Getting better financial data from homeowner association

If homeowners are unable to determine their association's financial health from the reports provided, the board has failed to meet its legal obligation.

By Donie Vanitzian

c)2001-2014 D.VANITZIAN. All rights reserved. The Associations and Common Interest Living articles and columns may not be reprinted or retransmitted in any form without the express written consent of the copyright holders. The authors take no position regarding any documents or accompaniments that may be enclosed with, attached to, or alongside said article reprints or distribution.  Los Angeles Times, Real Estate Section, "Associations," March 9. 2014 titled  Getting better financial data from homeowner association by Donie Vanitzian, Special to The Times


QUESTION: Our board is very lax when it comes to financials. We don't get timely information, and the information we do get from management and our treasurer is so sparse that owners and the board alike don't have any idea where our association stands. Is there some kind of format that financial statements must follow?

ANSWER: Civil Code section 5305 pertains to standards used for preparation of review of the association's financial statement. It states that unless the governing documents impose more stringent standards, a review of the association's financial statement shall be prepared in accordance with generally accepted accounting principles by a licensee of the California Board of Accountancy for any fiscal year in which the gross income to the association exceeds $75,000. Even if the $75,000 threshold is not met, associations are advised to follow the standards outlined in the code. A copy of the review of that financial statement shall be distributed to the owners within 120 days after the close of each fiscal year, by individual delivery as set forth in Civil Code section 4040.

Similarly, Corporations Code section 5012 reiterates the requirement for financial statements to be prepared in conformity with generally accepted accounting principles, or "some other basis of accounting which reasonably sets forth the assets and liability and the income and expenses of the corporation and discloses the accounting basis used in their preparation."

While a certified public accountant may be required to prepare these statements, it should not be necessary to consult a CPA to read them. The intent of these code sections is for owners to be presented with timely, clear and accessible information about the financial status of their association. If you are unable to determine your association's financial health and status from reports provided to you, however late, the reports have failed their material purpose and your board has failed to meet its obligation under the law.

Late delivery of reports is also a significant issue that should be addressed with your board; presumably a third-party vendor, in the form of a CPA, is providing these reports to the board for distribution. If the vendor is providing late results, it should be supervised, or replaced, by the board. Arguably, homeowners should also pay close attention to the revised sections in common interest development laws pertaining to notice, such as Civil Code section 4040, which attempts to address delivery and notice by the board to an individual.

•If the common interest development law requires an association to deliver a document by "individual delivery" or "individual notice," the document shall be delivered by one of the following methods: (1) First-class mail, postage prepaid, registered or certified mail, express mail or overnight delivery by an express service carrier. The document shall be addressed to the recipient at the address last shown on the books of the association. (2) Email, facsimile or other electronic means, if the recipient has consented, in writing, to that method of delivery. The consent for any of these methods of delivery may be revoked, in writing, by the recipient.

•On receipt of a request by an owner, pursuant to Civil Code section 5260 ("Requests to be delivered in writing"), identifying a secondary address for delivery of notices, the association shall deliver an additional copy of those notices to the secondary address identified in the request which fall under the following: Those documents to be delivered to the owner pursuant to Chapter 6 Association Governance, Article 7 Annual Reports; pursuant to Chapter 8 Assessments and Assessment Collection, Article 2 Assessment Payment and Delinquency, and Civil Code section 5710 Trustee sale.

•An unrecorded provision of the governing documents providing for a particular method of delivery does not constitute agreement by an owner to that method of delivery.

One way owners can effectively manage their personal assets is to receive timely information, including updates about the association and board actions through meeting minutes.

All owners have an overt duty to make certain they have submitted, in writing with signature verification of delivery, more than one address for the association to deliver documents and provide notice, leaving nothing to chance. The consequences are too steep for owners to put this off.

Do not assume that because you have lived somewhere for a long time and everyone knows you, the association has all the information it needs and your duty is excused. While this may at first appear to be extra work for the association, without multiple addresses on file owners run the risk of inadvertently consenting to association and board action by default — a dangerous and costly proposition. Owners should also make a written request to their association that all notices to them be in writing.

Zachary Levine, partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian JD, P.O. Box 10490, Marina del Rey, CA 90295 or noex