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HOA Homefront: Who’s watching out for our association’s money?

Q: Are there laws governing the responsibilities and obligations of HOA boards, especially those related to limits on raising the monthly assessments that each resident in the community pays? — C.G., San Diego

A: Most CC&Rs limit boards to the assessment increases allowed by Civil Code Section 5605(b), permitting boards to increase assessments up to 20% annually, and to impose special assessments up to 5% of the HOA’s gross budgeted annual total expenses. These powers must be exercised in an open meeting, and care should be taken to explain to the members the reasons why the action was taken. Civil Code Section 5600 requires the HOA to collect sufficient assessments to “perform its obligations.”

Q: Are there any suggested or mandatory statements board members must enter into the minutes of board meetings when complying with Civil Code §5500 & §5501? — E.A., Redondo Beach

A.: Civil Code Section 5500 requires boards to perform a monthly review of the HOA’s operating and reserve accounts current reconciliation, latest bank account statements, and income and expense statements. The board must also review monthly the current year’s actual operating revenues and expenses compared to the current year’s budget, the check register, monthly general ledger, and delinquent assessment receivable reports.

Per Civil Code Section 5501, the requirement may be satisfied by the entire board or a board subcommittee consisting of the treasurer and at least one more director. Those reviewing the financial information should confirm in writing or orally in each open board meeting that the review has been completed for the months since the last meeting. A short confirmation in the minutes, listing the persons who performed the review should be sufficient.

Q: Our board recently imposed an emergency special assessment, imposing a large per-unit assessment to obtain a multimillion-dollar project loan for reconstruction after years of deferred maintenance.

The city issued a written recommended plan rating our units but only requiring that the repair of the “severe” units be made in a timely manner.  Many homeowners opted to pay the assessment as a lump sum upfront instead of making monthly payments.

Our general operating fund, which had been underfunded for years, suddenly had a big increase. It appears the association collected the lump sum assessment payments and applied them to the general operating fund.

They are also drawing money from the project loan at the same time for repairs and reconstruction. Can they use the pre-collected assessment funds on anything they want to or for projects outside the stated purpose of the emergency assessment? — C.N., Santa Ana.

A: Emergency assessments are permitted by Civil Code Section 5610 when an expense is ordered by court, responds to a newly discovered personal safety concern, or is an extraordinary and unanticipated non-budgeted expense. If the latter basis is invoked (which appears from your question to be the case), the board must pass a written resolution with findings as to the necessity and unforeseen nature of the expense.

As to where the funds are deposited, there may be a question regarding how the assessment funds are accounted for. The collected funds must be used for the stated purpose, or they may not be valid emergency assessments. Consult legal counsel before imposing emergency assessments.

Kelly G. Richardson CCAL is Partner of Richardson Ober DeNichilo LLP, a California law firm known for community association advice. Send potential column questions to Kelly@rodllp.com


Source: Orange County Register

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