Borrowing from Reserves

Started by IreneJ • 10 replies • 1491 views

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IreneJ (California)
Posts: 38

Posted:

Can anyone shed some light on borrowing from reserves in California? I believe the board must inform members when borrowing from reserves to cover monthly operating expenses. When informing members, the board needs to define a plan and timeline for repayment. There seems to be a "gray" area in the law when a board temporarily "suspends" reserve deposits. One side claims the funds were never deposited so there is no need to inform the members. The other side believes homeowners need to be informed. I realize that if the funds are "temporarily" suspended for 1, 2 or even three months, it may not seem necessary. However, in our case, 3 months has turned into 11 months and the checks have now been voided so and there has been no plan for repayment. The total amount not funded is over $220,000 and our reserve account is only 20% funded as it is. I am having a hard time going along with not informing the membership and I'm afraid it will continue because it seems that the board finds this to be an "easy solution" to a cash flow problem they have created.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Irene,

You basically understand it correctly.

See:

Borrowing From Reserves Requirements from Davis-Stirling.com

Davis Stirling's Reserves menu page

AlbertN (California)
Posts: 10

Posted:

Please see the following link:

http://www.davis-stirling.com/tabid/1593/Default.aspx#axzz2GXyxzdmX

I hope that you also updated your Annual Assessment and Reserve Funding Disclosure Summary (Civil Code Sec 1365.2.5) to indicate potential assessments.

IreneJ (California)
Posts: 38

Posted:

Thank you for responding. If the board does not inform homeowners, what recourse can I take? I want to do my job as a board member but I'm not sure they will agree. I dont want to cause problems but I think we need to be responsible and abide by the law, especially when it involves finances.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Irene,

I have found that most volunteers who serve on Boards do not bother to check the laws for compliance issues prior to making a decision. Many just take the lead from someone who appears to have done that homework.

I'd suggest printing out copies of the actual statutes referenced on the Davis-Stirling site and bring a copy for each member of the Board at the next meeting. Explain that your not trying to stop borrowing the money as you know (and I expect) the work needs to be accomplished. You just want to make sure that the Board crosses all the T's and dots all the I's so if a member questions anything the Board can show that they are in compliance with CA law.

I suspect that most (if not all) of the Board will agree with you. However, if you are outvoted, insist that your comments be part of the minutes and that the minutes show that you voted to comply with the law. This would then protect you from any potential legal action in the future and if the membership actually takes time to read the minutes, perhaps they will vote off those who do not want to comply with the law.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

Quote:

I am having a hard time going along with not informing the membership

Its not a matter of "if" the members will find out, its when. Basically all your doing is kicking the can down the road. Eventually they will find out. The other board members just dont have any balls.

KellyM3 (North Carolina)
Posts: 2,239

Posted:

Irene,

If your HOA is using Reserve Fund dollars for monthly operating expenses, then I'd argue your HOA is already bankrupt.

The reserves will fund operations until depleted then your community will need to raise monthly dues to an amount appropriate to maintain monthly expense costs.

Then, once dues are raised, your dues payers will receive a special assessment when the "big ticket" amenities in your community needs major rehabilitation or replacement and reserve funds will be depleted that would, otherwise, be needed to cover the expense (which is not part of regular budget expenses).

The board should absolutely inform the community about the cash shortfall and not be intimidated. It's the responsible thing to do and the adults in your community will inherently understand it.

IreneJ (California)
Posts: 38

Posted:

The problem is actually much bigger. I was hoping this would be a battle I could win (because it's the law) without causing further issues for the community. I do like the idea of getting it in the meeting minutes since the board wont voluntarily do it. It is election time so the board definately wont want this public now. The reason they are borrowing from the reserves is because they decided to file a lawsuit against me for "intentional interference with prospective advantage". After reviewing invoices from our highest paid vendor ($400K in one year), I found MANY discrepancies in the invoices. I looked into things further and realized the President and the vendor are related. The vendor also worked in the community without a valid license and I reported him to the contractors board and now the lawsuit. I have absolutely NO prospective gain as their claiming. I do not know any vendors to recommend in place of this vendor. The lawsuit is frivilous. HOWEVER....because it is so ridiculous, no reputable attorney's would take the case except ONE! The attorney the board chose to hire just got his bar license reinstated a few months ago. The attorney recently got out of jail for FELONY DRUG TRAFFICKING! He was convicted on 4 felony counts for trafficking over 60lbs of drugs and over $85000 in cash through fedex from the sale of the drugs. He is on active parole but the bar gave him his license back! So....unfortunately, they are squandering away everyone's money with this and my defense is covered by the D&O policy. Even with all of this, I just want justice for the homeowners but its' going to be a long process. The trial is set for June 24th, by then our money will be gone. No one will run against them in the election because they are scared. They have all seen what has been done to my family. It's a shame that this is allowed to happen in our country.

IreneJ (California)
Posts: 38

Posted:

I have a short video on youtube of the board meeting. Homeowners cannot get any answers. http://www.youtube.com/watch?v=xZ9TtOyIAh0

IreneJ (California)
Posts: 38

Posted:

I made a mistake, the attorney is no longer on parole.

SteveM9 (Massachusetts)
Posts: 3,699

Posted:

IreneJ
Wow, your HOA is a mess. As homeowners, you really need to come together and get all those people out. Construction company, board, etc.

You cant do it alone, you need to work together.

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