Separate Reserve Fund Is Idea to Bank On--It’s the Law
Question: Until recently our small association was self-managed by the board of directors. The board treasurer handled the bank account. Assessment income was deposited into the bank account each month.
When the account accumulated enough excess income over a period of time, the treasurer purchased certificates of deposit from the bank. We have about $20,000 and four certificates of deposit. We have not been putting a designated amount into the reserve funds each month.
We now have a manager who prepared an annual budget for the next fiscal year. We will be setting aside $800 each month for reserve funds. The manager says that we need to set up a new bank account just for the reserve funds.
Do we have to have a separate bank account for reserves? Are special procedures necessary for using the reserves when they are needed?
Answer: Your manager is correct. The operating account should be used to deposit your monthly assessment payments and checks are drawn on that account to pay for contract services, maintenance, insurance, utilities and other association expenses.
Each month a check for $800 should be written from the operating account and deposited into the reserve account. Separation of the operating cash and reserve funds is required by California law. The Internal Revenue Service regulations also require separation of the two funds.
When reserve funds need to be used, the expenditure should be approved at a board meeting, and the reason for the expenditure should be noted in the meeting minutes. The board motion should clearly state who or what company is being paid and the amount of the expenditure. This formal board action authorizes the manager to generate the payment.
The board may delegate check signing authority to the manager only for the operating account. Checks or withdrawals from the reserve account must be signed by two members of the board of directors or two officers.
Late Charges Apply to All Assessments
Q: Our homeowner association is collecting a special assessment from all the owners to pay for some major repairs. Can the association add a 10% late charge if the special assessment is not paid?
A: Unless your association’s legal documents specify a smaller percentage or amount for late charges, California law states that unpaid regular or special assessments are subject to a late charge of either 10% of the assessment amount or $10, whichever is greater.
The board of directors should distribute the association’s written procedures for collection of unpaid assessments. This information should be mailed or distributed to all of the owners during the 60-day period preceding the beginning of the fiscal year.
Missing Bill Doesn’t Excuse No Payment
Q: I did not get a statement from my condominium association last month so I forgot to pay the monthly assessment. This month’s bill showed a late charge because of the unpaid balance. If the management company did not send a bill, how can I be charged a late fee?
A: You are obligated to pay each month’s assessment. The statement could have been lost or delayed in the mail, but that does not relieve you of your responsibility to pay. Much like a mortgage or rent payment, you are obligated to pay on time whether you receive a statement of not.
You should pay the monthly assessment and the late charge promptly before more fees and interest charges are added.
Hickenbottom is a community association management consultant and a founding director of the California Assn. of Community Managers. She selects questions of general interest for the column and regrets that she cannot respond to all questions received. Send questions to: Condo Q&A;, Box 5068, Thousand Oaks, CA 91360.
