HOA Annual Disclosure Requirements: What Your Association Must Send You Every Year

The Hedge | Brutal Honesty Over Hype Since 2008

California law requires HOAs to send members a comprehensive package of annual disclosures — a set of documents covering the association’s financial status, governance, and operations. Many homeowners receive these documents, glance at them, and file them away without reading the information that most directly affects their financial exposure and property rights. Here is what to look for in your annual disclosure package.

The Annual Budget Report

The annual budget report must include: the operating budget for the coming year with a description of any increase in regular assessments; the reserve funding plan showing the association’s reserve fund status and projected contributions; a statement of whether the board expects to levy a special assessment in the coming year; and the association’s collection policy. Read the reserve funding section carefully — the percent funded figure tells you whether a special assessment is likely in the near future regardless of what the board says in its cover letter.

The Annual Policy Statement

The annual policy statement discloses the association’s key policies including: the assessment collection policy; the enforcement policy for CC&R violations; the disciplinary policy including the schedule of fines; insurance coverage information; and the association’s dispute resolution procedures. If the association’s policies have changed from the prior year, the annual policy statement is where you’ll find the updated version. Changes to fine schedules, collection procedures, or enforcement policies that appear in the annual disclosure are binding on members from the effective date.

The Financial Statement Review

For associations with annual assessments of $75,000 or more, California law requires a financial review by a licensed accountant and disclosure of the review findings to all members annually. Review the financial statements for: unexplained variances between budgeted and actual expenses; unusual vendor payments that might indicate unauthorized expenditures; reserve fund balances that don’t match the reserve study projections; and any notes from the reviewing accountant flagging concerns about the association’s financial management. These financial statements are the HOA’s equivalent of a company’s annual report — read them.

The Hedge has been cutting through financial and business noise since 2008. Brutal honesty over hype — always.