RESERVE ACCOUNTS
Q.
Our homeowner association recently lost money on its mutual
fund account. Is
a board of directors allowed to invest association funds
in a mutual fund?
A.
Absolutely not. All
funds must be placed in an insured account in a bank, savings
and loan association or credit union. Top
RESERVE STUDIES
AND AUDITS
Q.
Our homeowners association has not obtained a reserve study
for more than four years.
We do obtain audits each year.
Can an audit report be truly accurate if we don’t have
a current reserve study, when the audit is completed?
A.
No. Without a current reserve
study, the balance sheet included in your audit report will
reflect the numbers on your books, but it will not reflect your
association’s current, actual liability for future replacements.
This liability may be substantial.
The California Civil Code
requires associations to complete a reserve study every
three years and to review it for accuracy each year. Not only are reserve studies
required by law, they are excellent planning tools. Top
DISTRIBUTION OF FINANCIAL STATEMENTS
Q.
I own a townhome, but am not on the board of directors. While attending a recent
board meeting, I asked our management company representative
for a current financial statement.
My request was denied and I was told that I am only entitled
to a year-end report. Is this correct?
A.
No. California law requires a board of directors to provide
every member with a year-end financial report but it
does not preclude you from receiving interim reports. You are entitled to a monthly
report, less the member delinquency report, but will
be required to pay the cost of duplication. You are also permitted
to inspect association records for any association related
purpose. Top
AUDIT REQUIREMENTS
Q.
Is it necessary for our homeowner association to be audited
yearly?
A.
No, however a review of the financial statement of the
association must be prepared by a licensee of the California
State board of Accountancy for any fiscal year in which the
gross income to the association exceeds $75,000.00. Many associations
prefer an audit to a review because the examination by the accountant
is more complete and the cost is not much more.
Please note that a copy
of the review (or audit) of the financial statement must
be distributed to each member of the association within
120 days after the close of each fiscal year. Top
ANNUAL BUDGETS
Q.
Our homeowner association board cannot complete and distribute
the annual budget on time. What do you suggest we do?
A.
Distribute it on time in the most accurate form possible
with a note to the members indicating that it will be
revised at a later date. Be certain to include any anticipated
increase in assessments up to 20%. You can always reduce
the assessments later. Top
BANKRUPTCY
OF MEMBERS
Q.
I am the treasurer of our homeowners association. Recently, a member of our
association filed for bankruptcy under Chapter 7. He owes the association
over $6,000.00. Our
management company has advised us that there is nothing
we can do. What
is your advice?
A.
Section 523(a) of the Bankruptcy Code provides that dues
owed to condominiums, cooperatives or other similar
membership associations after the filing of a bankruptcy
petition are not dischargeable, to the extent that the
dues are payable while the debtor either lived in or
received rent for the condominium or cooperative unit. In
other words, so long as the homeowner still lives in
the unit or rents it out to someone else, the dues will
continue to accrue after the date of the filing of the
petition. Your association management
company can collect these dues. Top
SUSPENSION OF ASSOCIATION
Q.
How can I determine if my homeowner association has been suspended by the California Secretary of State?
A.
First, go to the California Secretary of State website: www.ss.ca.gov/business Next, click on “California Business Search.” Type the exact name of your association into the “Corporations Search Bar” and click on “search.” The exact name will be found in the Bylaws. When the name comes up on the screen, click on it. The “status” will indicate either “active” or “suspended.” Top
