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AB 1101 Signed! Welcome Clarity to HOA Financial Protection Requirements

*New Legislation

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AB 2912, passed in 2018, provided welcome protections to homeowners in HOA’s from fraudulent activities by those entrusted with managing an HOA’s finances. AB 2912’s protections included: 1) requiring Associations to secure fidelity bond insurance in an amount equal to or exceeding current reserves, plus three months of assessments; 2) requiring a monthly review of financial statements rather than quarterly; and 3) prohibiting electronic transfers of funds without board approval. However, certain provisions of AB 2912 were unclear.

To settle any confusion, AB 1101 was passed by the California Legislature in September of 2021.  Effective January 1, 2022, Civil Code Sections 5380, 5502, and 5806, will be amended in order to clarify existing law by:

1) Specifying that HOA funds shall be deposited into accounts insured by Federal Deposit Insurance Corporation or the National Credit Union Administration Insurance Fund. This ensures that HOA funds are properly preserved and not invested in any high-risk investments or stocks.

2) Establishing clear limits before board approval is required for the transfer of HOA funds. While AB 2912 provided a process by which HOA’s should approve major expenses, the process for calculating those limits was somewhat confusing and was subject to change based on the amount of money on deposit in the HOA’s bank accounts. With AB 1101, the process is clear. For HOA’s with 51 or more units, transfers of $10,000.00 or more must be approved by written approval of the board. For HOA’s with 50 or fewer units, transfers of $5,000 or greater must be approved in writing by the Board.

3) Specifying that the HOA must not just maintain fidelity bond coverage, but that it must now also maintain crime insurance and employee dishonesty coverage, or their equivalent, for dishonesty acts of the person or entity and their employees. This coverage would extend not just to the HOA and its directors, officers and employees, but also to managing agents and their employees.

California HOA lawyers Common sense legislation that protects the financial interests of HOA’s, which are unfortunately often targets for embezzlement, is a breath of fresh air. As always, HOA’s with questions regarding new legislation or legal requirements related to insurance or finances, should contact their HOA lawyer.

-Blog post authored by TLG Senior Attorney, Carrie Heieck

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