Use Of Reserve Funds - Finances - Civil Law - CA

Section § 5510

This law requires that any withdrawal from an association’s reserve accounts must be authorized by at least two directors, or one director and one officer who isn't a director. These reserve funds can only be used for specific purposes related to the repair, restoration, replacement, or maintenance of major components of the property that the association is responsible for, including any legal matters related to these actions.

(a) The signatures of at least two persons, who shall be directors, or one officer who is not a director and one who is a director, shall be required for the withdrawal of moneys from the association’s reserve accounts.

(b) The board shall not expend funds designated as reserve funds for any purpose other than the repair, restoration, replacement, or maintenance of, or litigation involving the repair, restoration, replacement, or maintenance of, major components that the association is obligated to repair, restore, replace, or maintain and for which the reserve fund was established.

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Section § 5515

This law allows the board of a community association to temporarily move money from a reserve fund to their regular funds to cover short-term needs. Before doing so, they must notify members about why they need to transfer the money and how they plan to repay it. If they do proceed with the transfer, they must document everything, including repayment plans, and aim to return the money within a year. If they need more time to pay it back, they must follow the same steps as the initial transfer. The board is also responsible for managing the money wisely and can impose a special charge to recoup the funds if necessary, but they must adhere to existing restrictions on such charges. They may extend the due dates for these charges but still have the right to collect unpaid amounts.

(a) Notwithstanding Section 5510, the board may authorize the temporary transfer of moneys from a reserve fund to the association’s general operating fund to meet short-term cashflow requirements or other expenses, if the board has provided notice of the intent to consider the transfer in a board meeting notice provided pursuant to Section 4920.

(b) The notice shall include the reasons the transfer is needed, some of the options for repayment, and whether a special assessment may be considered.

(c) If the board authorizes the transfer, the board shall issue a written finding, recorded in the board’s minutes, explaining the reasons that the transfer is needed, and describing when and how the moneys will be repaid to the reserve fund.

(d) The transferred funds shall be restored 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 restoration.

(e) The board shall 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 Section 5605. 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.

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Section § 5520

This law section says that if a homeowners' association decides to use their reserve funds for legal actions, they must let their members know about this decision and the related expenses. They should provide a way for members to see an accounting of these expenses every three months, unless their rules require something stricter. Members have the right to inspect these financial records at the association's office.

(a) When the decision is made to use reserve funds or to temporarily transfer moneys from the reserve fund to pay for litigation pursuant to subdivision (b) of Section 5510, the association shall provide general notice pursuant to Section 4045 of that decision, and of the availability of an accounting of those expenses.

(b) Unless the governing documents impose more stringent standards, the association shall 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.

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