What Happens When a Condo HOA Is Underfunded?

the association may not have enough money set aside for future repairs and replacements.

This is commonly described as being underfunded.

For condo owners and buyers, underfunding matters because the association is responsible for maintaining major shared components of the property. Elevators, roofs, exterior systems, parking structures, pools, mechanical equipment, and other common elements eventually require repair or replacement.

If the association has not accumulated sufficient reserves when those expenses arrive, owners may ultimately have to provide the money another way.

That can mean higher monthly assessments, special assessments, association borrowing, delayed projects, or some combination of all four.

An underfunded HOA does not automatically mean a condo is a bad purchase. But it should prompt a closer look at the building's finances, maintenance history, upcoming projects, and long-term planning.

Here is what Atlanta condo buyers and owners should understand.

Explore Atlanta condo buildings, browse condos for sale, or contact The Agency Atlanta Intown for help evaluating a specific condominium property.

What Does It Mean for a Condo HOA to Be Underfunded?

A condominium association typically collects money from owners through regular assessments, commonly called HOA fees.

That money generally supports two broad categories of expenses:

• Current operating expenses
• Future capital repairs and replacements

Operating expenses may include items such as:

• Utilities for common areas
• Landscaping
• Cleaning
• Management
• Insurance
• Routine maintenance
• Pool operations
• Security or concierge services

Reserve funds are intended for larger expenses that do not occur every month.

Examples can include:

• Roof replacement
• Elevator modernization
• Exterior restoration
• Parking deck repairs
• Pool renovation
• Major mechanical systems
• Common-area refurbishment
• Waterproofing

An HOA may be considered underfunded when the money being accumulated for those future needs is not reasonably aligned with the building's expected capital expenses.

A Low Reserve Balance Is Not the Entire Story

It is tempting to judge financial health simply by looking at the association's reserve-account balance.

But the number needs context.

A $1 million reserve fund may sound substantial.

For a small building with limited common elements, it might be.

For a large high-rise facing elevator modernization, exterior restoration, roof work, and parking-deck repairs, it may be inadequate.

The better question is:

How much money does the building have compared with what it is likely to need?

Why Do Condo Associations Become Underfunded?

There are several possible reasons.

Monthly HOA Fees Were Kept Too Low

Owners naturally prefer lower monthly assessments.

But if assessments remain below the level needed to operate the property and fund future capital expenses, the financial shortfall does not disappear.

It is simply postponed.

Reserve Contributions Were Too Small

An association may cover everyday expenses adequately while contributing too little to reserves.

That can make the budget appear balanced in the short term while creating a longer-term funding gap.

Construction Costs Increased

A reserve plan prepared years ago may underestimate what a major project costs today.

Labor, materials, engineering, insurance, and construction costs can change substantially over time.

Unexpected Problems Were Discovered

Some major repairs cannot be predicted perfectly.

Water intrusion, structural deterioration, hidden plumbing failures, or other unexpected conditions may create expenses that were not fully anticipated.

Maintenance Was Deferred

A board may postpone a project because the association does not have enough money or because owners resist higher assessments.

Delaying necessary work can sometimes make the eventual repair more expensive.

The Building Is Aging

As a condominium building gets older, multiple major components may approach the end of their useful lives around the same time.

A building that required relatively little major capital work during its first decades may later face several expensive projects in succession.

What Happens When the Money Is Needed?

If an expensive project becomes necessary and reserves are insufficient, the association has several potential options.

These may include:

• Increasing regular HOA assessments
• Imposing a special assessment
• Borrowing money
• Using available reserves and assessing owners for the remainder
• Postponing or reducing the project scope

Each approach has different consequences for owners.

Higher Monthly HOA Fees

One of the most straightforward solutions is raising regular assessments.

Higher fees can help the association:

• Cover rising operating expenses
• Increase reserve contributions
• Rebuild depleted reserves
• Service association debt

A meaningful increase may improve the association's long-term financial position.

But it also increases each owner's monthly cost of ownership.

