23 Sep What New Condo Reserve Requirements Mean for Florida Associations
Florida condominium associations are already navigating a period of increased attention to reserves, building conditions and long term capital needs. Now, changes from Fannie Mae and Freddie Mac are adding another consideration for boards as they prepare future budgets.
As recently reported by The Wall Street Journal, Fannie Mae and Freddie Mac are increasing the minimum amount condo associations must allocate to reserves from 10% to 15% of annual dues. The article also reports that streamlined mortgage approvals have ended for condominium buildings with inadequate reserves, adding another potential consequence for communities that fall short of funding requirements.
For associations, this is about more than meeting a percentage. Reserve funding affects when necessary building work can begin, how it can be planned, and how the financial burden is ultimately shared among owners.
The Reserve Gap Is Already Significant
According to data cited by The Wall Street Journal, 39% of condo associations nationwide have reserves funded below 30% of their estimated needs. Florida is among the states with the lowest reserve balances, a situation the article connects in part to the state’s history of allowing condo owners to waive or reduce reserve contributions.
The financial impact of the new lending requirement may appear relatively modest when viewed month to month. Fannie Mae estimates that increasing reserve contributions from 10% to 15% would add approximately $13 to $14 per month for the average condo owner.
The larger issue is what happens when reserves consistently fall behind the actual needs of the building.
The article reports that condo associations with declining reserve balances were more than 20% more likely to levy a special assessment than associations with stable or growing reserves.
That connection matters in Florida, where concrete restoration and building envelope projects can represent substantial capital investments.
What Fortify Sees in the Field
At Fortify, our teams restore concrete and building envelopes throughout Florida. From that perspective, reserve funding has a very practical impact on how associations approach necessary restoration work.
Funded reserves give boards greater ability to plan projects, coordinate restoration scopes with engineers, and phase work based on the condition of the building. When reserves fall short, associations may have fewer options when deterioration reaches the point that work can no longer be deferred.
Salt air, sun, and time don’t read the budget.
Concrete deterioration, water intrusion, and other building envelope issues continue to progress regardless of an association’s financial position. Waiting can change the scope of the work and the circumstances under which it must be completed.
Boards aren’t choosing whether to pay for necessary work. They’re choosing when, and what premium they may pay for waiting.
Budget Season Is an Opportunity to Compare the Numbers With the Building
As associations prepare upcoming budgets, one comparison deserves particular attention: the reserve study versus the current restoration scope.
A reserve study projects future capital needs and establishes a funding plan. Restoration planning provides information about what the building currently requires and what work may be approaching.
If those two are telling different stories, the discrepancy deserves attention.
If your reserve study and your restoration scope don’t agree with each other, that’s the gap to close before the new rules take effect.
For boards and property managers, that may mean reviewing anticipated concrete restoration, waterproofing, painting or other building envelope work against the timing and funding assumptions included in the reserve study.
Planning ahead gives boards more control over how and when necessary work gets done.
For additional context on the changes affecting condominium reserves, read The Wall Street Journal’s article, Why Your Condo Association Might Be Raising Your Dues Soon.