a board doesn't provide enough information to the ownership for them to make an informed decision, or if the resort/units aren't in good working order and regularly updated, then voting against the waiver would be more prudent.





How funded are the reserves?'

If 70%+, you might be in a situation where you get hit with a moderate sized assessment every 10 years. If 30% Run as fast as you can. 

In florida, there are 5 year old "new construction" Buildings with no reserves to keep Condo fees low. the problem is that come year 10, the chickens come home to roost... but by then, the original owners will be long gone leaving the new owners holding the bag.


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## Talent312 (Aug 28, 2014)

I suspect that votes to waive reserves comes primarily from those with deep-pocketed interests, such as the developer itself, who could weather a special assessment or two, and in the meantime, prefer to keep their $$ out of the hands of the HOA.


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## dioxide45 (Aug 28, 2014)

Waiving of fully funded reserves does not mean that the HOA doesn't have the money to cover renovations and maintenance when it comes due. They just happen to utilize a different method to calculate the amount of money they will require to cover these renovations and maintenance. The state law may say fully funded means a roof has a life span of 20 years, but the HOA may have a reserve study done as well as other assessments that determines the roof has a life of 25 years. So they waive fully funding to the states stricter 20 year replacement requirement. 

The term fully funded is defined in the law, it doesn't necessarily mean underfunded.

We own two Marriott timeshares in Florida and every year this is on the ballot and every year the BOD recommends to vote in favor of waiving fully funding the reserves. Ever year it passes. No worse for the wear yet and I don't anticipate an assessment any time soon unless something catastrophic happens.

Also, keep in mind that the laws regarding fully funded reserves cover all condominiums, not just timeshare properties. 

Your BOD should also be having a reserve study done every few years to make sure their reserve balance and future collections are enough to cover needed replacements for the next 30 years.


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