Special Assessments

If the association needs a large amount of money relatively quickly, it may levy a special assessment subject to the condominium documents and applicable law.

For example, owners could be assessed for a project involving:

• Exterior restoration
• Roof replacement
• Elevators
• Structural repairs
• Parking decks
• Major plumbing work

Depending on the project and building, an owner's share can range from manageable to substantial.

Related reading: What Buyers Should Know About Condo Special Assessments

The Association May Borrow Money

Another option is association financing.

Instead of requiring owners to pay the entire cost immediately, the association may borrow funds for a major project and repay the loan over time.

That can make a large project more manageable for owners, but the debt still has to be repaid.

The cost may ultimately appear through:

• Higher monthly assessments
• A separate debt-service assessment
• Longer-term financial obligations

Buyers should understand any existing association loans before purchasing.

Deferred Maintenance Can Become the Most Expensive Outcome

An underfunded association may postpone work because the money is not available.

That can create a cycle:

1. A problem is identified.
2. The association delays the repair.
3. The condition worsens.
4. The eventual project becomes larger.
5. The cost increases.
6. Owners face a larger financial obligation.

Not every delayed project becomes more expensive, but deferred maintenance deserves careful attention.

Underfunding Can Affect the Physical Condition of the Building

Financial health and physical condition are closely connected.

If money is consistently unavailable, owners may begin seeing:

• Worn common areas
• Aging elevators
• Exterior deterioration
• Recurring leaks
• Parking-deck issues
• Outdated mechanical systems
• Delayed amenity repairs

Those issues can eventually affect both everyday ownership and buyer perception.

It Can Affect Resale Value

When buyers compare two otherwise similar condominium buildings, financial strength can become an important distinction.

A building with:

• Healthy reserves
• Completed major projects
• Predictable assessments
• Well-maintained common areas

may appear more attractive than one facing significant deferred maintenance and uncertain future assessments.

Underfunding does not determine resale value by itself, but it can influence demand.

It Can Make Units Harder to Sell

Imagine a buyer considering two similar condos.

Building A has:

• Strong reserves
• No major projects immediately pending
• Recently modernized elevators

Building B has:

• Limited reserves
• A major exterior project under discussion
• No final estimate for the work

Even if the individual units are comparable, the buyer may view the financial risk differently.

That difference can influence which property receives the offer.

Underfunding Can Affect Financing

Condominium financing involves more than qualifying the individual borrower.

Lenders may also evaluate the condominium project.

Depending on the loan program and circumstances, they may review issues involving:

• Association finances
• Insurance
• Delinquencies
• Special assessments
• Structural or safety concerns
• Deferred maintenance
• Major repairs

A weak association does not automatically make financing impossible.

But significant financial or physical issues can complicate the approval process.

Financing Problems Can Affect Even Cash Owners

A cash buyer may reasonably think lender requirements do not matter.

But future buyers may need financing.

If a building becomes difficult to finance, the resale buyer pool can become smaller.

That is why project eligibility matters even to an owner who never intends to have a mortgage.

Underfunding Can Lead to Repeated Special Assessments

An occasional assessment does not necessarily indicate a weak association.

A major project may simply exceed what reserves were designed to cover.

But repeated assessments deserve closer attention.

For example:

• One year: elevator assessment
• Two years later: exterior assessment
• Next year: plumbing assessment
• Shortly afterward: parking-deck assessment

That pattern may indicate that the building has been funding major capital projects reactively rather than accumulating sufficient reserves over time.

Owners May Experience Assessment Fatigue

Repeated calls for additional money can become difficult for owners.

Some may be able to absorb each assessment easily.

Others may struggle.

That can create secondary problems such as:

• Delinquencies
• Resistance to necessary projects
• Pressure to postpone work
• Difficulty approving future assessments

The financial condition of individual owners can therefore begin affecting the association as a whole.

Delinquencies Can Make Underfunding Worse

If owners do not pay assessments on time, the association may collect less cash than expected.

That can put additional pressure on the budget.

Management and collection efforts may eventually recover some amounts, but timing matters when the association has current bills and projects to fund.

