Homeowner Association's Reserve Studies have become a critical issue when selling a condo.

"A Reserve Study is a document prepared by an outside company for the administration of a property with multiple owners, such as a condominium association or Homeowner's association (HOA), containing an assessment of the state of the commonly owned property components as determined by the particular association's CC&R's and bylaws".

Reserves Studies are intended to help determine how much of the monthly dues need to be set aside to provide for future expenses such as maintenance and capital improvements. 

As banks continue to tighten their lending criteria, condo HOA Reserves have become a critical issue in their underwriting process. Underwriters are scrutinizing Reserves Studies like never before.

Banks are now requiring that at least 10% of monthly dues allocated to reserves in order to approve a condo building, and effective November 2, 2009, FHA loans will require that reserves are 60% funded. I have never seen a condo HOA that is 100% funded. In my experience selling condos I've observed that on average, most HOA's are 20-50% funded.

These more stringent reserve requirements are going to cause problems in closing condos sales as many buildings will not meet the new underwriting guidelines.

I'm all for responsible lending but I think lenders have an obligation to alert HOA's of their requirements ahead of time so that HOA Boards can take the necessary steps to avoid problems should owners wish to sell their condos.