Reserve Study Terms and Definitions 2017-02-04T18:35:31+00:00

Common Terms:

These are not types of properties, but are generic terms to describe the association of owners formed for the purpose of administering the business affairs and maintaining the common property owned by the association or by its members as tenants in common. A community association may or may not be incorporated depending upon the exact type of property and common ownership arrangement.

When the actual or projected cumulative reserve balance for all components is equal to the full funded balance.

The task of selecting and quantifying reserve components. Can be accomplished through on-site visual observations, review of association design and organizational documents, established association precedents, and discussion with appropriate association representatives.

The most common type of common interest development, a condominium is a distinct form of real estate ownership arrangement.  Often composed of one or more multiple-unit buildings, in a condominium each owner has sole title to the interior of his or her individual unit while all owners together share common title to the common area.  Condominiums are created and regulated under state law.  In Washington State condominiums are created under the provisions of the Washington Condominium Ace or its predecessor statute, the Horizontal Property Regimes Act.  Typical common elements include interior hallways, building exteriors, elevators, landscaping and recreational amenities like swimming pools.

Also known as a Co-Op.  Like a condominium, a cooperative is a distinct form of property ownership arrangement.  In this type of property a corporation actually owns the entire real property.  Owners occupy their units under the terms of a special proprietary lease.  Owners are shareholders or members of the corporation depending upon how it is structured.

Also known as an “HOA.”  Condominium associations sometimes call themselves homeowners’ associations, but technically this is a planned community of separate single family residences in which there are common elements owned and maintained by a corporation whose board of directors is elected by the residential owners.  As such, an HOA is not really a form of real estate ownership, like a condominium, but is just the incorporated association that owns the common elements that members share.  Once again, owners may be members or shareholders of the corporation depending upon its structure.

Occasionally, in large developments, a number of separate condominiums or homeowners’ associations, or a mixture of both, will collectively share some additional common elements, like park lands.  The Master Association is an association of all the member associations to manage the common elements shared by all associations.  The Board of the Master Association may be composed in any of a variety of ways.  In may be constituted of the board presidents of the member associations, or of other representatives of member associations, or it may be elected directly by the unit owners.

The ratio, at a particular point of time (typically the beginning of the fiscal year), of the actual (or projected) reserve balance to the accrued fund balance, expressed as a percentage.

Organized just like a Homeowners’ Association, but formed under a special agreement with local municipal authorities.  The special agreement is required because of the need for zoning variances or other special accommodation from the local municipality.

For all practical purposes the same as a Homeowners’ Association or PUD, through individual parcels may be lots rather than homes.

The estimated time, in years, that a reserve component can be expected to continue to serve its intended function. Projects anticipated to occur in the initial year have “zero” remaining life.

The cost of replacing, repairing, or restoring a reserve component to its original functional condition. The current replacement cost would be the cost to replace, repair, or restore the component during that particular year.

An assessment levied on the members of an association in addition to regular assessments. Special assessments are often regulated by governing documents or local statutes.

Technically, this is not a distinct type of common interest association.  Because town homes are typically multi-story units that stand adjacent to one another, unit owners may actually have title to a lot under their unit.  Depending upon the wording of the declaration, the property may be either a condominium or homeowners’ association.

Specialized Terms:

In the typical common interest development, the declarations allocate one vote to each unit.  Sometimes, however, individual units or parcels have different amounts of voting strength depending upon the size of the unit relative to other units.  So, for example, a larger unit might have 1.5 votes, while smaller units have only 1 vote.  The total number of votes available to be cast in the association is referred to as the total allocated votes or total voting power in the association.

Documents filed with the state which define the characteristics of an incorporated entity.  Typical articles specify the purposes of the corporation, whether it is operated for profit, what officers it has, and similar items.

