New requirements for association finances
The new year requires Homeowner Association boards to take a closer look at association financial budgets.
Assembly Bill 2912 requires the HOA board to review financial documents and account statements once a month, changing the current law from quarterly reviews. The monthly review of financial documents also requires review of the check register, general ledger, and delinquent assessment receivable reports.
In an effort to build more affordable housing, cities throughout California are approving higher density common interest developments, or CIDs. There are currently over 50,000 CIDs in the state that range in size from three to 27,000 units, making up over 4.9 million housing units, or approximately one quarter of the state’s housing stock.
CIDs include condominiums, community apartment projects, housing cooperatives, and planned unit developments where ownership includes separate housing space as well as an undivided interest in common areas.
CIDs are governed by the Davis-Stirling Common Interest Development Act, as well as the governing documents of the HOA, including bylaws, declaration, and operating rules.
Often run by volunteer boards who usually do not have particular expertise in finances or a thorough understanding of the documents they are reviewing, the bill’s intent was to provide for more frequent reviews and to create a culture of greater financial vigilance.
AB 2912 also requires the HOA to maintain fidelity bond coverage for its directors, officers, and employees, and to prohibit a managing agent from transferring funds greater than $10,000 without prior written approval from the board of the association.
HOA boards manage and pay for common expenses by charging monthly assessments to each member. While the board is ultimately responsible for how the HOA’s money is safeguarded and spent, in practice professional property managers often handle much of the day-to-day financial operations.
The 50,000+ CIDs in California have roughly $12.4 billion of homeowner assessments on deposit, and not surprisingly, there have been incidents of fraud and embezzlement. By requiring more regular reviews of financial records along with fidelity insurance to cover potential liability,AB 2912 can help protect HOAs from financial mismanagement.
If you own property in a CID, take time to review the annual financial statements and reserve funding disclosures you receive from the management company, and attend board meetings regularly.
Adriana Donofrio • deasypennerpodley Glendora (626) 926-9700 adonofrio@dppre.com
