B.A. from Oakland County, Michigan writes:
Dear Mister Condo,
For 2 years we have paid a special assessment for new roads/parking areas within our complex. The board has collected the money and placed it in a Reserve Account. It has come to our attention that more than enough has been collected in the first 18 months to pay for the work, but the board feels they should continue to collect until the 2 years is up so that the extra money collected can fill our reserves. This comes to $200 per unit owner x 6 more months. Is it legal to do so knowing that the assessment was earmarked for road improvement and not to fill our reserves?
Mister Condo replies:
B.A., I am glad that your Board is taking sound financial steps to provide for new roads and parking areas within your association. However, special assessments must be used for what they were intended. I think there may some improper identification of the terms used to describe what is happening and this is creating confusion and a potential liability for the Board, who would have to return the money to owners if the money isn’t used for what the assessments was passed. I offer no legal advice in this column but as a word of friendly advice, I would suggest the Board should not use the word “reserve” when describing the money collected for the road and parking area project. I can understand them putting the money aside in a special account to pay for this project but that is not a “Reserve Fund”. A Reserve Fund is a special bank account contributed to regularly as part of common fees paid to the association. Special Assessments are collected for the specific project designated at the time the special assessment is levied. In this case, roads and parking lots. Any money collected as part of this Special Assessment that is not spent on this project should be returned to owners in the same manner it was collected. The fact that it is budgeted to be collected over two years has no bearing on the matter. Unless all of the money needed to finish the project has been collected, the assessments should continue and the project should commence as scheduled. Once the project is finished, any unused money should be returned to owners. I hope that helps.