The reserve study your New Mexico association just paid for may no longer count
The reserve study your New Mexico association just paid for may no longer count
2026-09-15 · New Mexico · Compliance
A reserve study is the standard way a condominium association proves it is adequately funded without hitting a flat percentage target. Since August 3, 2026, one common kind of study no longer does that job at all.1
The method that was banned
Reserve studies are usually funded on one of two models. Full funding aims to keep the reserve balance at or near the accumulated depreciation of the components. Baseline funding aims lower: it keeps the reserve balance positive, approaching zero but never crossing it. Baseline funding produces a smaller assessment, which is why dues-sensitive associations have favoured it.
Fannie Mae's Lender Letter LL-2026-03 removes it: “NOTE: Lenders are no longer permitted to use the baseline funding method which is the option that allows the reserve cash balance to approach but never fall below zero.”
Freddie Mac's Bulletin 2026-C states the same rule as a two-part test on the association's budget:
“• The project's budget must include the highest recommended reserve allocation amount in the reserve study, and • The highest recommended reserve allocation amount must not be based on a baseline funding method — where the reserve cash balance approaches but never falls below zero.”
Two separate requirements, and boards conflate them
The first requirement is about the budget: whatever the study's highest recommended allocation is, the budget must carry that figure, not a lower one the board preferred. The second is about the study itself: if the study's recommendation was generated on a baseline model, it fails regardless of whether the budget matches it.
An association can therefore fail on either limb independently — a good study underfunded, or a fully funded budget resting on a study built the wrong way.
Who this catches in New Mexico
The associations most exposed are the ones that did the responsible thing recently. A board that commissioned its first reserve study in 2025 or early 2026, received a baseline-funded recommendation, adopted it, and raised dues to meet it, has a current study, a matching budget, and no qualifying reserve position under the new rule.
Nothing about that study was wrong when it was ordered. Baseline funding is a recognised professional method and remains one; what changed is that the secondary market will no longer accept it as evidence.
What to ask the reserve analyst
The question is narrow and it is answerable from the report itself. Which funding model produced the recommended contribution — full, threshold, baseline, or a cash-flow variant? What is the highest recommended annual allocation in the report, as distinct from the recommendation the board adopted? And can the analyst reissue the study on a non-baseline model without a fresh site inspection?
Many studies present more than one funding scenario. Where they do, the reissue may be a document exercise rather than a new engagement, which matters when the fifteen-percent deadline is in January.
How this interacts with the 15 percent rule
The two changes are designed to work together and they have different dates, which is where boards lose track. The reserve-study rules were effective August 3, 2026, and lenders were permitted to implement them earlier. The move from a 10 percent to a 15 percent minimum reserve allocation applies to loan applications dated on or after January 4, 2027.
An association has, in practice, one of two compliant positions available to it in January: budget 15 percent of annual budgeted assessment income, or hold a non-baseline reserve study and budget its highest recommended allocation. The second route is the one that can produce a number below 15 percent — and the only one that requires the study to have been done correctly.
There is no New Mexico backstop
New Mexico imposes no statutory reserve requirement on associations. Neither the Condominium Act nor the Homeowner Association Act requires a reserve study, sets a funding level, or specifies a method. Whatever the secondary market requires is therefore the operative standard for a New Mexico association that wants its units to remain financeable — and the operative standard changed twice this year.
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