When reviewing association financials, buyers should pay attention to accounts receivable and delinquency levels.

Low HOA Fees Can Be Misleading

Buyers often compare buildings by monthly HOA fee.

Lower naturally feels better.

But consider two hypothetical buildings.

Building A

Monthly HOA fee: $600

The association contributes minimally to reserves and has several major projects approaching.

Building B

Monthly HOA fee: $800

The association makes meaningful reserve contributions and has planned for major component replacement.

The $600 fee is not automatically the better financial deal.

The buyer should evaluate what the association is doing with the money and what future obligations may exist.

Higher HOA Fees Do Not Automatically Mean Better Funding

The reverse is equally important.

A higher monthly fee does not guarantee that an association is financially healthy.

A building may have higher operating expenses because it includes:

• Concierge staff
• Extensive amenities
• Large common areas
• Multiple elevators
• High insurance costs
• Complex mechanical systems

The association may still be contributing too little to reserves.

Always review the finances.

Related reading: What Buyers Need to Know About HOA Fees

What Is a Reserve Study?

A reserve study is designed to help an association anticipate major future capital expenses.

It generally evaluates important common components and estimates factors such as:

• Current condition
• Remaining useful life
• Expected replacement timing
• Estimated replacement cost
• Recommended funding

The study can help the board determine how much money should be contributed to reserves over time.

A Reserve Study Is a Plan, Not a Guarantee

Reserve studies can be extremely useful, but they cannot predict every expense perfectly.

Actual conditions may change.

Construction costs may rise.

Components may fail sooner than expected.

Unexpected defects may appear.

The question is whether the association is using reasonable planning tools and adjusting its finances as circumstances change.

Ask How Recently the Reserve Study Was Updated

An old study may rely on outdated construction costs and assumptions.

If a study exists, ask:

• When was it prepared?
• Has it been updated?
• Is the association following its recommendations?
• Have major projects occurred since the study?
• Are current reserves consistent with the plan?

How Can Buyers Identify Potential Underfunding?

No single document answers every question.

Instead, look for patterns across several sources.

1. Financial Statements

Review reserve balances, operating cash, accounts receivable, and outstanding liabilities.

2. Annual Budget

Look at how much the association contributes to reserves each year.

3. Reserve Study

Compare expected projects with available funding.

4. Meeting Minutes

Look for discussions of major repairs, funding shortages, insurance issues, or postponed work.

5. Special Assessment History

Determine whether owners have been assessed repeatedly.

6. Association Loans

Find out whether the association has existing debt.

Related reading: How to Read Condo Financial Statements Before Buying

Board Meeting Minutes Can Reveal Problems Before the Financial Statements Do

Financial statements show numbers.

Meeting minutes can provide context.

For example, minutes might reveal discussions such as:

• The roof needs replacement within two years.
• Elevator proposals are being requested.
• An engineer is investigating water intrusion.
• The board postponed exterior repairs.
• Insurance premiums increased substantially.
• A special assessment is being considered.

Those discussions can help buyers understand what expenses may be approaching.

Watch for Repeatedly Delayed Projects

If meeting minutes repeatedly mention the same major repair without resolution, ask why.

The answer may be reasonable.

Perhaps engineering is still underway or the board is evaluating competing proposals.

But a long pattern of postponement may indicate that the association lacks the funds or owner support necessary to proceed.

Insurance Costs Can Add Pressure

Insurance is a significant condominium operating expense.

When premiums or deductibles rise, the association may have less money available for other priorities unless regular assessments increase accordingly.

Insurance pressure can therefore contribute indirectly to reserve-funding challenges.

Aging Elevators Can Be a Major Expense

High-rise buyers should pay particular attention to elevators.

Modernization can be a significant capital project, and buildings with multiple elevators may face substantial costs.

Ask:

• How old are the systems?
• Have they been modernized?
• Is modernization scheduled?
• Has money been reserved?

Elevator history can be particularly relevant in older Midtown and Buckhead high-rises.

