When living in a California Homeowners Association (HOA), understanding the laws surrounding reserve funds is important for homeowners. Reserve funds are intended to help pay for major repairs and replacements of shared community components, such as roofs, plumbing systems, and landscaping. California’s reserve fund requirements are designed to promote long-term financial planning and transparency, and to reduce the likelihood of unexpected financial strain on homeowners.

At LS Carlson Law, we regularly work with homeowners who have questions or concerns about reserve funding practices, disclosure obligations, and whether an HOA is following California law.

What Are HOA Reserve Funds?

In California, HOA reserve funds are accounts set aside for the repair or replacement of major common area components. The Davis-Stirling Common Interest Development Act requires associations to plan for these future expenses so that costs are spread more evenly over time rather than imposed suddenly on homeowners.

California law requires HOAs to engage in reserve planning, including conducting reserve studies, maintaining reserve accounts, and providing disclosures to members. These requirements are intended to help boards make informed financial decisions and allow homeowners to understand the association’s financial condition.

Reserve Study Requirements in California

A central part of reserve fund planning is the reserve study. California law requires HOAs to conduct a full reserve study at least once every three years, with annual reviews in the intervening years. A reserve study evaluates major reserve components, estimates their remaining useful life, and projects future repair or replacement costs.

The purpose of the reserve study is to inform the board’s budgeting decisions and help determine appropriate reserve contributions. While a reserve study provides guidance, the board ultimately decides how much to contribute to reserves, subject to its fiduciary obligations and statutory disclosure requirements.

HOA Reserve Fund Disclosure Requirements

California law requires HOAs to disclose reserve funding information to homeowners, typically through annual budget reports and financial disclosures. These disclosures generally include the current reserve balance, the estimated cost of major repairs and replacements, and the association’s percent funded level based on the most recent reserve study.

Board members also have a fiduciary duty to act in the best interests of the association. This includes making informed decisions about reserve funding and ensuring that required disclosures are provided. Disclosure does not require reserves to be fully funded, but it does require transparency so homeowners can understand the financial risks and planning assumptions involved.

The Risks of Underfunded Reserves

Underfunded reserves can create financial challenges for an HOA and its members. When reserve balances are insufficient, associations may need to rely on special assessments or loans to cover major repair costs. These situations can place significant financial pressure on homeowners.

In some circumstances, disputes arise when homeowners believe the board failed to adequately plan for known expenses or failed to provide required disclosures. Whether an HOA’s reserve practices comply with California law depends on the specific facts, including the reserve study, disclosures, and board decision-making process.

How Can Homeowners Evaluate Reserve Fund Compliance?

Homeowners who want to better understand their HOA’s reserve funding practices may consider the following steps:

- Review annual budget and reserve disclosures to understand current reserve balances and funding assumptions
- Request copies of the most recent reserve study and annual reserve review
- Ask whether the board has adopted a reserve funding plan based on the reserve study
- Compare projected reserve expenses with actual reserve contributions over time
- Document questions or concerns raised with the board regarding reserve planning or disclosure

These steps can help homeowners evaluate whether reserve planning appears consistent with California’s statutory framework.

What Can LS Carlson Law Do?

LS Carlson Law represents homeowners in HOA-related disputes, including matters involving financial transparency, reserve disclosures, and fiduciary duty concerns. We help homeowners understand how California HOA laws apply to their specific situation and evaluate available options when disputes arise.

Next Steps

If you have concerns about your HOA’s reserve funding practices or disclosures, you may wish to seek legal guidance to better understand your rights under California law. Each HOA and financial situation is different, and outcomes depend on the specific facts involved.