What Your Board Should Be Doing at This Budget Meeting
Somebody at your next budget meeting is going to ask, “Are we at 15%?” And if the room goes quiet, that’s your answer.
Here’s what the reporting says. The Wall Street Journal broke down new Fannie Mae and Freddie Mac lending rules for condos. Fast-track mortgage approvals for condos are gone. And starting in January, associations need to put at least 15% of annual dues toward reserves, up from 10%. The same piece cites data showing 39% of condo associations are already in a weak financial state on reserves.
Roughly four in ten condo associations are behind before the bar even moves.
This isn’t a law. That distinction matters.
Fannie Mae and Freddie Mac aren’t regulators handing out fines. They’re the entities that buy the mortgages your buyers are trying to get. So, the penalty for missing this isn’t a citation, it’s a buyer who can’t close, a seller who drops the price, and a comp that drags down every unit in your building.
That’s a slow-motion problem, which is exactly why boards let it slide. Nobody gets a letter. You find out when a unit sits on the market for five months and the listing agent starts asking uncomfortable questions about your budget.
The Math Is Simpler Than Boards Expect
Fifteen percent of annual dues means exactly that. Take your total annual assessment income, multiply by 0.15, and that’s what needs to be going to reserves.
Made-up numbers to show the shape of it: if your association collects $800,000 a year in assessments, the old 10% target was $80,000 to reserves. The new one is $120,000. That $40,000 has to come from somewhere. Either dues go up, operating expenses come down, or you pretend the problem isn’t there and deal with it in January.
Most boards I’ve watched go through this discover the gap is smaller than they feared and the fix is more boring than they hoped. It’s a line item. It’s not a crisis. It only becomes a crisis when you find out in December.
The Part That Trips People Up: Budgeted Isn’t the Same as Funded
This is where we would push hardest if we were sitting on your board.
A reserve contribution on paper means nothing if the money never moves. I’ve seen budgets that showed a healthy monthly reserve transfer while the cash sat in the operating account all year, quietly covering a landscaping overrun and an insurance increase. The budget said 15%. The bank statement said otherwise.
With segregated reserve accounts, reserve money sits in its own account, and it moves on a schedule, not when somebody remembers. If your reserve transfer is a journal entry instead of an actual transfer, your reserve balance is a story, not a number.
And when a lender or a buyer’s attorney asks for proof, they’re going to want the statement, not the budget.
What to Check Before You Adopt This Year’s Budget
Five things.
None of them take long.
1
Pull your total annual assessment income and multiply by 15%. Compare it to what your budget actually allocates to reserves. Write down the gap.
2
3
4
5
Who Checks the Number
One more thing, and it’s the one that gets skipped.
Whoever prepares your budget shouldn’t be the only person who reviews it. Not because anybody’s a crook but because a single set of eyes on the numbers is how a missed transfer goes unnoticed for eleven months. Independent review means someone who didn’t build the number is looking at whether it’s real, comparing the budget line to the bank statement, and saying something when they don’t match.
A board treasurer who reads the reserve statement every month catches this in week four. A board that reviews it at year-end catches it in month twelve, after a buyer has already walked.