Senate Bill 1007: A TERRIBLE HOA Bill

By Kelly G. Richardson, Esq., HOA Homefront Column

The previous two columns featured four bills helpful to HOAs and five unhelpful bills. However, one final bill, Senate Bill 1007, would seriously harm HOAs of all sizes.

BUDGETING ONLY FOR INFLATION? The worst part of the bill would completely remove HOA boards’ ability to reasonably budget for the coming year’s anticipated expenses. Current law allows HOA boards to increase assessments (if believed necessary to meet anticipated expenses) by up to 20% per year. This allows boards to deal with escalations in particular expense categories or projected repair costs which might significantly change in a given year. SB 1007 would bar HOA boards from increasing assessments except to follow inflation. All other increases would require a membership vote – and good luck getting quorum on that).

Many HOA managers struggle with boards that try to “hold the line” on assessments rather than address reasonably anticipated costs. The challenge is that when boards refuse to increase assessments appropriately, they often make ends meet by shorting their reserve fund contributions and deferring maintenance. Both practices simply kick the financial can down the road, leaving others to deal with the consequences later.

HOAs are bound by CC&Rs, bylaws, and an increasingly cumbersome Davis-Stirling Act. They lack the flexibility enjoyed by individual detached homeowners. If my home needs a new roof, I might quickly take out a loan or move some personal funds to meet the need. In that case, I pay 100% of my household’s budget impact. However, HOAs cannot move that swiftly and must be able to budget conservatively with some flexibility to adjust assessments as the need arises. It costs money to run HOAs, just like other homes. Artificially handcuffing HOA financial planning does not make homes more affordable. Instead, it can make HOAs less desirable and LESS affordable - when unrealistic budgets simply defer the true costs for future homeowners to handle. 

A “VISUAL AID” DISCLOSURE: The bill would add two more items to the lengthy list of annual disclosures HOAs (no matter how large or small) must include in their Annual Budget Report – 1. a “high-level summary breakdown” visual aid to describe how assessments are spent, and 2. a statement of the management company’s compensation. Of course, annual budgets already provide members with the exact projected expenses expected for the coming year. Apparently, the idea is to create a pie chart or graph of some type. However, that could discourage homeowners from reviewing the actual numbers, which tell homeowners far more than visual aid depictions. 

PRE-“TRIAL” EVIDENCE DISCLOSURE: The bill would complicate disciplinary hearings by creating a new Civil Code 5860, requiring HOAs to provide any “physical evidence,” including photos, videos, or audio recordings to homeowners 5 days before their disciplinary hearing. Association hearings are not criminal prosecutions, in which the prosecution provides “discovery” to the accused. HOA disciplinary hearings are informal and normally conducted without legal counsel. Per the amendments from AB130 last year, HOAs can only fine members $100 – in most situations. Some legislators don’t understand that HOAs are usually small to mid-sized neighborhoods – without full-time city managers, city attorneys, or prosecutors, and with far less consequential penalties!

The bill’s first Committee hearing is March 17, so there is time to alert the author and your own representatives about these problems.

Pending bills - www.leginfo.legislature.ca.gov