Thou Shalt Provide A Budget Summary

[ Blog/News ]

Thou Shalt Provide A Budget Summary

It is a common refrain among those who live in or work with condominium associations that the annual budgeting process consists of two parts accounting and one part voodoo. To avoid an imbalance in the recipe, it is important that members of the Board of Directors are familiar both with the Association’s governing documents and with applicable statutes in order to effectively serve the association and its members.

 

Effective January 1, 2012 changes to Washington’s reserve study laws went into effect. The changes impacted both “new act” condominiums (those governed by RCW 64.34) as well as HOA’s (RCW 64.38) and include specific and extensive reporting requirements that have been added to the budget process for both condominiums and HOA’s. This article will focus on these reporting requirements specifically as they relate to condominiums as set forth in RCW 64.34.308(4).

Understanding and Applying RCW 64.34.308(4)

For “new act” condominium associations governed by the Washington Condominium Act, RCW 64.34.308(3) requires an association’s Board of Directors to adopt a proposed budget and, then, to provide a summary of the proposed annual budget to all unit owners who must have the opportunity to reject the budget at a formal meeting of the association, if they so choose. In the past this process has been fairly straightforward and simple. Concerned that unit owners were not being sufficiently informed of the financial health and wellbeing of the condominium associations in which they lived and notified of potential exposure to increased assessments or other costs in the future, the legislature amended RCW 64.34.308(4) to include extensive reporting requirements with which all “new act” condominium associations must comply.

RCW 64.34.308(4) now requires the Board of Directors disclose the following information in the annual budget summary sent to each unit owner:

(a) The current amount of regular assessments budgeted for contribution to the reserve account, the recommended contribution rate from the reserve study, and the funding plan upon which the recommended contribution rate is based;

(b) If additional regular or special assessments are scheduled to be imposed, the date the assessments are due, the amount of the assessments per each unit per month or year, and the purpose of the assessments;

(c) Based upon the most recent reserve study and other information, whether currently projected reserve account balances will be sufficient at the end of each year to meet the association’s obligation for major maintenance, repair, or replacement of reserve components during the next thirty years;

(d) If reserve account balances are not projected to be sufficient, what additional assessments may be necessary to ensure that sufficient reserve account funds will be available each year during the next thirty years, the approximate dates assessments may be due, and the amount of the assessments per unit per month or year;

(e) The estimated amount recommended in the reserve account at the end of the current fiscal year based on the most recent reserve study, the projected reserve account cash balance at the end of the current fiscal year, and the percent funded at the date of the latest reserve study;

(f) The estimated amount recommended in the reserve account based upon the most recent reserve study at the end of each of the next five budget years, the projected reserve account cash balance in each of those years, and the projected percent funded for each of those years; and

(g) If the funding plan approved by the association is implemented, the projected reserve account cash balance in each of the next five budget years and the percent funded for each of those years.

Clearly, the job of Board members and the agents that serve them in the budgeting process has not gotten easier with these new disclosure requirements! However, the silver lining is that these additional disclosure requirements will likely provide members of the association with an important snapshot of both the current and future financial health of the association.

As another budget season rapidly approaches, it is important that you know whether these recent changes apply to your association and, if they do, that you are clear how they should be implemented. If you have questions about these changes or how to effectively and efficiently implement them, there are a host of resources available through WSCAI that stand ready to assist you! Good luck and happy budgeting.

  • Condominium Law Group, PLLC - General Counsel & Collection Services - Partners Ken Harer & Valerie Oman - Phone: (206) 633-1520 Website: www.condolaw.net
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Federal Housing Administration’s (FHA) Condominium Guidelines

[ Blog/News ]

Federal Housing Administration’s (FHA) Condominium Guidelines

The ever-changing FHA Condominium Guidelines continued to create problems for many CAI members in 2011. Despite the challenges, CAI was able to work with FHA to amend some of the FHA lending criteria even as FHA released new policy that created new obstacles for condominium associations.

