Spending of Construction Defect Funds

Is there specific requirements (CA) on how a Board may utilize funds received from a construction defect settlement? May these funds be diverted to other expenditures, or must they be used for specific defect repairs?

Thanks

Civil Code §1375.1. Settlement Disclosure to Members

(a) As soon as is reasonably practicable after the association and the builder have entered into a settlement agreement or the matter has otherwise been resolved regarding alleged defects in the common areas, alleged defects in the separate interests that the association is obligated to maintain or repair, or alleged defects in the separate interests that arise out of, or are integrally related to, defects in the common areas or separate interests that the association is obligated to maintain or repair, where the defects giving rise to the dispute have not been corrected, the association shall, in writing, inform only the members of the association whose names appear on the records of the association that the matter has been resolved, by settlement agreement or other means, and disclose all of the following:

(1) A general description of the defects that the association reasonably believes, as of the date of the disclosure, will be corrected or replaced.

(2) A good faith estimate, as of the date of the disclosure, of when the association believes that the defects identified in paragraph (1) will be corrected or replaced. The association may state that the estimate may be modified.

(3) The status of the claims for defects in the design or construction of the common interest development that were not identified in paragraph (1) whether expressed in a preliminary list of defects sent to each member of the association or otherwise claimed and disclosed to the members of the association.

(b) Nothing in this section shall preclude an association from amending the disclosures required pursuant to subdivision (a), and any amendments shall supersede any prior conflicting information disclosed to the members of the association and shall retain any privilege attached to the original disclosures.

(c) Disclosure of the information required pursuant to subdivision (a) or authorized by subdivi

Although the funds are currently in a separate reserve account, some on the Board want to use this money for other non settlement expenses. I understand 1375 about disclosure to owners, but still am unnclear, aside from disclosure, which was previously done shortly after the settlement funds were received, about how these funds may be utilized. Sorry if I'm missing something from CA Civil Code 1375, but I didn't see the specifics as to the disposition of settlement funds in the earlier reply.

I understand and concur with what you're saying completely. I previously reviewed Davis-Stirlings This settlement was completed several years ago and the funds were placed in a separate interest bearing account. Now faced with a large maintenance cost (which was not identified in the original defects), a couple of the HOA Board members want to tap this money to offset the cost of repairs. Although everything you outlined is logical, what I'm looking for is a specific rule, or law that can be waved in front of these Board members to show them that utilizing these funds for anything other identifiable construction defects is wrong.

Thanks

Bruce and Glen.
Glen,
I echo Michele's remarks about the depth of all this legislative stuff you can come up with. Is there any simple way the rest of us can identify how to pull this material from our individual states. I think if I have a problem, I'm going to sign up here incognito and ask my question, knowing you can get the material. Really.....a good job.

Bruce,
\You can also be thankful you only have to worry about how the money WILL be spent, as opposed (common) to try and explain what the money was used for five years done the road when the question comes up.

To add to Glen's "one disgruntled homeowner" comment, keep in mind that this is a disgruntled homeowner now or in the future. All the current homeowners might be OK with getting some cash back but what happens in a few years when a unit is sold to someone else and a defect emerges?

At least in Ohio construction defects are generally considered association responsibilities if they're discovered years down the road after the builder has wound up the entity used to do the building. If you do the right thing and use the funds just for fixing known defects and still have extra money I would never give it directly to the owners. It should go into your reserve account. You never know what might happen down the road that becomes an association responsibility. The more money you can get in that reserve account the better, particularly when you are just starting out so the interest has a chance to build and compound (not that there's much paying any decent interest in this market but still).

For the poster that wondered about where the laws can find, you can find Ohio's condo laws at http://codes.ohio.gov/orc/5311. However I would caution that condo law is largely civil and so there's a lot of court history that has to be considered as well. Just because the law says X doesn't mean that there haven't been precedent setting cases that change the effect of the law. In addition some of the law allows for an association's governing documents to differ from the statutory requirements. In other sections the law always controls. You have to read each section carefully to determine whether an association's documents can control.