HOAleader.com - Tip of the Week - December 28, 2018
Published: Fri, 12/28/18
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How Far Should You Push the Boundaries While Investing Your Condo/HOA Reserves?
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In this week’s tip, we answer a reader’s question: “We have a reserve fund to maintain our road and entry gate, and that’s it. We just resealed the road and then had it inspected. The road shouldn’t be resealed again for 10 years. They don’t need major work until 25 years.
“I’d like to invest some of our reserve money into an S&P 500 Index fund. Some homeowners and board members think it has to be invested in Federal Deposit Insurance Corp.-insured vehicles. We’re in California so I checked the Davis Stirling Act, and I can’t find where it’s against the law to invest in stock or mutual funds. Can you confirm this? I also read our CC&Rs and it isn’t addressed in there.”
One of our California experts, David C. Swedelson, the principal at Swedelson & Gottlieb, a law firm that represents associations in the Los Angeles area, also doesn’t see specific language in the Davis Stirling Act saying this can’t be done. But he interprets the act to say that indirectly.
“I was looking at the Davis Stirling Act, and I could have sworn that it does say you have to deposit these funds in bank accounts,” he says. “But one of the sections says that among the documents the association is required to review is the bank statements for the general and reserve accounts. So it doesn’t say you have to deposit those funds in banks. But it also doesn’t say ‘mutual fund’ or other accounts—it says ‘bank statements.’”
Even without that wording, Swedelson says the act’s intent is pretty clear. “The Davis Stirling Act has many sections that talk about fiscal responsibility, and the overwhelming feature is that boards have to be fiscally responsible and not invest where money could be lost,” he explains. “There’s even a California case in which a board was found negligent for not overseeing someone who invested the proceeds from a construction defect case in riskier investments and lost $400,000.
“Associations do invest in certificates of deposit, but I think boards have to put those funds in the most secure investment where the capital is never going to be lost,” adds Swedelson. “Most do it in a federally backed CD and bank accounts that are insured.”
This isn’t a theoretical issue of loss of funds. Swedelson has personally seen it happen. “I know that some board members in the past said, ‘We have to get on the stock market ride and maximize the reserves,’” he recalls. “A lot of them did, especially back before 1999 and 2000 when there was a tech bubble—and they lost a fortune.”
What do laws in other states say? They also require caution. Read more in our new article: https://www.hoaleader.com/members/3841.cfm
Best regards,
Matt Humphrey
President
P.S. I'd also like to take this opportunity to wish you and yours a very happy New Year from all of us at HOAleader.com!
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Recent articles posted at HOAleader.com:
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How Far Should You Push the Boundaries While Investing Your Condo/HOA Reserves?
In this week's tip, we answer a reader's question: We have a reserve fund to maintain our road and entry gate, and that's it. We just resealed the road and then had it inspected. The road shouldn't be resealed again for 10 years. They don't need major work until 25 years.
Click here to read full article:
https://www.hoaleader.com/members/How-Far-Should-You-Push-Boundaries-While-Investing-Your-CondoHOA-Reserves.cfm
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How Nervous Does This Reader's Question Make Our HOA/Condo Experts?
An HOAleader.com reader asks, We have a reserve fund to maintain our road and entry gate, and that's it. We just resealed the road and then had it inspected. The road shouldn't be resealed again for 10 years. They don't need major work until 25 years.
Click here to read full article:
https://www.hoaleader.com/members/How-Nervous-Does-This-Readers-Question-Make-Our-HOACondo-Experts.cfm
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Does the Business Judgment Rule Apply to Community Associations?
An HOAleader.com reader writes, The business judgment rule is totally and unequivocally rendered invalid for common interest communities under common law and case law. It's …about time that the HOA industry actual learn and understand the actual law and stop confusing board members of their duties and responsibilities under the law.
Click here to read full article:
https://www.hoaleader.com/members/Does-Business-Judgment-Rule-Apply-Community-Associations.cfm
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Racial Tensions and Your Condo/HOA: What You Can Do
Perhaps you've heard the nicknames? Barbecue Becky is the derisive name for a woman who called police on African Americans barbecuing at a park. Permit Patty is the scornful moniker attached to a woman who called police on an 8-year-old African American girl selling water without a permit.
Click here to read full article:
https://www.hoaleader.com/public/Racial-Tensions-Your-CondoHOA-What-You-Can-Do.cfm
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Are Racial Incidents Happening at Condos/HOAs More Often or Just Getting More Press?
First, there was the Summerville, S.C., incident in which a white resident was captured on video allegedly assaulting an African-American teen who was at his own community pool. Then in July, an African-American resident at Glenridge Homeowners Association in Winston-Salem, N.C., was asked for ID by a white man.
Click here to read full article:
https://www.hoaleader.com/members/Are-Racial-Incidents-Happening-at-CondosHOAs-More-Often-or-Just-Getting-More-Press.cfm
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