The Rising Cost of Inaction: How Industry Trends Are Elevating Capital Planning

Much like business leaders, HOA boards manage financial resources and make strategic decisions that both preserve and enhance the community’s value. With personal budgets tightening, every decision is under greater scrutiny, from dues increases to the timing of capital projects. While temporarily limiting assessment increases or delaying projects may seem like a low-risk way to support residents in the short term, the potential consequences can be far more significant. In fact, underfunded reserves or deferred maintenance often signal increased risk to insurers and mortgage lenders.

Industry Trends are Elevating Reserve Planning

Following the Surfside tragedy, the reserve study landscape has rapidly evolved. From legislation to insurance and lending, the impact is far-reaching. The following states, for example, have passed legislation to ensure structural and resident safety.

1. Florida – Now requires reserve studies for buildings with three or more residential stories. These communities are also required to fund reserves at the level outlined in the reserve study, and older buildings must conduct periodic structural inspections.
2. Maryland – Signed into law in 2022, all condominiums, cooperatives, and certain homeowners associations are required to conduct periodic reserve studies. These associations are also required to fund reserves at the level outlined in the reserve study.
3. New Jersey – Signed into law in 2024, condominiums, cooperatives, and certain homeowners’ associations are required to conduct periodic reserve studies. They are also required to fund reserves at the level outlined in the reserve study.
4. Tennessee – Signed into law in 2023, unit owners’ associations with $10,000 or more in common assets are required to conduct periodic reserve studies. The law intends to inform the board of how much should be set aside in reserves to avoid future assessments. There are currently no statutory funding requirements.

Insurance Trends

Underwriting standards have evolved over the past several years as insurance providers mitigate risks associated with aging infrastructure. What was once a simple verification process is now a thorough review of structural conditions, maintenance history, and financial preparedness. Communities that are unable to demonstrate proactive planning risk greater premium increases, reduced coverage, or difficulty securing a renewal.

Key insurance trends that communities experience include:

1. More Detailed Inspection Requirements – Rather than simply accepting that a reserve study exists, insurers regularly review recommended project timelines and whether structural projects have been completed. Any indication that a structural project is overdue, such as a roof replacement, inherently increases the carrier’s risk and likelihood of a future claim.
2. Condition-Based Premiums – Historically, premiums were primarily reflective of the age of a property, building materials used, number of stories, and location. Today, maintenance history, known deferred projects, and the adequacy of reserve funds, which increase the carrier’s risk, are often reflected in premiums.
3. Stricter Underwriting Terms – Increased risk is often associated with the terms of renewal. Associations that deviate from reserve funding or have a recent history of deferred maintenance are at greater risk of lower coverage limits, higher deductibles, risk-based exclusions, and, in the worst cases, denial of coverage.

Mortgage Trends

Shortly after the Surfside collapse, Fannie Mae and Freddie Mac released new guidelines for securing loans backed by government-sponsored enterprises. Meant to safeguard against safety and structural concerns, the new guidelines place greater emphasis on proper reserve funding, proactive maintenance, and periodic building inspections.

With roughly 70% of conventional loans backed by Fannie Mae or Freddie Mac, the market is highly dependent on traditional lending. When a loan is denied for a condo real estate transaction, the association is at risk of landing on a ‘do not lend’ list – meaning no buyers will qualify for a government-backed conventional loan until the association sufficiently addresses any issues at hand.

Key mortgage trends that communities experience include:

1. Stricter Reserve Requirements – Lenders often require a recent reserve study and evidence or confirmation of proper reserve funding, which is outlined in the reserve study.
2. Increased Documentation Requests – It is not uncommon to have to provide detailed maintenance and capital project records, and inspection reports as part of the loan approval process. Lenders often review reserve studies to assess the extent of structural deterioration and potential water infiltration. If project timelines deviate from the study, supporting documents that validate the board’s decision may be warranted to continue the loan review process.
3. Impact on Buyer Eligibility – As lenders are hesitant to approve mortgages for condominiums that are deemed high risk, the pool of potential buyers shrinks, impacting residents’ ability to close on the sale of their home and potentially impacting property values.

Addressing Insurance and Loan Eligibility Issues

It is becoming increasingly common for boards to address insurance and mortgage lender concerns. While, for good reason, management and the board can lean on their reserve study provider to clarify concerns about reserve funding and deferred maintenance, the reality is that, oftentimes, management and the board can lean on their reserve study provider to clarify concerns about reserve funding and deferred maintenance.

In a recent case involving a Midwest-based condo association, the board was unable to complete a brick masonry repair project in 2025, the year in which their reserve study recommended it. Due to weather constraints, the project was scheduled for 2026 instead. A mortgage application was denied due to deferred maintenance. Upon validating the board’s decision and confirming that there were no safety or structural concerns, the lender resumed the mortgage approval process.

Best Practices to Mitigate Risk

As industry expectations continue to rise, boards can position their communities for greater financial stability and resilience against external risks.

1. Prioritize Structural and Safety-Related Projects – Addressing high-risk projects, such as roofs, waterproofing systems, or structural concrete, demonstrates responsible stewardship and mitigates the risk of insurance and loan eligibility concerns.
2. Maintain Adequate Reserve Funding and Keep Your Reserve Study Current – Proper funding reduces the risk of future deferred maintenance and signals financial preparedness. Associations should update their reserve studies at least every 3 years, or sooner if funding levels change significantly or if major projects are deferred or completed.
3. Leverage Your Reserve Study Partner for Clarity and Documentation – When questions arise. Oftentimes, your provider can discuss insurance and mortgage-related concerns and provide documentation to assist with renewal and loan processing – keeping the community’s insurance renewals and real estate transactions on track.

Insurance and lending trends will continue to evolve, driving the industry toward a more resilient future. An increased focus on structural integrity and reserves supports a more proactive approach to addressing building deterioration when issues are minor, rather than waiting until they become more complex and more costly to address. Lastly, communities that take a disciplined approach to capital planning will be best positioned to maintain coverage at the most affordable rates, mitigate risks of loan eligibility, and support home values.