AB 899 - Expands Disclosure Requirements for Homeowners

Feldsott & Lee
A Law Corporation

As of January 1, 2010, Assembly Bill 899 (hereinafter “AB 899”) will become operative. This bill seeks to provide clarity and transparency for association boards of directors and owners of separate interests relative to the many disclosures required within the Davis-Sterling Common Interest Development Act (hereinafter “Act”).

AB 899 adds new Civil Code Section 1363.005, which requires associations to create an index of the disclosure documents required within the Act to be distributed annually to its members. The “Disclosure Documents Index” should list each document and where its requirement can be found in the Act. Specifically, it should include the following:

Item	Description	Reference Code
1	Assessment and Reserve Funding Disclosure Summary (form)	Civ. Code Sec. 1365.2.5
2	Pro Forma Operating Budget or Pro Forma Operating Budget Summary	Civ. Code Sec. 1356(a)
3	Assessment Collection Policy	Civ. Code Sec. 1365(e) and 1367.1(a)
4	Notice/Assessment and Foreclosure (form)	Civ. Code Sec. 1365.1
5	Insurance Coverage Summary	Civ. Code Sec. 1365(f)
6	Board Minutes Access	Civ. Code Sec. 1363.05(e)
7	Alternative Dispute Resolution (ADR) Rights (summary)	Civ. Code Sec. 1369.590
8	Internal Dispute Resolution (IDR) Rights (summary)	Civ. Code Sec. 1363.850
9	Architectural Change Notice	Civ. Code Sec. 1378(c)
10	Secondary Address Notification Request	Civ. Code Sec. 1367.1(k)
11	Monetary Penalties Schedule	Civ. Code Sec. 1363(g)
12	Reserve Funding Plan (summary)	Civ. Code Sec. 1365(b)
13	Review of Financial Statement	Civ. Code Sec. 1365(c)
14	Annual Update of Reserve Study	Civ. Code Sec. 1365(a)

Additionally, AB 899 amends Civil Code Section1365.2.5 pertaining to reserve funding disclosures. As of January 1, 2010, the Assessment and Reserve Funding Summary required by Civil Code Section 1365.2.5 must specify the annual interest rate earned on the reserve funds per year and the assumed long-term inflation rate to be applied to major component repair and replacement costs each year. By requiring additional disclosures, AB 899 will provide more information to homeowners regarding the financial assumptions upon which association decisions will be made. With greater information, homeowners will be better able to judge if assessments are likely to increase.

Expanding disclosures may be an additional operating cost for associations to consider. Furthermore, the new definitions added to the reserve budgeting process could potentially be misunderstood. It is recommended that boards consult with their reserve study specialist in incorporating new disclosures into the reserve funding plan summary.