Why Reserve studies are so important in Arizona

There is a  HUGE reason why reserve studies are so important in Arizona.  10 years ago, I purchased a brand new townhome in Chandler, Arizona.  Like many developments our HOA became involved in a defect lawsuit. Builders were slapping developments up , left and right!   The property was originally built in 1988, but the builder went under, and left the property half finished.  At that time our original board never even considered  why reserve studies are so important in Arizona.  They just knew that the CC & Rs only allowed their dues to increase 10 percent a year.

A second builder came in about 10 years later, and again, the HOA board ignored why reserve studies are so important in Arizona. They spent 2 years after the property was finished, in court, trying to obtain funds to fix defects, and then decided to only fix a few defects, and used the remainder of the funds to accumulate interest as a strategy to defray operating costs, and to keep the monthly dues low.   They looked at it as a "reserve" program.

If you are a realtor YOU need to know why reserve studies are so important in Arizona. Look at them as property "retirement plans" that will continue to make a property viable.  They will alert the risks a potential buyer may face if there isn't  enough funding to maintain the "survival" of a property.   

In Arizona there are hundreds of developments that builders abandoned, and it's why reserve studies are so important in Arizona.  This is the future "canary in the mine" for first time home buyers in abandoned HOAs.  What happens in 5-10 years if there is no plan for the future??.  Reserve studies are so important in Arizona because there are so many HOAs who will not have enough funds to maintain the properties in the next 5-10 years.  Not only will these HOAs be hit with delinquencies, but now they are going to find out that their savings are not adaquate to sustain the maintanance, and so many buyers will be faced with special assessments they hadn't planned on. 

This year our board in my HOA finally realized the importance of why reserve studies are so important in Arizona. For the last 20 years they ignored what it would cost to live here in the future.  Our HOA has to maintain the asphalt streets, the exterior paint, roofs, landscaping, pools, etc. etc.  After 5 years of my nagging on why reserve studies are so important in Arizona, the board finally obtained one, and has been in shock ever since.

We are over 40% underfunded, and we need $350,000 more to be 100% funded. We only have about 212 townhomes, with about 1/3 of them in default.  In addition to that surprise, we have learned that our property after 20 years of ignoring the importance of saving for the future, must now put in $150,000+ EVERY YEAR going forward, or we will be flat broke in about 3 years.   The only savings we had were the remains of a defect lawsuit settlement, and it was never enough.   This is why reserve studies are so important in Arizona.  The future pace of repairs is now outpacing the savings, or lack of them.

Our HOA I feel now is "toxic" to buyers, and bankers.  It is highly likely that there will be special assessments, and the risk that a buyer could default on a loan if they cannot pay them.  These are the future "balloon payments" that aren't in the fine print. ARMs were to blame for many defaults in the past, but I think that speciall assessments could be the next crisis...and that is why reserve studies are so important in Arizona.