HOA banking

We are a not-for-profit incorporated HOA in Florida. We have two bank accounts; one for operating and the other is called the Legal Fund. The elder members claim that we cannot use any of the money in the Legal Fund. As Secretary of the board, I find this strange, and after reviewing the incorporation files, do not find anything related to not using this money. Does anyone know of a rule or law in Florida, that prohibits using this money?

Not everything will be in the incorporation papers. Do these elder members tell you what the money is for? If not, why not?

I'm thinking it's probably some sort of reserve fund (why it's call the legal fund, who knows?) Reserves are normally used to pay for major repairs and replacement of the common areas such as roofing or street repaving. It should not be used to supplement the operating budget, which should be paying for routine monthly expenses. Go through as many old board meeting minutes as you can and see if there's and reference to this fund and what it's for - it may be the elder members don't know either but don't want to admit it, so it's easier to say the board can't use it.

Hi, Dayle, welcome to the forum. You should have separate accounts for operating funds and reserves. I've never heard of a "Legal Fund". What is its purpose? Was there a time when there was a lot of litigation or lawsuits involving the HOA?

It sounds like it MIGHT be a rainy day fund for unseen legal expenses in which case it could be considered a reserve for legal expenses, but to have that funded without other reserve accounts would be very odd. If it is a reserve fund then there should be some descriptive text somewhere that spells out exactly what its purpose is. And if it is a reserve fund and you're keeping statutory reserves then tapping it for something else would require the approval of the homeowners.

FS 720.303(6)(h) says, "Reserve funds and any interest accruing thereon shall remain in the reserve account or accounts and shall be used only for authorized reserve expenditures unless their use for other purposes is approved in advance by a majority vote at a meeting at which a quorum is present."

Ideally you would have a reserve study to determine if your level of reserves are appropriate. You can pay to have one done, or do it yourself. Here is a link to Tim's post about reserve studies:
http://www.hoatalk.com/Forum/tabid/55/forumid/1/postid/103517/view/topic/Default.aspx

Florida state law as Geno pointed out has a little to say about reserves, but you might also want to check local laws. For example, my county (Orange), has a gated community ordinance that has specific requirements for reserves for various infrastructure components that the association is responsible for (roads, storm drainage system, etc.) as well as inspection requirements (a professional engineering inspection every 3 years).

I'm not sure what other counties do, but if you haven't found the ordinance already, it is here:
http://orangecounty-fl.elaws.us/code/coor_ptii_ch34_artviii_div2_sec34-291

To summarize for others following this thread who don't want to follow the link:
(a) Required HOA asset accounts. The HOA must create, deposit monies into, retain in perpetuity, and replenish from time to time the following accounts, which are referred to in this article collectively as the "required HOA accounts":

(1) A routine-infrastructure-maintenance account;

(2) A capital-repair/streets account;

(3) A capital-repair/drainage pond account;

(4) A capital-repair/other infrastructure account; and

(5) A storm debris removal account.

I did probably the first ever reserve study (or at least an attempt) and modeled it around these buckets because we're supposed to provide an annual accounting to members to show that we meet these obligations.