Last month, Assembly Bill 1101 (AB 1101) was proposed by California Assemblymember Jacqui Irwin (D-Thousand Oaks) to establish much-needed protections for homeowners association funds. There are details and changes from existing law to understand AB 1101 that we will discuss in this article.
Assembly Bill 1101 Changes To Existing Law
HOA Fund Insurance
Under the existing law of the Davis-Stirling Common Interest Development Act, a managing agent, at the written request of the HOA board, must deposit the funds received on behalf of the association into a bank, savings association, or credit union that is insured by the federal government.
This AB 1101 bill requires that the bank, credit union, or savings association be insured by the Federal Deposit Insurance Corporation (FDIC), National Credit Union Administration Insurance Fund, or guaranty corporation and stipulate conforming changes.
Additionally, the AB 1101 bill would impose limits on the use of HOA funds, including forbidding funds from being used for stocks or high-risk investments.
Approval Of HOA Fund Transfers
Existing law requires written approval from a homeowners association’s board for a funds transfer of the lesser amount of greater than $10,000 or 5% of the total reserve and operating account deposits of a homeowner’s association. Under AB 1101, there are specified requirements for transfers of funds, dependent on the number of units within the association.
For associations with 51 or more units
In homeowners associations with 51 units or more, written approval from the association’s board is required for transfers of the lesser amount of either $10,000 or greater or 5% of the estimated income in the association’s annual operating budget.
For associations with 50 or less units
In homeowners associations with 50 or less units, written approval from the association’s board is required for transfers of $5,000 or greater or 5% of the estimated income in the association’s annual operating budget.
Adjustments to Insurance Requirements
Existing law states that associations must maintain fidelity bond coverage for directors, employees, officers, and computer fraud and funds transfer fraud. If an association employs a managing agent or managing company, fidelity bond coverage must also include coverage for dishonest acts by person, entity, or employees.
Assembly Bill 1101 also expands insurance requirements to include crime insurance, employee dishonesty coverage, and fidelity bond coverage for the association and its managing agent or management company. The new bill would also require protection against computer and funds transfer fraud to be in equal amounts of the insurance.
At California Builder Services, our company is experienced in supporting sound HOA financial management by providing reserve study services, HOA budgeting services, and DRE public report processing assistance. If you’d like to learn more about our services or receive a proposal, contact us today!