Earlier this month, I compared RCW64.38 that governs HOAs in Washington created prior to July1, 2018 to RCW64.90 that governs HOAs Washington as of July 1, 2018. I am drawing a conclusion here that the easiest way to ensure that an HOA's funds will be spent to preserve and increase the value of every member's property is to adopt RCW64.90 that is an available alternative to continuing to be governed by RCW64.38. My conclusion may apply to any HOA in other States as well because it really comes down to how many loopholes exist the State laws that allow Boards to avoid the disclosure of financial information to members during the year as disbursements are made from an HOA's Reserve Funds or Special Assessments, both of which differ from an HOA's annual Budget's disbursements.
The last thing members should do is vote for Directors on their Boards who do not know the difference between a Budget, a Reserve Fund and a Special Assessment. In the State of Oregon, the Developer is required to prepare the HOA's initial Reserve Study that describes the HOA's Reserve Components. Reserve Components refer to all of the infrastructure, utilities, and buildings owned by the HOA. A Developer in the State of Oregon is also required to prepare a 30-year forward Maintenance Plan for the repair or replacement of Reserve Components in their original condition.The projected cost and scheduled year of repair for each Reserve Component should be listed in this Plan. However, in the State of WA, the Developers are not required to prepare these documents. Moreover, the member elected Board governed by RCW64.38 can decide that these initial documents are unnecessary; and most of the financial disclosure requirements that are stated in certain sections of RCW64.38 are waived in other sections of RCW64.38
On the other hand, RCW64.90 requires the Board to prepare a Reserve Study and a third year updates of the status of the Reserve Study and Fund if the cost of the Study or Update will cost no more than 10 percent of the annual budget; and this information must be shared with members during the HOA's annual meetings.
Special Assessments usually refer to capital improvements that increase the number of Reserve Components or modify the original Reserve Components such that the total value of the HOAs' capital assets are increased. These assessments must be justified by presenting a plan to the members for their approval...during the annual meetings when member approve the budget.
One of the main reasons for preparing and updating a Reserve Study
and 30-year forward Maintenance Plan is that repair costs change, usually caused by inflation.As such, a Board or Reserve Specialist that could have estimated that Reserve Components, worth $500,000 in 2005, would require contributions of $600,000 by 2015 in order to replace them. But, since inflation or other factors could influence costs that increase, the Board that operates without financial updates sf not ready to manage an HOA.
Unfortunately, it is usually less expensive to make repairs immediately as needed, so that the damages do not get worse and more expensive to repair. Therefore if members allow their elected Board's to circumvent the the preparation of a Reserve Studies and their updates, or circumvent the preparation of the recommended 30-year and shorter maintenance plans, the members should pre-qualify candidates for serving on their Boards in order to ensure that the candidates are aware of the importance of preparing these documents.
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