Homeowner HOA Guidelines

State of California Department of Real Estate HOA Guidelines for budgets. GUIDELINES for Homeowner Association Budgets.California’s Common Interest Development Act requires that associations prepare and distribute financial information, including a plan for funding future replacement of major components (roofs, exterior paint, and so on). Reserve Study Guidelines for Homeowners Association Budgets has been developed to assist boards of directors of California common interest developments (CIDs) to better understand the preparation of the reserve study portion of the associations annual pro forma operating budget, as this document is defined in California Civil Code Section 1365, and to assist buyers in understanding the financial implications of an associations replacement reserve funding.
www.dre.ca.gov/pdf_docs/re25.pdf

The term reserves as used in this context refers to the funds set aside to cover these replacement costs. The board of directors must make decisions about the funding goals of the association. These guidelines should enable readers to answer the following questions
How do reserves fit into the overall financial plan?
▪ What are the steps in doing a reserve study?
▪ What are the steps in conducting a Physical Analysis of common area major components?
▪ What is involved in developing a Funding Analysis?
▪ How do boards hire qualified professionals to perform reserve studies?
▪ What are the red flags that signal potential problems?

1. Reserve Accounts means moneys that the associations board of directors has identified for use to defray the future repair or replacement of, or additions to,those major components which the association is obligated to maintain.


2. Reserve Account Requirements means the estimated funds which the association’s board of directors has determined are required to be available at a specified point in time to repair, replace, or restore those major components which the association is obligated to maintain.

It is important that association members understand the difference between operations and replacement reserve activities. Boards should establish policy to distinguish between reserve expenses (funded from the replacement reserve account)and operating expenses (funded through the non-reserve operating budget). The California Civil Code,requires that a Physical Analysis be conducted at least every three years


The HOA associations CC&Rs and condominium plans generally describe the common areas of the development and so can help to provide a list of components. Most CC&Rs describe what is a part of each unit and what is outside the unit. In a true condominium, the unit owned by the individual homeowner consists only of the air space within the common walls, although owners are generally responsible for the paint and non-structural fixtures inside, and are generally also responsible for external doors, door hardware, windows, patios, balconies, and similar items (see Civil Code Sections 1351 and 1634).

However, in planned developments (PDs), the owners are usually responsible for some portion of the maintenance on the exterior and structure of their individual units as well. The CC&Rs usually specify the division between individual and association responsibility.
Reported Each Year = Computation of Major Component and Liability Insurance by Year.
1366 of the Civil Code , provides association boards with the power to increase the regular annual assessment each year 20%.Without membership approval.

There are a number of ways to select an inflation rate for estimating component costs in future years.Four reliable sources of information for inflation factors in California are the following
▪ the Federal Bureau of Labor Statistics
▪ published information from construction cost estimating companies such as R.S. Means
Company, Inc.
▪ the State Allocation Board
▪ Marshall & Swift
Any of these four sources will provide a reasonable estimate that can be used to project future costs.The interest rate assumption is an important board policy decision, and should be explicitly disclosed.This information is available free of charge through the Bureau of Labor Statistics’ 24-hour hotlines.