Only a few years ago the Virginia General Assembly recognized that many association boards just would not face up to the need for reserves in an effort to keep “dues” at a lower and more competitive level. Many are paying a price for those decisions now. It became such a problem that several years ago the Virginia General Assembly passed a law requiring reserve studies every 5 years and an annual review of reserves by every board (see Section 55-79.83:1of the Condo Act and Section 55-514.1of the POA Act.).
These statutes are a blessing to many associations. Why do I say that? There are three important “people” looking more closely at reserves these days. First, mortgage lenders are looking more critically at the reserves to insure that their borrowers are not getting themselves into a situation where special assessments will be levied that affect that borrower’s financial wellbeing and ability to repay the loan. Second, secondary market project reviewers (FHA, VA and Fannie Mae) are making sure there is compliance with their reserve standards to be sure that the loans they are guaranteeing or buying are of the requisite quality. Third, partly because of the foregoing and the heightened awareness about reserves, buyers themselves are looking at reserves as that topic is more frequently brought up in the buying process with all parties involved – from the real estate agent to the mortgage loan officer – being more attuned to the need for reserves so that buyers will avoid properties that pose a risk of special assessments and the possibility of not being able to obtain a loan. So, Boards beware – you need to make the homes in your community more valuable and marketable by having the proper reserves. If you need to know the lender criteria or requirements of Virginia law we can help you.