Q: Our HOA has their bank accounts with an online bank. Our payments are mailed to a postbox address outside California. I contacted the bank, and they were unable to provide a physical branch address in California. Civil Code 5380 requires the HOA to deposit HOA funds in a bank account in the State of California is it not? — P.B., Tarzana
A: Civil Code Section 5380 is one of the group of statutes (5375-5385) that applies to HOA managing agents. Section 5380 contains several HOA financial protections.
Subpart (a) requires that a third-party manager (not an employee of the HOA) deposit HOA funds in either an account controlled by the HOA or into a trust account maintained by the manager in a bank, savings association, or credit union within the state of California.
If you have confirmed that the manager’s bank has no presence in California, then the association deserves an explanation as to why the manager is violating this requirement.
Association boards should note the entire Section 5380, which contains several important financial protections for HOAs.
Q: I am about to pay off a mortgage on my son’s townhouse. Last fall, I checked and the HOA seemed in good shape with 70% reserves and only a few of the units more than 90 days in arrears or in foreclosure. You never know, so I wonder what happens if the HOA goes belly up? — M.L., Irvine.
A: Checking on the financial condition of the HOA before buying is very important and a good idea. Once one becomes an owner, the Annual Budget Report (required by Civil Code Section 5300 to be prepared by all California HOAs) is a great way to gauge the association’s financial health. High delinquencies and a low reserve fund balance are two factors among many that can indicate poor HOA financial health.
HOAs since the HOA must sell all its assets, and HOAs normally don’t own much since all is owned by members. A reorganization bankruptcy involves rescheduling debts instead of eliminating them.
I am often asked by HOAs about receiverships or bankruptcy, and both are likely expensive disasters for HOAs. Like any homeowner, the HOA needs to pay the actual costs of homeownership – receivership or bankruptcy are typically not answers. Also, bankruptcy should be unnecessary, since Civil Code Section 5610 allows for emergency assessments.
Kelly G. Richardson CCAL is a Fellow of the College of Community Association Lawyers and Partner of Richardson Ober LLP, a California law firm known for community association advice. Send column questions to Kelly@roattorneys.com.
