Condo Board Borrowing from Reserve Fund for Operational Expenses

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F.V. from Fairfield County writes:

Dear Mister Condo,

Our HOA board is under developer control.  They are “borrowing” money from the reserve account for operational expenses.  At the end of the year they will put the money back into the reserve account.  Is this legal?  Thanks.

Mister Condo replies:

Answer

F.V., developer control questions are always a bit tricky as there are some rules that only apply during the developer control process. Also, since I am not an attorney, I figured it would be best to ask one of my community association attorney friends who has experience with these issues and others that arise during the developer transition phase of condo governance. Here’s what he had to say:

“Yes this is legal, so long as nothing in the declaration or bylaws prohibits it and the transaction is openly documented.   There is no state law which prohibits moving money between the reserve and operations budgets.  The developer does owe an enhanced duty to treat the finances with special care in the association’s best interests, but if the money is truly needed to fund operations, the developer can transfer funds in good faith for that purpose.”

That sounds about right to me. Thank you for the question and best wishes!

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