Reader Questions - Depositing Reserve Funds, Providing Draft Minutes

Depositing Reserve Funds

Dear Mr. Richardson,

I enjoy reading your columns in the paper very much.

One of the HOA’s that I belong to has a minute, but I think adequate, reserve fund account. We are writing up a Reserve Study in keeping with the recommendations in your recent column.

Our board feels that the reserve account should be kept in a non-interest bearing account so that we can avoid the trouble of having to file a tax return on income.

At what level on income would we be required to file a return?

Thank you so much for helping us with this issue,

J.Y., Santa Ana

Dear J.Y.,

Your directors are the fiduciaries (like trustees) of the association funds, including reserve funds. Those reserve funds should be placed in federally insured interest bearing accounts. Your board could be exposed to liability if the funds are not fully insured and there is a loss of funds. [When the stock markets are rising, there is always the temptation to invest the reserve funds – resist that temptation – stocks go up and down and are not guaranteed.] Furthermore, the board must do what it reasonably can to make sure the funds are not diminished by inflation, and that is by making sure a market rate of interest on the deposited funds.

As to filing tax returns, your HOA already has income- the assessments you all pay – and may need to file regardless of a return on its interest. Check with your CPA, or ask your local Community Associations Institute Chapter for a list of CPAs who specialize in serving HOAs. The Franchise Tax Board has a very helpful guide on this subject, form 1028. Find it at www.ftb.ca.gov/forms/misc/1028.pdf.

Thanks,
Kelly

Providing Draft Minutes

Dear Kelly,

Regarding the requirement that minutes must be made available within 30 days of a board meeting: Does reading draft minutes at the following monthly meeting before their approval meet this requirement or are they to be made available in

print?

S.F., Yucaipa

Dear S.F.,

The Open Meeting Act (Civil Code 1363.05(d), after 2013 found at Section 5130), requires draft minutes be “made available” to members within 30 days of the meeting and that requesting members can receive a copy. Orally reading the minutes out loud is not the same as providing a copy, if somebody requested them. If the draft minutes are prepared (hopefully) a few days after the meeting is concluded, any member should be able to request and receive a copy.

On the other hand, if draft minutes are prepared at the last minute, or the day before the next meeting, there are no drafts until that point – but that would not be a practice that would instill confidence in the board’s governance.

The law requires the requesting member to reimburse the association for the copy cost. So, boards, provide it. Draft minutes help inform members about what happened at a meeting they did not attend. Remember these are your neighbors!

Thanks for your question,
Kelly

Written by Kelly G. Richardson

Kelly G. Richardson Esq., CCAL, is a Fellow of the College of Community Association Lawyers and a Partner of Richardson | Ober | DeNichilo LLP, a California law firm known for community association advice. Submit questions to [email protected]. Past columns at www.hoahomefront.com. All rights reserved®.