What Amount of Reserves Does the Law Require?

What Amount of Reserves Does the Law Require?

Dear Kelly, Is there any legal requirement for the reserves to be at any levels or is it a recommendation by the state? Can an HOA be taken over by the state if it is underfunded and if so, at what percentage? Thank you, S.P., Newport Beach Mr. Richardson, Please tell me if there is a Civil Code requiring a certain percentage of funds to be kept in the HOA reserve fund? Also, would you know if there is an average or median level that is known for California HOA’s.? Ours is over 100 percent. J.D., El Cajon Dear S.P. and J.D., The Davis-Stirling Act contains several requirements regarding reserves. Civil Code Section 5550 requires a full study be performed every three years, with annual reviews in-between. Civil 5550(b)(5) requires a long-term funding plan, and Civil 5560 requires that plan include scheduled assessment increases and be adopted in an open board meeting. Civil 5565 requires a detailed written disclosure of the status of each common area component in the reserve study, which disclosure must be in the form prescribed by Civil 5570. This disclosure, per Civil 5300(b)(2) is part of the Annual Budget Report, and so is distributed annually to members and to prospective buyers. Civil 5510(b) requires that reserve funds be spent only on the items they are reserved for, and per Civil 5515 any other withdrawal of reserve funds is considered borrowing which must be disclosed to the members per Civil 5520. The Davis-Stirling Act does not specify any minimum funding of reserve accounts and does not specify a percentage the fund must be in comparison to...
Can We Limit Dogs?

Can We Limit Dogs?

Hi Kelly,  Our HOA recently voted to update our CC&R’s. One section prohibits ownership of numerous breeds of dogs that the board considers dangerous. Since California law (Food and Agri. Code 31683) outlaws dog breed discrimination by counties and cities we are the only HOA in the region that bans ownership of certain dogs. Isn’t it illegal under Davis-Stirling to violate state law?  R.L., Rancho Santa Fe  Dear R.L., The Food and Agricultural Code section you mention applies to ordinances adopted by cities and counties, but not restrictions passed by common interest developments. So, when the association members voted to approve an amendment to the CC&R’s prohibiting certain dog breeds, the amendment would not violate that specific law. However, the Davis-Stirling Act does protect the right to have a “pet,” which per Civil Code 4715 includes dogs. Under that statute, an association must allow an owner to keep one pet on the property. The statute defines “pet” as including ”any…dog,” so if one takes the statute as written, it is the homeowner who chooses what breed of dog to have, not the HOA. Thanks for your question, Kelly Dear Mr. Richardson, How can HOAs handle large, aggressive service dogs that otherwise would be barred by CC&R’s? How can HOAs accommodate residents’ allergies or legitimate fears re: service animals? A.Y., West Los Angeles Dear A.Y., The Fair Housing Act requires associations to provide reasonable accommodations to residents with disabilities, and one of the most common accommodations allowing a service dog or support animal. However, if the dog creates a nuisance by damaging property or menacing other residents, that accommodation may...
Two Homeowners Want Out, One Wants In

Two Homeowners Want Out, One Wants In

Dear Kelly, Is there a way to get out of our three member HOA? Our home stands alone. The other two are connected. Thank you for your comment on this! K.N., Santa Barbara Dear K.N., I assume your association was established as a condominium project. Most likely the developer wanted to put more homes on the land than the zoning and Subdivision Map Act would allow. Condominiums are often a way to place more homes in a smaller space. Small associations are often pinched between the increasingly complex and burdensome Davis-Stirling Act and the cost of hiring professional management and legal counsel to navigate the Act. Most very small associations operate largely in disregard of the Act, typically more like a partnership than an association. If the three properties cannot meet the requirements of separate independent lots, it may be impossible to disband the association. It would certainly take agreement of all three owners and each of their mortgage lenders to make that change. Check with a real estate attorney in your area to find out if this is possible. Best, Kelly Dear Mr. Richardson, How can I resign from the HOA as an owner? J.K., Anaheim Dear J.K., A common interest development (aka “homeowners association”) automatically is joined when one becomes an owner in that development. That happens by virtue of the recorded covenants on the property which “run with the land” and are a contract binding the owner even though the owner never signed it. To exit the contract one must cease to own the land on which the CC&R’s are recorded, meaning the only way to...
Giving Our Board a (Financial) Break

Giving Our Board a (Financial) Break

Dear Mr. Richardson, We just received a set of amended bylaws and CC&Rs presented to us for a vote. One section concerns us, it says that the board can vote itself a waiver of monthly assessments if the HOA is self-managed. The board states that the documents have been approved by an attorney they hired to help them with updating these documents. You wrote previously that if an association has no professional manager, it is probably innocently violating many laws. Your column is awesome! Sincerely, D.W., Goleta Dear D.W., The Davis-Stirling Common Interest Development Act has become so complicated and changes so often that it is quite difficult for associations to operate without a qualified and competent professional manager (either general managers on-site or portfolio managers working through a company). To operate completely in compliance with the law and its extensive disclosures and procedures, a volunteer in a self-managed association will normally work so many hours that it seems unfair. Indeed, when I see associations having great difficulty filling seats on their board, it is usually because one or two directors work 20 or more hours a week on HOA business and potential board candidates are unable or unwilling to commit to that amount of time. One idea which comes up occasionally is to give the directors a financial break since they are working for free for the community. Nothing in the Davis-Stirling Act specifically says the HOA cannot compensate volunteers. So, paying volunteers is not illegal. Most HOA bylaws have a provision banning HOAs from compensating a director for board service but allowing it to reimburse the director...
Removed Presidents, The PUD Myth

Removed Presidents, The PUD Myth

Dear Mr. Richardson, The president of our HOA was recently removed as president (with no explanation and at an unposted meeting) but she is still on the board, referred to as director at large, with no duties. Someone said she is not eligible to vote in that capacity. Is that true? J.K., Murrieta Dear J.K., The president, as with any officer position within the board of directors, normally serves at the pleasure of the board, under Corporations Code 7213(b). Check your HOA bylaws to be sure. Usually there is one section for “board of directors” and a different section for “officers.” You probably will find that officers are appointed from within the board. So, one could be removed by the board from one’s officer position – but being removed from an officer position is different than being removed from the board. Normally after losing one’s officer position one is still a board member. The board does not need to state a reason for changing officers, because no “cause” is needed. However, changing officers should be accomplished during an open meeting with the minimum 4 days agenda notice. Some boards mistakenly consider this a “personnel” matter and so handle the decision in closed session. However, in this context, “personnel” means employees of the association. Thanks for your question, Kelly Kelly, I live in a PUD as I was told. Why do you say there is no such thing, and California has planned developments? B.K., Sun City  Good morning, In an earlier article you stated that California has only planned developments not PUDs. Our manager swears that we are a PUD....