Reserve Fund Statutory Basis
The Michigan Condominium act, MCL – Section 559.205, requires all condominiums to maintain a reserve fund:
559.205 Reserve fund.
A reserve fund for major repairs and replacement of common elements shall be maintained by the associations of co-owners. The administrator may by rule establish minimum standards for reserve funds.
The statute itself does not set a minimum level, but defers to the Administrator, originally the Department of Consumer and Industry Services, and currently the Office of Policy and Legislative Affairs (OPLA). The Office maintains the Condominium Administrative Rules. Rule 559.511(1) sets the minimum at 10%:
R 559.511 Reserve fund for major repairs and replacement of common elements.
Rule 511. (1) The bylaws shall provide that the association of co-owners shall maintain a reserve fund for major repairs and replacement of common elements in accordance with section 105 of the act. The co-owners’ association shall maintain a reserve fund which, at a minimum, shall be equal to 10% of the association’s current annual budget on a noncumulative basis.
The “noncumulative” language means that theoretically an association need not contribute every year if it has 10% of the current budget on hand from contributions in previous years.
The Rules recognize that 10% is the absolute minimum, and noncumulative contribution is likely appropriate only for single-family, detached “site” condominiums with few common elements and minimal maintenance responsibilities. Therefore Rule 559.511 requires Condominium Bylaws to insert additional statutory language:
(4) The following statement shall be contained in the bylaws: “The minimum standard required by this section may prove to be inadequate for a particular project. The association of co-owners should carefully analyze their condominium project to determine if a greater amount should be set aside, or if additional reserve funds should be established for other purposes.”
Fannie Mae and Freddie Mac Increasing to 15% Minimum Reserve Funding
Federal National Mortgage Association (FNMA) (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (FHLMC) (“Freddie Mac”) guarantee most mortgages in the United States. Therefore, their own rules hold considerable sway over mortgage and real property industry practices, over and above statutory and administrative requirements.
For decades, Fannie Mae and Freddie Mac have required condominium associations to dedicate a minimum of 10% of their annual budget to the reserve fund each year. This effectively eliminates the “noncumulative” option allowed under Michigan Condominium Administrative Rules.
The requirements are about to increase again. On March 18, 2026, Fannie Mae released Lender Letter (LL-2026-03) and Freddie Mac released Bulletin 2026-C. Effective January 4, 2027, Fannie Mae and Freddie Mac are increasing the minimum reserve funding requirement from 10% to 15% of the annual budget.
The requirements provide an exception to the 15% contribution if an association has a reserve study conducted or updated within the last three years, and the association is following the highest level of funding recommended in the study, not merely the baseline.
Only site condominiums with minimal maintenance responsibilities are likely to have reserve studies with the most aggressive savings track under 15%. This means that for many site condominiums, and all attached condominiums, the minimum reserve contribution will be 15% of the budget, every year.
Michigan Contemplating Mandatory Reserve Studies
Proposed Michigan law would define a reserve study as:
A study of reserve funds required to pay for future major repairs and replacement of the common elements in a condominium that meets all of the following criteria:
(a) Identifies each structural, mechanical, electrical, and plumbing component of the common elements and any other components that are the responsibility of the association of co-owners to repair or replace in accordance with the condominium documents.
(b) States the normal useful life and the estimated remaining useful life of each identified component.
(c) States the estimated current cost of repair or replacement of each identified component.
(d) States the estimated annual reserve amount necessary to accomplish any identified future repair or replacement of the components.
Reserve studies are typically prepared by independent professional companies who utilize engineers and accountants to conduct the inspections and prepare the reports and plans.
On April 14, 2026, the Michigan House of Representatives introduced House Bill 5784 of 2026. If passed by both houses of the state legislature and signed by the governor, the bill would introduce new regulations:
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- Condominiums that do not have a current reserve study would have three years to conduct one, or contract for one to be done in the fourth year.
- Existing reserve studies would have to be updated every five years.
- Impacted condominiums (virtually all):
- Maintains, repairs, or replaces common elements,
- Has an annual budget of over $20,000,
- Has more than twenty units.
- Reserve study providers would have to meet licensing or industry certification requirements.
- Condominium Boards of Directors would have to adopt a reserve funding plan to comply with the reserve study.
- Boards would have to set the annual budget to comply with the reserve funding plan.
- Boards would have to send notices and disclosures to the Co-owners regarding the reserve study, the reserve funding plan, and potential assessment increases or borrowing to comply with them.
Note that the legislature introduced a substantially similar bill in the 2023-2024 session that failed to advance, so the current bill is not guaranteed to become law.
What To Do Now
Any association that does not currently contribute at least 15% of its annual budget to its reserve fund should plan to do so for 2027. Associations with fiscal years in advance of the calendar year should do so earlier, to cover January 4, 2027.
All associations should consider conducting a reserve study or updating their existing studies if they are more than five years old.
Conclusion
If your condominium association or homeowners association has questions about reserve funding, reserve studies, or other topics in community association administration, then Tilchin & Hall, P.C., can help. Please call us at 248-349-6203 or email us using the form below.
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