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4
Posted by2 months ago

Are assessments in closing costs credited towards HOA Capital Reserve?

Hi, we recently purchased a condo in a newly constructed building, and as part of the closing costs, we paid 2 months of assessments. The builder's attorney said that those were credited towards the capital reserve and does not count towards our monthly HOA payments. Just making sure that is the expected use of those funds?
Also, curious who decides how many months of HOA goes towards the capital reserves?

14 comments
100% Upvoted
level 1

That’s called a capital assessment and it is indeed separate from your monthly dues. The board can generally change the amount but it may require a vote.

At the end of the day it’s just something done to help fund the HOA. It hits your pocket today, but you’ll benefit from it every time someone else sells while you’re an owner.

6
level 1
· 2 mo. ago · edited 2 mo. ago
💼 CAM

tht doesn't make sense, if you were told you are paying two months' assessments, then they should be your next two payments.

however, if it's equivalent to to months'payments, to fund reserves, that's different.

all depends on how it's written.

4
level 2
· 2 mo. ago
💼 CAM

How I have seen is some associations have a closing cost of 2 months dues. Tho if does vary widely for each association. It sounds like a closing cost and not a paying in advance on dues

3
level 2

Actually, you can have a special assessment with monthly dues separate to your monthly dues- we have one in my HOA right now, it’s called a serial special assessment.

Just adding my experience here. All comes back to OP getting exact clarification of what is covered- and if there IS a serial special asset running, find out timeline to end- just two months? Or two months in escrow to seal the buy and then does it kick in for owner? Lots of questions.

2
level 2
· 2 mo. ago
🏘 HOA Board Member

It's not always that way - this can often be seen as a bit of a deposit and is returned on the sale of the property. What it funds, as in operating costs or reserve funds is up to the HOA documentation.

1
level 1

I mean it all depends exactly how the budget is done. Not sure if it's typical or not in terms of costs paid at closing.

The builder may be trying to jump start the capital reserves instead of having them start at 0 which isn't a particularly bad idea. I'm guessing the builder decided, and as long as those funds are in the capital reserve, then it's all fine.

You being a new buyer are the least likely to see use of those funds in terms of reserve since those are typically for long term projects - like a roof replacement 30 years out. If you stay there from year 1 to year 28 and then move all that money you've paid into the capital reserve (by way of the budget) is just "in savings". Someone who moves in from year 28 to year 32 only has to pay 4 years of capital reserves but gets a new roof out of it. You essentially paid 28/30ths of the roof BUT you had use of the roof for 28/30ths of its expected lifetime.

1
level 1

Last time I bought new construction, I was required to pay the equivalent of 3 months assessments for the same purpose.

1
level 1

Our HOA does this the same way. 2x monthly dues goes to the reserve fund upon the sale of a unit. Our condos are in great demand. At any given time there are multiple people who are waiting to buy, some having been outbid a couple of times on other units. The price keeps going up, so in many cases they have paid much more by being out bid on their first attempt to buy. I say this because part of the reason the units are in such demand is that the building is well maintained and there is a well funded reserve fund. Whether someone paying in to the reserve fund sees that money spent while they still live there or not- they see it reflected in the value when selling.

1
level 1

Probably not legal in CA or NY. The developer is required to adequately fund the reserves. Probably legal in other states.

Are you in an attorney review state?

1
level 1

Check the by laws. Our association collects one month assessments at closing that go toward the capital reserve - it’s stated right in the bylaws.

1
level 1

I'm not familiar with assessments being a monthly thing or really anything other than an emergency action designed to fund an imminent repair. I'm more familiar with monthly dues which is what goes towards regular maintenance of common areas like mowing grass or exterior painting. To answer your second question part of your dues do go to funding reserves so that you, ideally, don't have an assessment and maintenance is carried out properly throughout the lifespan of the item. Could the terms have been misused?

0

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