Can an HOA borrow money from Reserve?

Can an HOA borrow money from Reserve?

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The quick answer to whether or not an HOA can borrow from Reserves, even if the need does not match the categories the money was reserved for, is yes. However, there are certain requirements and notices that must be followed, otherwise the answer is no.

A temporary transfer may be made from Reserves for short-term cash-flow requirements and other expenses. The language is quite broad so the question isn’t whether or not a particular need qualifies, rather, the board should focus on following the civil code requirements for properly approving the transfer and repaying the loan within one year.

Here are some examples of Other Expenses:

  1. Delinquencies;
  2. Insurance premium;
  3. Common Area damages;
  4. Legal Settlements;
  5. Litigation;
  6. Termites;
  7. Amendments and restatements.

The notice for the intent to borrow must include:

  1. 4-days notice;
  2. Reasons for the loan;
  3. Options for repayment;
  4. Whether or not a special assessment might be necessary.

If the loan is approved by the board, a written report must be in the minutes and include:

  1. Reasons for the loan;
  2. Options for repayment;
  3. Describe when and how the loan will be repaid.

The loan must be repaid within one year or the board may justify a temporary delay because it’s in the best interest of the association. In our experience at Castle Breckenridge, loans that aren’t repaid within one year are added the next year’s budget, or, a special assessment is approved to repay the Reserve Fund.

Additional details can be found at this link: Civil Code 5515.

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