When the association’s managing agent accepts or receives funds belonging to the association (i.e., assessment payments made by the association’s members), Civil Code Section 5380 requires the managing agent to deposit the funds into: (Civ. Code § 5380(a))

• An escrow account with a bank, savings association, or credit union in California ; or
• An account under the control of the association; or
• A trust fund account maintained by the managing agent in a federally insured bank, savings association, or credit union in California. The managing agent must keep the funds in the trust fund until disbursed in accordance with written instructions from the association.

“Managing Agent” Defined
A “managing agent” is a person who, for compensation or in expectation of compensation, exercises control over the association’s assets. (Civ. Code § 4158(a).) The term “managing agent” for the purpose of Section 5380’s requirements on depositing  association funds does not include a full-time employee of the association, a regulated financial institution operating within the normal course of its regulated business practices, or an attorney acting within the scope of the attorney’s license. (Civ. Code §§ 5385, 4158(b); See also “Association Manager (Managing Agent).”)

Requirements for Funds Deposited into a Bank, Savings Association or Credit Union
At the written request of the board, funds accepted or received by the managing agent on behalf of the association must be deposited into an interest-bearing account in a bank, savings association, or credit union in California, provided that all of the following requirements are met: (Civ. Code § 5380(b))

• Account Name – The account must be in name of the association or in name of the managing agent as a trustee for the association;
• Federally Insured – All the funds in the account must be federally insured;
• Funds Kept Separate – The funds in the account must be kept separate, distinct, and apart from the funds belonging to the managing agent or any other person for whom the managing agent holds funds in the trust;
• Disclosure of Account Information – The managing agent  must disclose to the board the nature of the account, how interest will be calculated and paid, where service charges will be paid to the depository and by whom, and any notice requirements or penalties for withdrawing funds from the account; and
• Interest Derived from Account – No interest earned on the funds should go directly or indirectly to the benefit of the managing agent or his/her employees.

Separate Record
The managing agent must keep a separate record of the receipt and disposition of all funds, including interest earned on the funds. (Civ. Code § 5380(c).)

No Commingling of Funds
With a limited exception, the managing agent is not permitted to commingle the funds of the association with the managing agent’s own money or with the money of others that the managing agent receives or accepts (i.e., other associations that the managing agent manages). (See Civ. Code § 5380(d).)

Attorney’s  Fees
The prevailing party in an action to enforce the requirements discussed above is entitled to recover “reasonable legal fees and court costs.” (Civil Code § 5380(e).)

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