Understanding the Importance of Reviewing Annual Financial Disclosures from Your Homeowners Association

Homeowners’ associations have a duty to provide annual financial information to homeowners as part of their fiduciary responsibilities. This typically includes:

• Annual Budget Report: This report forecasts the association’s income and expenses for the upcoming year and details the association’s financial plans, including reserve funds. Many states, like California, require this report to be distributed at least 30-90 days before the start of the fiscal year.
• Year-End Financial Statements: These statements reflect the association’s financial position at the end of the fiscal year. Often, they include balance sheets, income statements, and other relevant financial documents.
• Reserve Study or Reserve Summary: An analysis of the association’s reserve funds (funds set aside for major repairs and replacements) is often included, detailing how much money is available and if it meets projected future expenses.
• Audit or Review Requirement: Some states or association governing documents may require an independent audit or review, which is then shared with homeowners to ensure accuracy and transparency.

Homeowners associations must distribute these documents within specific timelines (generally annually) and ensure they are accessible for homeowners. Failure to provide these may expose the association to: