Homeowner has right to see budget

Q: Last October, our homeowners association board approved as much as a $100,000 loan that was to be repaid by the end of the 2011-2012 budget year, which ended Feb. 28. The loan was to specifically pay a community and a golf course water bill. The actual loan was $50,000 and when it came time to repay it, the board voted not to. Is this an acceptable action by the board and, if so, is there a limit to how often and how much they can borrow from the reserves and not pay it back?

The same board has not funded the reserves for four months now, and they are planning on having additional grass removed from the golf course and desert landscaping installed. The board's reasoning is that it will be reimbursed by the Las Vegas Valley Water District for installing the desert landscaping. So they are again borrowing money from the reserve. If they have failed to fund our reserve for four months, would these actions be acceptable and legal by the board?

The same board members say our reserves are over funded, so they feel it is OK not to fund the reserve and keep the funds in our operating account as they do not want to see the operating account reduced to a minimum.

Should they decide to use the funds from the operating account to pay for the golf course desert landscaping project, would this be acceptable or would they be obligated to fund the reserve?

Our HOA dues have increased 10 percent ($175) for the last two years, and our reserve account is over funded. Why would they do this to 1,358 homeowners?

A: 1. According to Nevada Revised Statutes 116, the reserve funds are not to be used for normal operating expenses. They are to be used for the repair, replacement and restoration of the components of the common elements. Technically, the association owes the reserve account the $50,000 loan that was borrowed for paying the water bill. It should be paid back, as the borrowing of funds for normal operations is in violation of the state law.

The desert landscaping may not be explicitly listed in the reserve study, but landscaping as a category would. Your association is changing its method of landscaping.

It is a fine line, and one could argue that this conversion should not be funded by the reserves. The conversion will save much money as to water costs, which are being substantially increased. The new rates just went into effect this month.

The reimbursement for the conversion by the Southern Nevada Water District will not be 100 percent, but it is substantial.

The fact that the association has not funded the reserve account in four months is a separate issue.

As a homeowner, you have the right to obtain a copy of the reserve study, which will have a chart of what the recommended reserve balances should be for your association. There also will be additional information that lists the recommended reserve projects for any given year. You have the right to obtain the exact dollar figure of the reserve balance.

If the association is fully funded for this period of time, then it would not have to contribute any funds. For example, if your association had $150,000 in reserves and the study stated that by Dec. 31, 2012, it should have $120,000, then it would not need to fund that account. That is assuming that any projected reserve projects could be funded and the account would still maintain its year-end minimum balance of $120,000.

If the reserve account is short by the four months, the association needs to have a plan as to how to reimburse it. In addition, the association needs a plan as to how the reserve account will be replenished if funds are used for the conversion of the landscape in order to reach the recommended reserve balance at the end of the year.

You have the right to review year-end financial reports, as well as projected budgets to learn why the assessments were increased. Utility costs have increased each year. Insurance has increased. Legal costs also may have increased. In addition, your association may have a significant delinquency factor that forced it to increase assessments in order to have enough funds to operate.

All this is speculation. Contact the management company and obtain the financials, and ask the community manager whether they can properly explain why there was a 10 percent increase for the last two years.

Barbara Holland, certified property manager, broker and supervisory certified association manager, is president and owner of H&L Realty and Management Co. Questions may be sent to Association Q&A, P.O. Box 7440, Las Vegas NV 89125. Her fax number is 385-3759, or she can be reached by email at support@hlrealty.com.