In June of 2011, FHA issued major revisions to the Condominium Guidelines, which, according to FHA, would address concerns raised by CAI. While the new guidelines added some flexibility on assessment delinquencies, commercial space and rental restrictions, it also imposed new and troubling criteria on fidelity insurance, project certifications and assessment delinquency calculations.

After the release of the new Guidelines in June, CAI worked with our members to escalate our efforts to persuade FHA to engage in a more rational and transparent process in developing condominium guidelines. First, CAI sent a letter summarizing concerns about the new Guidelines to the FHA commissioner. CAI noted that the requirements FHA imposed on fidelity insurance and project certifications were in conflict with many state laws and with the best practices of condominium associations. CAI also chided FHA for putting the burden of collecting assessments from bank-owned properties on association boards rather than on the banks that get a subsidy from FHA under the condominium loan program. CAI also filed an administrative challenge against the new Guidelines, arguing that FHA failed to do minimal due diligence when drafting the new requirements. Then, working with our state Legislative Action Committees, we took our concerns directly to members of Congress in August. Additionally, when FHA announced during a public training session that it would be looking at the issue of deed-based transfer fees, CAI sent a strongly worded letter urging it to engage in outreach and research before taking any unilateral action.

The arrival of fall saw the return on the investment in our Congressional Outreach. First, FHA backed away from their costly and duplicative management company fidelity bonding mandate. This was followed a few weeks later by key members of Congress and the Senate sending letters critical of the FHA Guidelines and the lack of transparency in their development. It is through these efforts that CAI will continue to move FHA policy to more rational and fair criteria.

As the year end approaches, FHA’s financial position showed significant deterioration, with the organization well below its statutorily-mandated reserve requirements. There were whispers in Washington of a pending bailout, which would be bad news for potential condominium buyers as FHA continues to be the pre-eminent lender for condominium mortgages. This also will likely make CAI’s task for pushing for reforms of FHA lending criteria even more challenging. At the close of 2011, it looks as if 2012 will be yet another year filled with challenges on the mortgage front.

As part of our ongoing Mortgage Matters Program, CAI is working to protect homeowners in community associations and to ensure access to fair and affordable mortgage products for all current and potential community association residents. You can follow our work and share your thoughts at www.caimortgagematters.org.

  • Condominium Law Group, PLLC - General Counsel & Collection Services - Partners Ken Harer & Valerie Oman - Phone: (206) 633-1520 Website: www.condolaw.net
  • Barker Martin
  • Rafel Law Group - Banner Ad
  • Porter Construction Inc - Building With Integrity - www.porterci.com
  • The Copeland Group - Banner Ad
  • HUB International NW - HOA And Condo Solutions - Web Ad
  • Newman HOA CPA - Banner Ad

Search WSCAI


Search Business Partners Directory


Diamond Sponsors

  • Columbia Bank - Logo
  • Association Reserves WA - Logo
  • CIT - Community Association Banking - Logo
  • Newman HOA CPA - Audit & Tax - Logo
  • HUB International NW - Logo
  • Transblue - Logo
  • CAU - Community Association Underwriters - Logo
  • SageWater - Logo
  • Superior Cleaning & Restoration - A COIT Service Company - Logo
  • Rafel Law Group PLLC - Logo
  • ServPro Of Seattle NW - Logo
  • RW Anderson Services - Logo
  • Agynbyte - Logo

Chapter Magazine

Journal July-August 2022

Jul/Aug 2022 Issue

Journal Advertising Partners:

  • Newman HOA CPA Audit & Tax
  • CIT Group Inc. - Logo
  • Rafel Law Group PLLC - Logo
  • The Copeland Group - Logo
  • Bell-Anderson & Associates - Logo
  • Community Association Underwriters - Logo
  • Ruff Construction - logo
  • Charter Construction - Logo
  • Popular Association Banking
  • SSI Construction
  • Sagewater
  • RW Anderson Services - Logo
  • Pacific Engineering Technologies, Inc - Logo

  • Pacific Western Bank - Small Ad
  • Association Reserves of Washington - Ad