Parking Structures Can Also Be Expensive

Parking decks may look simple, but they are substantial structural assets requiring maintenance.

Potential work can include:

• Concrete repair
• Waterproofing
• Drainage
• Joint replacement
• Coatings
• Structural repairs

If a large parking structure has received little capital attention for many years, buyers may want to ask what is planned.

Exterior Systems Matter

Depending on the building, exterior work may involve:

• Stucco
• Brick
• Concrete
• Glass systems
• Sealants
• Balconies
• Waterproofing
• Windows

These projects can be costly because they may involve engineering, scaffolding, lifts, specialized contractors, and extensive labor.

Windows Can Be Especially Complicated

In some condominium buildings, window responsibility may involve the association.

In others, responsibility may rest with individual owners or be divided depending on the governing documents.

Before assuming that reserve funds will cover a future window project, determine who is actually responsible.

Underfunding Can Affect Amenities

When money is tight, discretionary projects may be postponed.

That could include:

• Clubroom renovation
• Pool improvements
• Fitness-center updates
• Lobby renovation
• Landscaping enhancements

Those projects may not be as urgent as structural repairs, but aging amenities can influence how buyers compare the building with competing properties.

Financially Strong Associations Still Have Expenses

A well-funded association does not mean owners will never experience:

• HOA increases
• Special assessments
• Major construction

Buildings age and costs change.

The advantage of stronger funding is that the association may have more options and greater financial flexibility when large expenses occur.

Underfunding Is Often a Matter of Degree

Associations are not simply "funded" or "underfunded" in a binary sense.

One building may have a small funding gap that can reasonably be addressed through gradual HOA increases.

Another may have substantial unfunded projects approaching immediately.

That difference matters.

Timing Is Critical

Consider two buildings with similar reserve shortages.

Building A

Major capital work is not expected for another eight years, giving the association time to increase contributions.

Building B

The same amount of work is needed next year.

The reserve balances may appear similar today, but Building B has far less time to solve the problem.

What Happens After a Major Assessment?

An assessment can improve an underfunded building's position if it successfully finances necessary work.

For example, owners might fund:

• New elevators
• A new roof
• Exterior restoration
• Parking-deck rehabilitation

After completion, the building may have several major capital needs addressed for years.

But another question remains:

Has the association changed its funding approach so it is better prepared for the next major project?

Replenishing Reserves After a Project Matters

A large project may consume a substantial portion of the reserve account.

That can be appropriate if the money was saved specifically for that purpose.

But after the project, the association needs a strategy for rebuilding reserves.

Otherwise, the next major expense may create another funding crisis.

How Underfunding Can Affect Investors

Condo investors should pay particular attention to association finances because unexpected assessments can materially change investment returns.

Suppose a rental condo produces $5,000 per year in positive cash flow.

A $15,000 special assessment represents the equivalent of three years of that projected cash flow.

An investor should therefore consider:

• Reserve funding
• Upcoming projects
• Assessment history
• Potential HOA increases
• Association debt

Related reading: The Risks and Rewards of Condo Investing

How Underfunding Can Affect Sellers

Owners planning to sell should understand the association's financial position before listing.

A buyer may request information about:

• Special assessments
• Reserves
• Planned projects
• Association debt
• Meeting minutes

If an assessment is likely, uncertainty may affect buyer behavior even before the assessment is formally imposed.

Transparency Is Better Than Surprise

Significant association issues are generally better addressed clearly and accurately than discovered late in a transaction.

Buyers are often more comfortable evaluating a known issue with defined costs than an uncertain problem with no established plan.

Can an Underfunded Building Still Be a Good Purchase?

Yes, depending on the circumstances.

A buyer might determine that:

• The unit is appropriately priced
• The upcoming projects are clearly defined
• The financial obligation is manageable
• The building has adopted a credible funding plan
• Major improvements will materially benefit the property

The presence of a funding shortfall should be analyzed, not automatically treated as a reason to walk away.

When Should Buyers Investigate More Carefully?

