Boards are required to exercise prudent fiscal management of the association's reserve account. Boards are allowed to borrow from the reserve account to meet short-term cash-flow problems or other expenses. Civil Code §1365.5(c)(1).

Notice of Intent to Borrow. Boards are required to give notice of their intent to borrow reserve funds by listing it as an agenda item in its notice of board meeting. The notice must include the reasons the reserve transfer is needed, some of the options for repayment, and whether a special assessment may be considered. If the board authorizes the transfer, the board must issue a written finding, recorded in the board's minutes, explaining the reasons for the transfer, and describing when and how the money will be repaid to the reserves. Civil Code §1365.5(c)(2).

Borrowing for Litigation. To temporarily transfer money from reserves to pay for litigation, the board must notify members of that decision in the next available mailing to all members. Unless the governing documents impose more stringent standards, the board must make an accounting of expenses related to the litigation on at least a quarterly basis. The accounting shall be made available for inspection by members of the association at the association's office. Civil Code §1365.5(d).

Repayment Obligation. The transferred funds must be repaid to the reserve fund within one year of the date of the initial transfer, except that the board may, after giving the same notice required for considering a transfer, and, upon making a finding supported by documentation that a temporary delay would be in the best interests of the common interest development, temporarily delay the repayment. Civil Code §1365.5(c)(2).

Special Assessment. Boards must exercise prudent fiscal management in maintaining the integrity of the reserve account, and shall, if necessary, levy a special assessment to recover the full amount of the expended funds within the time limits required by this section. This special assessment is subject to the limitation imposed by Civil Code §1366 (unless the expenditures were for emergencies as defined by Civil Code §1366(b)). The board may, at its discretion, extend the date the payment on the special assessment is due. Any extension shall not prevent the board from pursuing any legal remedy to enforce the collection of an unpaid special assessment. Civil Code §1365.5(c)(2).