Don’t Mingle Association Accounts
QUESTION: Our board of directors recently asked to see the bank statements for our association. The manager would not show us the bank statements because the account also holds funds belonging to other associations that are deposited in the management company’s account. It seems that this requires a great deal of complicated bookkeeping in order to ensure that our money is properly tracked. The manager does not want to set up a separate bank account for our association. Should we have our money in a separate account?
ANSWER: Yes, your association should have its own bank accounts. Community associations usually have at least two accounts: a checking account for operating funds and another interest-bearing account for reserve funds. Assessment payments from the owners are deposited into the checking (operating) account, and that money is used to pay the association’s common expenses. Reserve allocations should be transferred from the operating account into the reserve account on a regular basis, according to the annual budget.
The board of directors, according to California Civil Code Section 1365.5, must review, at least every three months, the account statements prepared by the financial institution where the funds are deposited and make a reconciliation of the accounts.
Has your board ever seen reconciled statements? If not, what do you know about the current financial condition of your association? Do you rely solely on the financial reports that are prepared by the managing agent? If that is the case, you are not fulfilling your legal duty according to the law. Your common interest development, planned development, condominium association’s stock cooperative or community apartment project (own-your-own) is governed by this law whether you are incorporated or unincorporated, large or small, rich or poor. The board must protect the assets of the association.
Civil Code Section 1363.2 (d) allows the managing agent to deposit your funds into a commingled account for only 10 days, and only if very specific legal requirements are in place to protect the association. Here is the actual wording of the applicable code:
“The managing agent shall not commingle the funds of the association with his or her own money or with the money of others that he or she receives or accepts, unless all of the following requirements are met:
“(1) The managing agent commingled the funds of various associations on or before Feb. 26, 1990, and has retained a written agreement with the board of directors of each association that he or she will maintain a fidelity and surety bond in an amount that provides adequate protection to the associations as agreed upon by the managing agent and the board of directors of each association.
“(2) The managing agent discloses in a written agreement whether he or she is deriving benefits from the commingled account or the bank, credit union or savings institution where the monies will be on deposit.
“(3) The written agreement provided pursuant to this subdivision includes, but is not limited to, the name and address of the bonding companies, the amount of the bonds and the expiration dates of the bonds.
“(4) If there are any changes in the bond coverage or the companies providing the coverage, the managing agent discloses that fact to the board of directors of each affected association as soon as practical, but in no event more than 10 days after the change.
“(5) The bonds assure the protection of the association and provide the association at least 10 days’ notice prior to cancellation.
“(6) Completed payments on behalf of the association are deposited within 24 hours or the next business day and do not remain commingled for more than 10 calendar days.”
Where to Find Out About Association Law
Q: How can I obtain information about the laws that govern community associations?
A: “The Condominium Bluebook” is an excellent resource for condominium associations, planned developments and all other forms of community associations. The 1996 edition contains all of the most recent changes in the Davis-Stirling Common Interest Development Act that took affect in January 1996. In addition to the Davis-Stirling Act, the reference book contains other positions of the Civil Code, Corporations Code, Code of Civil Procedure, Labor Code and Vehicle Code that pertain to community associations.
Copies of “The Condominium Bluebook” can be obtained by sending your check made payable to Condo Consulting Services for $15, which includes tax, postage and handling. Allow four weeks for the processing of your order. Send your check to: Condo Consulting Services, P.O. Box 5068, Thousand Oaks, CA 91360.
Owners Must Be Sent Summary of Laws
Q: Quite some time ago I remember reading in your column about a new state law that requires some type of mediation or arbitration for community association disputes.
One of the owners in our association is threatening to sue if the board enforces the architectural provisions in our declaration of covenants, conditions and restrictions. What does the new law require?
A: All community associations, even those without any disputes, are required to send a summary of the law to all owners each year.
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Hickenbottom is a past president of the Greater Los Angeles chapter of the Community Associations Institute, a national nonprofit research and educational organization. She welcomes readers’ questions but cannot answer them individually: “Condo Q&A;,” Box 5068, Thousand Oaks, CA 91360.
