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UNDERFUNDED RESERVES
& EMERGENCY ASSESSMENTS
QUESTION: My husband and I are both in our 70s. Our HOA is trying to pass a $2100/year increase in dues per unit for the next six years to fund our reserves. We are on fixed incomes. I was on the board for 20 years and retired three years ago. Our dues were $170 back then and now are $740 monthly--increasing dramatically after I quit the board. I would rather have an emergency assessment than increase our dues. –Michelle D.
ANSWER: It's unfortunate that prior boards underfunded your reserves such that your current board is forced to play catch-up. It is better to gradually increase your reserves over the next six years than to have sudden large emergency assessments. Such assessments can force owners out of their units and lead to litigation.
Underfunded reserves and deferred maintenance can also cause a condominium association to be blacklisted by Fannie Mae--meaning lenders would stop funding loans to potential buyers of units in your association. That, in turn, would drive down property values.
By statute, boards must impose regular and special assessments sufficient to perform their obligations under the governing documents, which includes properly funding reserves. (Civ. Code § 5600(a)) You may need to tighten your belt for the next six years while your association builds healthy reserves.
EXCESS CONSTRUCTION
DEFECT FUNDS
QUESTION:  We had an association that received a construction defect settlement and completed their repairs. Can they move the remaining balance into their reserve account? -Michele N.
ANSWER: Associations are nonprofit corporations. That means they are not supposed to have money left over at the end of the year. Any excess revenue at the end of the fiscal year must be returned to the membership or applied to the following year's budget as required by Revenue Ruling 70-604 and 75-371. Otherwise, it will be taxed. It would make more sense to put excess funds into your reserve account. Maybe some of our CPA readers can comment on this issue.
SEX ON THE
NEIGHBOR'S BALCONY
QUESTION: A neighbor mentioned that she can hear a board member having sex on his balcony. She is not a prude, but is offended. The balconies are separated by only four feet. If children visit and play on her balcony, they could be exposed to the neighbor's activity. If someone has sex on their balcony where neighbors can hear and see it, is there any recourse? –John H.
ANSWER: HOA law never gets dull. Yes, there is recourse. The semi-public display of sex arguably falls under the nuisance provision of an association's CC&Rs. Your neighbor can file a complaint with management, who then transmits it to the board. The board is obligated to investigate complaints. Discretely raising the issue with their fellow board member may be sufficient to cause him to take his activities indoors.
NOTICE OF
EXECUTIVE SESSION MEETING
QUESTION: The Davis-Stirling Act states we are required to give two days' notice when we meet "only in executive session." What does it mean “only in executive session”? –George H.
ANSWER: If a board schedules an executive session meeting in conjunction with an open meeting, it must give at least four days' notice of the meeting. If a board schedules a standalone executive session meeting, it must give the membership at least two days' notice. (Civ. Code § 4920(b)(2))
FREE LEGAL
WEBINAR
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JOHN F. CARR
JOINS ADAMS|STIRLING
 We are pleased to announce that attorney John Carr joined our firm. John is a recent graduate of the California Western School of Law. Prior to law school, he earned a Bachelor of Arts in Philosophy from UCLA.
Before joining our firm, John worked as a law clerk in a law firm that provided general counsel to homeowner associations. His responsibilities included document review, legal research, and interpretation of Covenants, Conditions, and Restrictions (CC&Rs). John also managed the collection process for delinquent assessments, overseeing non-judicial lien foreclosures. Contact us for more information or to request a proposal.
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