Additional scrutiny may be appropriate when:

• Reserve balances are low
• No recent reserve study exists
• Major projects are approaching
• Projects have repeatedly been delayed
• The association has substantial debt
• Owners have experienced repeated special assessments
• Delinquencies are high
• Financial records are unclear
• Insurance issues are unresolved
• The board cannot explain how upcoming work will be funded

Questions Buyers Should Ask

1. How much money is currently held in reserves?
2. How much does the association contribute to reserves each year?
3. Does the building have a reserve study?
4. When was the reserve study last updated?
5. Is the association following its recommendations?
6. What major projects are expected in the next five to ten years?
7. How will those projects be funded?
8. Are any special assessments being discussed?
9. What special assessments have occurred recently?
10. Does the association have outstanding loans?
11. How much association debt remains?
12. Are any major repairs being deferred?
13. What is the owner delinquency rate?
14. Have HOA fees increased recently?
15. Are additional increases anticipated?
16. Have insurance costs materially changed?
17. Are there any unresolved structural or water-intrusion issues?
18. When were the elevators last modernized?
19. What major exterior work has been completed?
20. What capital project is likely to come next?

Documents Buyers Should Review

Depending on availability and the transaction, useful documents can include:

• Current annual budget
• Recent financial statements
• Balance sheet
• Reserve study
• Board meeting minutes
• Annual meeting minutes
• Special assessment notices
• Capital project reports
• Engineering reports
• Association loan information
• Insurance information
• Condominium declaration and bylaws

Do Not Evaluate the HOA in Isolation

The financial position should be considered alongside the physical property.

A lower reserve balance may be less concerning if the association recently completed several major projects.

A larger reserve balance may be less reassuring if the building faces exceptionally expensive work in the near future.

Context matters.

What Does a Well-Managed Financial Plan Look Like?

No association can predict every expense, but stronger financial planning generally includes:

• Realistic operating budgets
• Consistent reserve contributions
• Periodic review of major building components
• Planning for predictable capital projects
• Adjustments when costs change
• Transparent communication with owners

Perfect forecasting is impossible.

Reasonable preparation is not.

Do Not Focus Only on Today's Monthly Payment

One of the most important lessons for condo buyers is to look beyond the current HOA fee.

The true cost of ownership includes both today's expenses and the building's future capital needs.

A $700 monthly assessment with strong reserves may ultimately create a different ownership experience from a $500 assessment followed by repeated large special assessments.

That does not make either structure automatically better.

It means buyers need to understand how the association funds the property.

The Building Is Part of What You Are Buying

When you purchase a condo, you are not simply purchasing the interior of a unit.

You are becoming financially connected to:

• The roof
• Exterior
• Elevators
• Parking areas
• Mechanical systems
• Amenities
• Insurance
• Other common elements

The condition and financial planning of the entire building therefore matter to your investment.

Related reading: What Makes a Condo Building Hold Its Value Over Time?

Final Thoughts

When a condo HOA is underfunded, the financial obligation does not disappear.

Eventually, necessary repairs and replacements still need to be paid for.

The association may respond through higher regular assessments, special assessments, borrowing, delayed projects, or a combination of these approaches.

For buyers, the goal is not to find a building that will never have a major expense. Every condominium property requires maintenance over time.

The more useful question is whether the association appears to understand its future obligations and has a reasonable strategy for paying for them.

Review reserves in context. Look at upcoming projects. Read meeting minutes. Understand existing debt. Ask about prior assessments. Determine whether necessary work has been delayed.

A financially prepared condominium association can help create a more predictable ownership experience and protect the physical condition of the building over time.

If you're considering an Atlanta condo and want help evaluating the building as well as the individual residence, contact The Agency Atlanta Intown. We can help you review the property's financial and physical considerations, recent sales, current competition, HOA documents, and the factors that may affect long-term ownership and resale.

This article is provided for general informational purposes and is not legal, financial, accounting, lending, or investment advice. Condominium finances and governing documents vary by property. Buyers should review the specific association documents and consult appropriate legal, lending, financial, or other professionals when necessary.