Home Buying in 55125>Question Details

yonaren, Home Buyer in Minneapolis, MN

Low reserve funds for a big, nice Townhome association?

Asked by yonaren, Minneapolis, MN Mon Jun 3, 2013

I'm a first time buyer looking at places and came across a townhouse that we really liked. On looking at the association docs, I was amazed to see that the association only has a meager 40-50 K saved in Reserve and Contingency funds. This has been the case for the last 2 years at least. This is a big association with over 115 houses, so that makes it less than $500 per house. Isn't that a really small amount? The townhouses are about 15 years old and the monthly dues are small.

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Hi, yonaren!

While I agree with what Rick is saying here, it's really not something your agent should be pursuing for you and here's why. That's generally why the paper work is passed along to you, the buyer, so YOU can satisfy yourself as to the financial viability of the association and sign off on the rules and regs, the bylaws, the articles and the declaration. Now, it might be easier for you to have your agent do the legwork, but I would suggest having some very specific questions for him/her to ask.

But, sometimes, when you're talking to someone, you think of questions spontaneously that you didn't think of before based on the information you're receiving, so that's why you might want to chase down the information yourself, so you can have all of your questions answered and base your decisions on that, rather than just the 1 or 2 questions you pass along to your agent, which may create some significant back and forth through a middle man while your 10 day clock is ticking. Make sense??

Good luck!
1 vote Thank Flag Link Tue Jun 4, 2013
Certainly recent major improvements to the association is one possibility. I also like to figure out the foreclosure situation, because that has aided into the FHA nightmare of getting some TH's approved. Woodbury was hit pretty badly, but I would not let a low reserve fund alone steer you away from looking there.

Speaking directly with the association is the best. The people involved are almost always the residents and will be honest with you. Your agent can do this for you too.

Good Luck!

Chris Block
1 vote Thank Flag Link Tue Jun 4, 2013

That does seem like a low reserve amount, but you need to do some more digging. If the units are that old, you might look to see if they've had to make some substantial improvements to the property exteriors, or common areas in the past several years. This could explain why the reserves are so low. Otherwise, this association, with its low association fees, it could also be simply underfunded, or poorly managed. Always best to have your agent look a little deeper. The management company phone number is right in the MLS listing and associations with professional management companies usually have someone who's intimately knowledgeable about the finances of an association. If you don't have an agent representing you, you should consider getting one soon! Good luck!
1 vote Thank Flag Link Tue Jun 4, 2013
Hello Yonaren,
Good morning.
Yes that is a small amount, I agree with you. Did you ever buy a townhouse? Are you still renting? Are you still in the market to buy a home? If so, I would love to see if we can help you out. We work with 1st time home buyers all the time. Do you have a realtor yet? If not we have preferred ones we can get you in contact with. I would like to see if I can help you out with a home mortgage. I will try and make this a very easy process. Please let me know how to help out.
Thanks much.
Josh Lund
MN District Branch Manager
NMLS # 387408
Gold Star Financial Group
Mobile: 612.802.3265
Office: 952.884.5442
eFax: 877.666.0007
0 votes Thank Flag Link Thu Jul 23, 2015
For being a first time home buyer, you have a very good grasp on associations and reserve funds. Many first time buyers don't concern themselves with these details. Way to go!
0 votes Thank Flag Link Fri Aug 2, 2013
I want to say first of all that I am not a lender, so my expertise is in finding Real Estate, however, I have sold Townhouses in the past and this is what applied to those situations:

Many loans are sold to Fanny Mae and Freddie Mac and they have criteria for what they will buy. As they are the largest buyers of loans, their criteria has been adopted by many lenders as their own. The criteria is for such things as: the % of money that is set aside, how many units are rented, and how many units are vacant. This is good criteria to follow as a guide line. If you feel an association is well run and financially stable, but it doesn’t meet one of the criteria, you might want to check with banks that don’t sell their loans, or with a credit union. It is important to carefully inspect the by-laws and other documents as well. Some associations make very few exceptions to the rules in place because it can be very costly to go through the legal process to change them. Other associations are flexible and allow some potted plants, changes to the structure, etc. The rules are there to protect the community by keeping the homes sellable in the future.

If you would like help finding a home, please give me a call. My fees are generally paid for by the seller.

Carolyn Jass, Realtor
Twin Cities Real Estate, Equal Housing Opportunity
0 votes Thank Flag Link Mon Jul 22, 2013
I would suggest you talk to the people at the association and keep asking questions until you understand. In my opinion, the most important information is to know how the financials are structured, insurance, maintenance schedule not only for the buildings themselves but for the grounds and landscaping, like how often does snow shoveling get done? do they shovel the walks and porches or only driveways and streets? that kind of thing.

BUT, I'm not the authority on such things. From this point forward, if you are looking for more specifics of what you SHOULD be asking, i would consult an attorney.

Good luck!!
0 votes Thank Flag Link Thu Jun 6, 2013
Thanks all for your help, made me feel better and also to learn that I myself could've asked the questions directly (which I didn't know I could) and though we had very specific questions laid out, I'm not 100% satisfied as there's always a question based on the response. and does create a back and forth. Wasn't clear about a couple of points on how they responded. My agent is good though. Also we learned they have about 500K and not 45K, so obviously my question is, why does the document say otherwise and do they have a document to relfect what they're saying? Am I right?

Since the docs are too many, I would like to ask, is there any information in particular I should look for, apart from Budget, and Rules and Regulations?
0 votes Thank Flag Link Wed Jun 5, 2013
my initial response is maybe they did not give you the most recent updated doc? Does seem weird, but if your realtor can verify it then I would not worry. YES you should be able to verify! The docs are crazy (and boring), but besides what you are already looking at I think the restrictions are #1. Pets, allowing rentals, or any other weird "rules" the association has you should know. Can you park a boat in your driveway? Stuff like that.
Flag Thu Jun 6, 2013
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