Responding to reported cases of fraud and embezzlement against homeowners associations (“HOAs”), the California Legislature enacted Assembly Bill 2912 (“AB 2912”), which became effective on January 1, 2019. AB 2912 amends the Davis-Stirling Common Interest Development Act by adding safeguards to protect HOAs for common interest developments by increasing HOA board of directors (“Board”) oversight over the HOA’s financial accounts, establishing tighter control over monetary transfers, and generally protecting HOAs from financial fraud.
The key provisions of AB 2912 are summarized below:
- Civil Code Section 5380 has been amended to prohibit an HOA’s managing agent from making transfers of greater than Ten Thousand Dollars ($10,000) or five percent (5%) of an HOA’s total combined reserve and operating account deposits, whichever is lower, without prior written approval of the Board.
- Civil Code Section 5500 now requires an HOA Board to review the HOA’s financial statements monthly (rather than quarterly under the prior law). The Board’s review must now include more complete financial statements and HOA account records.
- Civil Code Section 5806 requires that HOAs maintain fidelity bond insurance providing coverage for dishonest acts, including computer fraud and funds transfer fraud, by an HOA’s managing agent and their employees, in addition to the HOAs’ directors, officers and employees. The coverage must be in an amount equal to or more than the combined amount of the reserves of the HOA and the total assessments of the HOA for three (3) months.
HOA Boards and managers should review their procedures to make sure they comply with the new legal requirements. While AB 2912 may increase the burden on HOA Boards and HOA managers, the new rules will help to ensure that HOAs maintain control over their finances and protect the investments of home owners.
Authored by Reuben, Junius & Rose, LLP Attorney Jay Drake
The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.