At the 2022 annual meeting we discussed the recent changes in Maryland law that requires all condos, housing cooperatives and homeowner associations to obtain a reserve study every 5 years and to maintain sufficient budget reserves as recommended by the study. This new requirement looked to be a significant challenge for us, since the studies had to be completed by a certified professional with extensive experience (for example, they must have completed at least 30 reserve studies in the prior 3 calendar years). The study looked like it would be expensive and that it would be difficult to find a certified professional in this area.
I've documented the many steps I took to respond to this challenge in the sections below. It's a long story, but it has a happy ending, I think. The bottom line is that we are probably exempt from this requirement. The reason we are "probably" exempt is summarized in the next section. And if you want the full story, there are some other sections below with many more details.
The early draft of this law available to us at the annual meeting did not allow for exceptions for Associations like ours, with no amenities and no structures on the Common Area other than some culverts. However, the final text of the Maryland Homeowners Association Act, section ยง11B-112.3, has some rather confusing verbiage about a $10,000 threshold for "initial purchase and installation costs". This confusing language is supposed to be clarified in the coming year to say that as long as the repair cost of any structure in the common area is less than $10,000, the reserve study requirement does not apply.
If we had to pay an excavation company to replace the culvert over Herrington Stream, there is a possibility that the repair would exceed $10,000. However, we have a price for the materials, and we have priced the equipment rental. If we do the labor ourselves, we believe the repair would be well under the $10,000 threshold. As long as we have enough able-bodied property owners with the right skills, we should not need to pay for a reserve study.
It is worth noting that the culvert is in very good shape, and the bottomless steel arch construction is typically good for 50 to 75 years, according to vendors of the arch material. Also, we have seen the stream overflow twice in prior years, but that was when the lake was there to impede the flow. There is no reason to think this culvert is a risk in the next 20 years, although keeping some funds in reserve for that contingency is appropriate.
Another item worth noting is that of the 10 companies I contacted, only two gave us prices. One offered to do the study for $2895. The other quote was for a $1900 retainer, but no final cost. That's a substantial investment in paperwork.
After one reserve specialist company (Mason and Mason) turned us down, I started to contact some other HOA's in the area to see how they were responding to the new Maryland reserve study requirement. I contacted Robert Sutton at Deep Creek Property Owners Association and Debra McDonnell at A-Plus HOA Management for advice. Bob hadn't heard of the new requirement and didn't seem interested, but Debbie understood that the reserve study was something the HOA's needed to address. Her recommendation was to contact Karen Straughn at the Consumer Protection Division in the office of the Maryland Assistant Attorney General. Karen is the Director of the Mediation Unit, and any HOA complaint in Maryland will be addressed by that department. I asked Ms. Straughn whether there was any exemption for small HOA like ours, where our only structures were for stormwater management, and the estimated cost to repair was less than $10,000. Her response was: "Unfortunately, there are no 'work arounds'. If you have common elements, then a reserve study must be done..." Her email is in the documents linked on this page.
Since the reserve study requirement seemed "inescapable", I started looking for ways to keep the cost to a minimum. The obvious strategy to keep the cost low was to work with other HOA's in Garrett County to contract for multiple reserve studies by one company. Several years ago, I had started a spreadsheet of all the HOA's in Garrett County that are listed in the Maryland Land Records, so I had a list of about 67 HOA's and 25 COA's (condos). What I needed to do was look up each of these, get the contact information, and see if they wanted to join us to share the cost of a reserve study specialist.
However, filling in the information on the HOA spreadsheet proved to be a lot more difficult than I expected. First, it appears that very few HOA's in Garrett County have websites. Of the 67 HOA's on the list, I could only find websites for 17 of them. Most of those 17 websites were for rental properties, and those websites were maintained by their management companies. There is only a small handful of HOA's that keep a website with documents and general information pertinent to the property owners, and none of them came close to the amount of information that is available on the Minnetoska.com website. Second, I tried looking up each HOA in the Maryland State Department of Assessment and Taxation (SDAT) to see whether there was additional contact information. I didn't do this search for all 67 HOAs, but about one half of the ones I looked up aren't listed in SDAT, which implies there are many HOA's in Garrett County that aren't properly registered with the state. Several of the resident agents for those that were registered were names from retirees or lawyers who have passed away. Clearly, keeping this state-required information up to date did not seem a priority for most HOA's. So, it became clear that finding good contact information for HOA's in Garrett County was not going to be easy, as there doesn't appear to be a reliable or direct way to assemble that information.
Since the strategy to team up with other HOA's wasn't going to be easy, I started sending out Requests for Quotations (RFQ) to as many reserve study contractors as I could find. The Community Associations Institute (CAI) maintains a list of companies and certified reserve specialists, and I filled out the RFQ form for the 10 companies that did work in the Mid-Atlantic region. The list of companies and reserve specialists I contacted are noted on separate tabs of the spreadsheet "Garrett.xls". We received 3 responses. One was from Falcon Engineering, who quoted us $2895 to do the study. Another was from the large company Reserve Advisors, who asked for a $1900 retainer to proceed. The 3rd response was from Jason Merli at Miller-Dodson. That one had some very useful information that is detailed in the next section
The response from Miller Dodson was extremely useful. Here is their summary:
The response was based on the final wording of the Maryland HOA Act of October 2022, which included the exemption for common element repairs less than $10,000. This wording wasn't in the drafts we had earlier, so it turns out that our belief that we needed a reserve study are probably incorrect.
Unfortunately, I had not looked carefully at the culvert for Herrington Stream prior to sending out the description in the RFQ, and I underestimated the effort to replace it. I assumed it was a 3-4' pipe, when in fact it is a bottomless steel arch about 4.5' high and 10' across. According to one guideline from the University of Maine, this size of steel arch material runs about $290 per lineal foot, and the span across Koshare is 17 feet. So, one estimate for the arch material is roughly $5,000. We would need to rent the excavation equipment ($1000/day) and may need two loads of stone, which is another $1,000. Both Eric and Reds agreed that we could do this repair with the right equipment, and that the total cost would almost certainly be under $10,000. However, if the work is done by an outside excavation company, the total cost could exceed $10,000. So, it is possible to make an argument that we are not exempt from the reserve study, depending on how the repair cost is estimated.
The Minnetoska Board had already done an informal reserve analysis about 10 years ago, based on a worst-case situation of heavy rainfall damaging multiple culverts. Based on that analysis, we had established a cap of $20,000 on our savings account. Since that time, we have replaced the other large culvert of concern on Sanders Lane and found that replacing these smaller culverts is not overly expensive. The only structure that we might possibly need to address in a reserve study is the one culvert over Herrington Stream, on Koshare Lane. We don't need to spend $2895 on a reserve study to tell us that obvious result. At this time, we have a credible path to completing a repair on this structure for less than $10,000, especially since some of the work to repair the road surface could be justifiably funded through the road maintenance budget. Since we can honestly claim that we do not meet the $10,000 threshold repair requirement, the Board President recommends that we adopt the position that the Minnetoska POA does not require a reserve study.
Given this new assessment of our reserve needs, the Board President further recommends lowering our current reserve of over $27,000 to a more realistic level of $10,000. The current reserve excess should either dispersed back to the property owners, with some portion held in reserve as a buffer against inflation, or else be used to fund the up-front cost for the Sanders Lane tar and chip effort. The tar and chip effort should have a similar ten-year cost as our current strategy of applying stone and periodically grading the gravel, but it requires a much larger up-front investment. The Board had unanimously agreed to the tar and chip solution as the best long-term solution for maintaining Sanders Lane, and the President strongly recommends we continue to pursue a path to fund this solution.