Investing, Growing, and Withdrawing Reserve Funds

Investing, Growing, and Withdrawing Reserve Funds

Kelly, I am a member of my HOA board. Our prior management company had done all of our investments (from our direction) for our reserve funds. FDIC insured CD’s were used as we understood that they were required by California law only to invest our funds in FDIC insured funds. We saw that the interest rate income from FDIC insured funds did not cover inflation increases and considered utilizing a financial firm to assist us to find some other opportunities that better protected our reserve assets using a combination of FDIC and SIPC insured securities. We have had some questioning from homeowners if it legal for us to utilize an SIPC insured fund (versus an FDIC fund). What type of investment opportunities are legal for HOA reserve funds? Thank you, C.W., Oceanside Dear C.W., As a fiduciary of the association funds, the board must keep the members’ money secure and not subject to reduction. In the world of financial fiduciaries, if the fund shrinks, the fiduciary could be “surcharged,” meaning held personally liable for the reduction in the fund due to loss of funds. Loss of funds is not a risk with deposits in banking institutions insured by the Federal Deposit Insurance Corporation (FDIC), so long as no more than $250,000 is in any one institution. Many associations spread their reserve funds across multiple banks to keep their funds all insured within the limit. The Securities Investor Protection Corporation (SIPC, www.sipc.org) protects against a stock brokerage becoming insolvent or taking a client’s funds – but it expressly does not protect against declining investments. Associations are often tempted to place...
What Makes a Director Outstanding [Part 4] – Participation in Board Meetings

What Makes a Director Outstanding [Part 4] – Participation in Board Meetings

Productive and efficient meetings are not happenstance but are the result of committed and prepared volunteers, normally assisted by a great professional manager. To help bring about the best board meetings: Read the agenda packet Come to the meeting prepared, having already read the agenda and the supporting materials. The packet is provided in advance to prepare you to make the decisions presented. Reading it for the first time at the meeting disrespects the other directors, indicates lack of commitment, and delays meetings as one “gets up to speed.” Stay on topic A single director can derail discussions by moving on to a different topic before the current one is concluded. Politely remind colleagues when deliberations stray from the matter at hand. Talk to the board, not the audience Directors attend board meeting to deliberate with board colleagues, not the audience. Grandstanding by speaking to the audience disrespects other directors and encourages raucous meetings. Ask the manager for input on most motions The board’s most frequent protector under the Business Judgment Rule is the manager, so seek the manager’s input. The manager often has years of experience and training; take advantage of that background. If a manager’s input isn’t being sought, why have them in the meeting? Treat open forum as an important event and pay attention California law requires open forum at all membership meetings and open board meetings. That is the time for the board to listen to the community. Take notes and don’t interject or argue. Open forum reminds directors that they are there to serve their community, and often helps the board learn things they...
What Makes a Director Outstanding [Part 3] – Understanding How The Role Is DIFFERENT

What Makes a Director Outstanding [Part 3] – Understanding How The Role Is DIFFERENT

All the knowledge and experience from the working world (“day job”) can actually hinder a volunteer’s effectiveness in the world of HOA governance if the differences between the two worlds are not understood. Outstanding directors have learned that much of what worked for them in their day job will likely work poorly in the context of board governance. The chain of command is completely different in a community association. In the workplace, there is usually a person who is the “big boss”, somebody who is your immediate supervisor, and someone who you supervise. In the association, no single person is in charge. Decisions are made by the board, so the chain of command is horizontal and not hierarchical. The president in a common interest development is not the “big boss.” The president has far less power in most nonprofit corporations since all important decisions are made by the board, and so the president’s vote is no more important than any other. In this very different paradigm, the individual director typically has no personal power. Once directors embrace the framework of the board as decision-maker, they understand that they cannot make individual promises. This restraint can be very freeing since no individual is responsible for the association and its actions, as all decisions is made by board vote. So, when confronted at the pool or parking garage by homeowners demanding action, the director can truly say they can’t individually do anything and suggest the homeowner bring their concern to management or to a board meeting. Directors failing to adapt to the group decision-making process will often stray outside of corporate...
Boards Elections [Part 2]

Boards Elections [Part 2]

Dear Mr. Richardson, We cannot get people to volunteer to be on the board. I have been on the board and told the manager I didn’t want to run. She put my name on the ballot, and said I had to stay on the board until someone took my place. What happens if you don’t have people to serve on the board? Thanks, L.W., Encinitas Dear L.W., The usual cause for difficulty in finding volunteers is that homeowners are discouraged from volunteering by seeing directors working long hours for the HOA. The less common reason is HOAs in turmoil often have trouble filling seats with brave souls. A provisional director could be appointed by the court if the board cannot attain quorum, but this is very expensive (the director will charge hourly). You cannot be forced to serve as a director. A director can resign any time, and the board then can in an open meeting vote to fill the vacancy. The manager may be misapplying Corporations Code 7220(b), which says that a director serves until the term expires and a replacement is elected. Corporations Code 7224(c) provides that a director may resign upon giving written notice. I hope your board investigates the reasons why people are unwilling to serve, and things improve. Sincerely,Kelly Mr. Richardson, We have several candidates running for the board and one candidate is the spouse of an owner of record but she is not on title. Our board president announced in an open meeting that the candidate was not eligible to be a candidate based on the president’s interpretation of the Davis-Stirling Act. Your...
Boards Elections [Part 1]

Boards Elections [Part 1]

Mr. Richardson, What recourse does a member have if the board refuses to abide by the governing documents or state law? Our president refuses to hold the annual election in an apparent attempt to stay in power. C.S., Poway Dear C.S., 5% of the members may under Corporations Code 7511(c) send a written petition demanding a membership meeting. However, most likely the board will ignore it. I have seen members announce their own membership meeting, but this is a bad idea because it is too easy to make an error in the very technical election procedures required by Civil Code 5100-5135. A better option may be to file a court petition under Corporations Code 7510(c) for an order compelling an election. This involves legal expense, and is a last resort, but judges are normally sympathetic to these petitions and are willing to order an election. Before going to all the effort and expense of filing a court petition, make sure you have member support (and a few candidates). Best regards, Kelly Dear Kelly, Our association did not make quorum, so our election was postponed a month. Each homeowner gets 1 vote, but there were couples at this meeting so some homeowners got 2 votes. Some homeowners returned a handful of ballots they had collected. I was told each homeowner must mail or bring their ballot in themselves. Is this legal? D.P., Aliso Viejo Dear D.P., Civil Code 5115(a)(2) says that ballots may be mailed or delivered by hand to a location specified by the inspector of elections but does not specify who does that. Election rules could avoid a...