An amount of money levied by a community association on its members for the maintenance and upkeep of the association and its property.  Also commonly known as ‘association dues.’  Regular assessments are those levied and paid on a regular schedule, usually monthly.  Special assessments are those which are imposed for special purposed when needed, for example to finance a major repair or planned improvement to the property.  Assessments can also include any interest or late fees due on unpaid assessments as well as penalties or fines for violation of association rules.

The operating rules of an association which regulate such matters as the election of officers, the conduct of meetings, and other things related to the operation of the association.  Bylaws are often subject to modification by the board of directors or by a vote of the membership of the association.

Also referred to as “common elements.”  It is those parts of the real property which are not part of any individual unit and which are shared by some or all unit owners in common.  These areas are administered by an association acting through its board of directors.  The boundary between common area and individual units is specified in the governing documents of the association.  See also Limited Common Area.

A legal document, filed in the property records of the county in which a community association is located, which creates the common ownership of common areas and defines the restrictions to which all units and owners are subjects.  Also known as the ‘Declaration of Covenants, Conditions and Restrictions (CC&R’s), this document is like the constitution of the association.  It defines the rights of members and the powers and authority of the association and its board of directors.  All owners of units within a community association are subject to the provisions of the declaration by virtue of their ownership of a unit within the property.  No specific act of assent or acceptance is required and therefore no owner can avoid being subject to the provisions of the declaration.

The portion of any insurance claim that must be paid by the insured before the insurance policy begins to pay.  Deductibles are universal in all types of property and casualty insurance.

The legal process of selling the property of a debtor in order to satisfy the debt from the proceeds of the sale.  There are various types of foreclosure proceedings but all involve the action of a court to authorize the sale, and the conduct of the sale by the county sheriff or other court appointed official.  Common interest property association may have the right to foreclose upon a unit in the property to recover unpaid assessments.  See also Lien.

Independent of methodology utilized, the following represent the basic categories of funding plan goals:

  • Baseline Funding – Maintaining a Reserve Balance above zero.
  • Full Funding – Maintaining a Reserve Balance at or near a Percent Funded of 100%.
  • Statutory Funding – Maintaining a specified minimum Reserve Balance and/or minimum Percent Funded as required by local statutes.
  • Threshold Funding – Establishing and maintaining a minimum Reserve Balance and/or minimum Percent Funded.

Usually a shorthand term for Declarations of Covenants, Conditions and Restrictions, but may also refer to by-laws, articles of incorporation or rules of the association.  Articles of incorporation are the equivalent of declarations in a cooperative, which does not have declaration as such.

A legal right of a creditor to force the sale of property of their debtor to satisfy the debt.  Most governing documents, and the Washington Condominium Act, provide that the association automatically has a lien against any unit for the value of any unpaid assessments.  To actually collect the money, the association must foreclose the lien through the courts, and recover the unpaid assessments from the proceeds of the sale of the property.

A part of the common area which is reserved for the use of an individual unit owner.  Exterior decks are the most common example.  Though reserved for the use of a specific unit, they are nonetheless part of the common area and as such may be maintained by the association.

The authority to cast a vote for another who is not present, usually at a meeting.  The right to cast votes by proxy is not automatic, but must be authorized by the governing documents of an association or by the board of directors operating under authority given by the declarations or by statute.  The Washington Condominium Act, Homeowners’ Association statute, and Horizontal Property Regimes Act all authorize the use of proxies in certain enumerated circumstances.  Many declarations also contemplate the use of proxies, either explicitly or implicitly.

The number of persons who must be present in order to hold an official meeting and conduct business.  In the case of an association, it is the number of units that must be represented, either in person or by proxy (if proxies are allowed), for an official meeting to be held.  Quorum requirements are generally specified in governing documents or by-laws.

An assessment levied to finance a single project or undertaking.  Distinguished from a regular assessment which is levied monthly or yearly to pay for regular operations of the association.  Though levied only once, special assessments may nevertheless be paid in regular installments over a period of time.  In poorly managed associations, special assessments may occur with some regularity.