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Homeowners Associations in California are not required by law to fully fund reserves for upkeep, repair or replacement of various parts of common areas (which for a condominium usually means everything other than what is actually within the defined air space of the condominium itself), but they must disclose their methodology for forecasting and they must have the funds available when they are needed.Â
Many condominium associations have about 75% of the necessary reserves.  If they are too low (say 50%), there is a risk to the owner that they will have to contribute cash to pay for repairs and thus this risk translates directly into the value of their ownership unit.Â
If there is a deficit, a HOA in California can remedy the situation by four means: 1)Â They can increase regular assessments (beyond the cost of living) up to 20% per year;Â 2) they can vote to have a special assessment up to 5% of the gross reserves; 3)Â they can defer the work that needs to be done;Â 3)Â or with a vote of the membership they can borrow needed funds from a bank and spread the payments out over 5 to 10 years.
The financial component of this risk is frequently negotiated if discovered, prior to contingecy release. Buyers should read the HOA disclosure package required by the Purchase Contract, speak with the Managment Company; read the association minutes and if still in doubt, order a thorough analysis of the HOA budget to be done by a firm such as Community Associations DataSource.Â
Your Realtor can help you with this, but they cannot give you legal or accounting advice. Call Rick Bonetti, Alain Pinel Realtors 408-857-8800 if you need real estate help.