Although Minnesota has required that condominium and townhouse associations
include reserve funds in their budgets since 1994, it is only since 2012 that they have been required to have a separate and adequately funded reserve fund in place.
Unfortunately, it does not clearly define what exactly 'adequately funded' means. It is usually agreed that the association needs a plan for the repair and replacement of items with a life expectancy of less than 30 years.
The plan must specifiy how the plan will be funded, but funds do not need to come solely from reserves. Alternatives might include…
- Fully funded through reserve funds
- Partially funded through reserve funds and partially funded through special assessments
- Funded through any combination of reserve funds, special assessments, loans
Make sure you understand how your association has decided to pay for repairs and updates as they are needed. If you are buying a condo or townhouse, you have 10 days to review the association documents, financials and budgets… and talk to association management to have your questions answered to your satisfaction. If you are uncomfortable with anything relating to the association during this 10-day period you can cancel your purchase agreement and have all earnest money returned to you with no penalties.
- What are the differences in owning a house, townhouse or condo?
- No Dogs Allowed…about CIC association restrictions
- Homeowner associations must have adequate replacement reserve fund
- What is the difference between a condo and a co-op?
- Planning to buy a condo with FHA or VA financing? Find out which ones are approved!