Doubtful state would take over HOA for being underfunded

Q: How often does the government come in and take over a homeowners association. I’m a board member, and our reserves are underfunded. On paper, for 2020, the total should be $450,000. At this time we have $250,000 but are going to spend most of that ($160,000) to replace the roofing that was installed in the late 1980s. About $75,000 is raised in assessments each year. Management wanted the board to raise the assessments, which all members were against. It then made the threat that, because of the underfunding, the state/county might come in and take us over.

A: The last thing the state wants to do is to take over an association. It is rare, and I doubt very seriously the state would take that action based upon the underfunded reserve account. If the state were to become involved, your association would probably have to develop a funding plan.

Here is what the laws state. Nevada Revised Statutes 116.3115 (2b) states an association shall establish adequate reserves, funded on a reasonable basis, for the repair, replacement and restoration of the major components of the common elements the association is obligated to maintain.

In addition, this law states the association may comply with this provision through a funding plan that is designed to allocate the costs over a period of time that is actuarially sound and which will ensure that sufficient money is available when the repairs, replacement or restoration are necessary.

Is an increase really needed? Both the board and the community manager should review the reserve study beyond what the projected balances should be at the end of 2019. Your reserve study lists by years what projects should be done. By reviewing this section, you will be able to list what improvements have not been addressed, both in the past, current and future — the next five years. By calculating what you will need to spend versus the annual contribution, your association board and manager can determine if your funding plan is on target. If not, then the board needs to seriously consider an assessment increase based on the funding of the reserves.

The state Legislature has taken a position that reserves need to be properly funded to the point that NRS 116.3115 (2b) says that the board may, without seeking or obtaining the approval of the homeowners, impose any necessary and reasonable assessments for the funding of the reserves based upon the reserve study.

By properly funding your reserve, you can avoid a major special reserve assessment increase when the time comes to make the repairs or replacements.

Q: I saw an article you penned in the Las Vegas Review-Journal about the legality of renting out one’s property within an HOA.

I was wondering if you knew whether an HOA could restrict renting the house as a sober living residence, which might contain two residents per bedroom? I am an owner considering this option. I cannot find anything in the covenants, conditions and restrictions that would conflict with this use. I’m curious if you have any experience or wisdom on the topic.

A: Many associations’ CC&Rs in their preambles will state the community is composed of single-family residences. Having two residents per bedroom would be an issue for most associations, for many practical reasons as well as legal ones. Your home would be more like a communal residency, rather than a single-family residency, bordering on converting the home to a “apartment.”

Consider the issue of parking. We have many communities that have parking issues. If you had a three-bedroom home and leased to two residents per room for a total of six unrelated people, there would be a major problem if your association does not allow parking in the streets.

You should reconsider renting your home to a sober living residence as I can foresee issues with your association.