The health of a HOA’s reserve account is vital to protecting the financial viability of the association and the property values of its members. HOAs are therefore required to perform reserve studies, make various reserve disclosures, and are subject to limitations on the purposes for which funds may be expended from the reserve account.
Spending Restrictions
A board may not spend reserve funds “for any purpose other than the repair, restoration, replacement, or maintenance of, or litigation involving the repair, restoration, replacement, or maintenance of, major components that the association is obligated to repair, restore, replace, or maintain and for which the reserve fund was established.” (Civ. Code § 5510(b).)
Exception: Temporary Transfer (Borrowing) of Reserve Funds
Notwithstanding the above, a board may authorize the temporary transfer of funds from the reserve account to the association’s operating account in order to “meet short-term cash flow requirements or other expenses” without a vote of the membership. (Civ. Code § 5515(a).) The procedure through which the board may validly authorize such a transfer is subject to several requirements (i.e., provide notice of the intent to consider the transfer, issue a written finding as to why the transfer is needed and how the borrowed funds will be restored within one (1) year, etc.). (See “Borrowing Reserve Funds (Reserve Transfers).”)
Signature Requirement
The withdrawal of funds from the reserve account requires the signatures of at least two (2) persons. Those persons must either both be directors, or one officer who is not a director and one director. (Civ. Code § 5510(a).)
