Wisconsin law grants immunity for underfunding condo reserves. The mortgage market does not
Wisconsin law grants immunity for underfunding condo reserves. The mortgage market does not
2026-09-21 · Wisconsin · Compliance
Wisconsin has a condominium reserve statute. It is optional, it prescribes no funding level, and it contains a subsection that immunises directors and associations for the decision not to fund at all.
Section 703.163 of the Wisconsin Statutes is titled “Statutory reserve account.” Nearly every operative provision in it is permissive.1
The opt-outs
A declarant may decline to create one at the outset — § 703.163(3)(c): “The declarant may elect not to establish a statutory reserve account under par. (a) at the time the condominium is created or, at any time thereafter, may elect to terminate a statutory reserve account during the period of declarant control under s. 703.15 (2) (c).”
An older condominium may decline by majority vote — § 703.163(5) requires an association for a condominium created before November 1, 2004 to establish an account “unless the association, with the written consent of a majority of the unit votes, elects not to establish a statutory reserve account.”
And an association that has one may end it — § 703.163(6)(b): “An association may, at any time with the written consent of a majority of the unit votes, terminate a statutory reserve account.”
The section also does not reach every condominium. It applies only to all-residential condominiums, does not apply to a small condominium unless it opts in, and reaches a mixed-use condominium only on a double-majority opt-in.
The immunity subsection
§ 703.163(10), headed “Liability immunity”:
“No declarant, unit owner, association, or director, officer, manager, or employee of an association is liable in connection with the establishment or termination of, or decision not to establish or terminate, a statutory reserve account or for any deficiencies in the statutory reserve account that relate to the determination of amounts to be assessed for reserve funds. This subsection is in addition to any other liability protection available under law.”
Where an account does exist, the statute still sets no number. § 703.163(7) directs the association to determine the amount “after considering” five factors — current reserve funds, estimated cost of repair or replacement, estimated remaining useful life, the proportion covered by the account versus other means, and “[a]ny other factor that the association considers relevant.” Factors to consider, not a study to commission and not a percentage to hit.
What the mortgage market now requires instead
Fannie Mae's Selling Guide B4-2.2-02, as published August 5, 2026, requires that a project budget “provides for the funding of replacement reserves for capital expenditures and deferred maintenance that is at least 10% of the budget,” calculated by dividing the annual budgeted replacement reserve allocation by the association's annual budgeted assessment income.2
Ten percent is what the Guide says today, as served on the date of this article. The Guide also closes the obvious workaround: a reserve study may establish a funding goal that lets the reserve balance approach but never fall below zero — the baseline funding method — but “this method may not be used to waive the 10% reserve requirement.” The reserve-study alternative requires a study demonstrating adequate funded reserves, with the budget incorporating “the highest recommended reserve allocation amount in the reserve study to adequately cover the costs identified.”
A rise to 15 percent has been announced but is not yet in the Guide. Fannie Mae's Lender Letter LL-2026-03, “Updates to Project Standards & Property Insurance Requirements,” is the instrument, and the change is reported to apply to loan applications dated on or after January 4, 2027, with Freddie Mac aligned. Fannie Mae's own site does not serve that Lender Letter to us, so we have not read it directly; what we can confirm from the Guide is that the published requirement is still 10 percent and that the page carries Announcement SEL-2026-07, issued August 5, 2026, as its most recent related announcement.
One related change is visible in the Guide itself: the Full Review page no longer references the Limited Review process at all, consistent with reports that Limited Review was retired for established condominium projects in August 2026. Full Review examines the association's budget, reserve funding, insurance, delinquencies, litigation, special assessments and inspection reports.
Why the two regimes collide in Wisconsin specifically
Three things compound.
Wisconsin imposed no discipline of its own. Chapter 703 requires no reserve study and no minimum funding, and § 703.163(10) removes the liability consequence that in other states pushes boards toward funding. A Wisconsin board that has never commissioned a reserve study is not breaking Wisconsin law.
The escape hatch appears to be gone. Under Limited Review a large share of loans in established Wisconsin projects — the 1970s-to-2000s suburban condominium stock around Milwaukee, Madison, Green Bay and the Fox Valley — never had the association's budget examined at all. The Guide's Full Review page no longer mentions Limited Review.
The consequence is financing, not enforcement. No Wisconsin regulator penalises a nine-percent reserve line; there is no Wisconsin agency with authority over association boards at all. The consequence is that units stop being financeable with a conventional conforming mortgage.
Nor does a special assessment substitute. Special assessment revenue is excluded from the Guide's reserve calculation, and where a special assessment “is not yet planned or approved, but it is disclosed that one will most likely be required in the future,” the Guide directs the lender to determine the project is not in need of critical repairs under the ineligible-projects section.
The timing, which is the part with a date on it
Wisconsin associations adopt budgets in the autumn for the following calendar year. The 2027 budget adopted between October and December 2026 is the budget a lender will read in January 2027 — against 10 percent if the announced change slips, and against 15 percent if it holds.
There is also a documentary wrinkle worth knowing. Where a Wisconsin condominium does operate a statutory reserve account, § 703.163(11) requires the statutory reserve account statement to be recorded with the register of deeds — and that subsection was itself amended by 2025 Wisconsin Act 234, the register-of-deeds rewrite enacted April 8, 2026. The change was a cross-reference repair rather than a new obligation, but it means the statute's history line now reads 2003 a. 283; 2021 a. 168; 2025 a. 234.
Our Wisconsin reserve studies page covers what § 703.163 does and does not require, and budget approval covers the annual budget obligation under § 703.161.
What to watch next
The 2025-26 Wisconsin Legislature enacted 247 acts and did not add a reserve mandate, a reserve-study requirement or a condominium building-safety inspection law. The 2026 Joint Legislative Council study-committee slate — district attorney funding, cryptocurrency, floodplain restoration, artificial intelligence in health care, veterans' benefits, cemeteries and state-tribal relations — contains nothing on housing, condominiums or community associations, so chapter 703 will get no interim review before the 2027-28 session convenes in January 2027.
One federal bill would change the arithmetic from the other direction: H.R. 9569 would let a condominium association itself borrow on an FHA-insured loan secured by future assessment liens. It was referred to House Financial Services on June 30, 2026 and has had no action since.
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