Property Management Professionals (PMP)

How homeowners can keep oversight on associations

Dr. HOA,
I live in a homeowners association consisting of several hundred single-family homes. I am concerned because our dues have increased substantially in the past year, and I get the feeling that the association is being mismanaged by the board of directors and/or the current management company.

What type of homeowner oversight is typical for associations, and what tools do I as a homeowner have to make sure that the association is being run properly? —Curt R. 

Hello Curt,
This is a great question. I find that homeowners work diligently to protect their homes, which is most people’s single largest investment, through regular upkeep and improvements.

At the same time, many owners ignore the state of their homeowners association, which can play an important role in protecting home values.

Spending weekends gardening, painting and maintaining your property will protect your home’s curb appeal, but it will do little to avoid the devastating impact to home values if your community continues to experience regular annual assessment increases or your association goes bankrupt.

Homeowners have many rights and tools at their disposal to ensure transparency and oversight of their homeowners association.

One important step an owner can take to ensure association oversight is to thoroughly review the association’s annual mailer, typically distributed 30-60 days prior to fiscal year-end. Associations are required under California law to prepare and distribute to the membership the upcoming year’s a pro forma operating budget, which takes into account income, expenses and reserve allocations for future maintenance and replacement costs.

Additionally, associations are required to prepare an annual report, including an income and expense statement and balance sheet.

If an association collects more than $75,000 in revenue in any fiscal year, the association is required to retain an accountant to review the annual report, which must then also be distributed to all owners within 120 days following fiscal year-end.

By diligently reviewing the community’s annual mailer and annual report, owners have a better understanding of the fiscal health of their associations and can act quickly if things begin progressing in the wrong direction.

In response to your reference to “substantial” assessment increases, it is important to note that the California Civil Code prohibits an association from imposing an increase in excess of 20 percent for any given fiscal year without a vote of the homeowners.

If there is a sense of urgency, and an owner feels it is crucial to act prior to fiscal year-end, homeowners have the right to inspect association records, including financial statements and association contracts, at any time throughout the year.

Owners may either coordinate with their association’s management company to schedule a time to review the documents or an owner may make a written request for copies of certain documents.

The association’s board of directors and/or management company have a legal obligation to provide an owner with requested association documents within a specified time frame (10 days for current fiscal year records), with certain exceptions that may allow an association to redact specific documents.

Please keep in mind, however, that there may be a fee associated with organizing the requested documents and the Civil Code permits an association and/or management company to levy reasonable charges for copies, as well as the time allocated to pulling and organizing the requested documents.

For more information, please reference Civil Code section 1365.2, which outlines an owner’s right to inspect and copy association records.

Association oversight is critical to protect your investment and create a culture of accountability throughout your homeowners association. Inspecting budgets, financial statements and reserve allocations ensures that owners have a thorough understanding of their community’s fiscal health.

Additionally, owners are always encouraged to get involved and dedicate their time and expertise to bettering their association. While properly maintaining your individual property is important to maintain values, a healthy and fiscally sound association can also be crucial in maintaining the value of your entire community.

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