T.E. from Burlington County, New Jersey writes:
Dear Mister Condo,
Mister Condo replies:
T.E., I am sorry that your HOA and a homeowner needed to take matters to court to settle a dispute. It would appear that the homeowner prevailed and now the HOA needs to make payment to the homeowner and wishes to fund that payment by using the Reserve Fund. Reserve Funds are not emergency or “rainy day” funds. They are the monies set aside for known future repairs and replacements of the common elements. Settling a lawsuit is not a legitimate reason to use the money in the Reserve Fund, but, depending on the amount of the judgment, the association may not have any other way to make a timely payment to the homeowner who prevailed in the lawsuit. At the end of the day, monies taken from the reserve Fund should be replaced as soon as possible. That might require a Special Assessment if those funds are needed in short order. If there are no schedule withdrawals from the Reserve Fund for several years, it is possible to simply raise common fees until the Reserve Fund withdrawal is replaced. Failure to replace any money taken from the Reserve Fund will not serve your community well. You should insist that the Board come up with a plan to keep the Reserve Fund funded regardless of what it takes to do so. All the best!