While there are still several weeks for legislative proposals to be introduced in the General Assembly, one bill introduced yesterday (March 29) would directly impact North Carolina condominium and homeowner associations: Senate Bill 491: HOA/Condo Crime & Fidelity Insurance Policies filed by Sen. Norman Sanderson (Carteret, Craven, Pamlico). The bill’s purposes are to (1) require more financial transparency in community associations, and (2) help ensure associations recover monies in the event of financial wrongdoing by an association leader or community manager.
In short, SB 491 takes a different approach than some prior proposals on how to address concerns about financial mismanagement by association leaders or community managers. In the past, a main focus seemed to be on licensing community association managers. Those proposals didn’t get support for several reasons. For one, manager licensing doesn’t take into account that other individuals, such as board members or officers, might be the problem. Secondly, in the event of manager licensing, the only recourse is to take the manager’s license away, which does little to help the association that lost funds. Finally, there seems to be little appetite for spending the money on a new government bureaucracy for issuing and supervising manager licenses.
SB 491 instead looks at protecting the association’s funds by:
- Requiring Crime and Fidelity Coverage. HOA or condo associations with annual assessments for common expenses of at least $25,000 or with $25,000 or more total funds invested or on deposit would have to obtain and maintain a crime and fidelity insurance policy. The policy would have to provide coverage in the amount of 125% of the total funds on deposit or invested by the executive board plus 125% of the annual budget of the unit owners’ association as of the last day of the association’s last fiscal year, but not more than one million dollars. In addition, any management company or agent to an HOA or condo association would have to obtain and maintain a crime and fidelity insurance policy. The policy would have to provide coverage in the amount of the total annual budgets of all clients of the management agent or company, but not more than two million dollars.
- Requiring Financial Audits. HOA or condo associations with annual revenues or expenditures or total accounts balances of $150,000 or more would be required to have an annual independent financial audit conducted by a Certified Public Accountant (CPA). The audit would have to be completed no later than one year after the end of the fiscal year and made available upon request to lot owners within 30 days after completion.
If adopted, SB 491 would take effect on January 1, 2018. The fidelity bond and audit provisions would apply to all planned communities whenever created and to all condominium associations created after October 1, 1986 (older condominiums already have audit requirements). The full bill can be found at http://www.ncleg.net/gascripts/BillLookUp/BillLookUp.pl?Session=2017&BillID=S491
Is SB 491 perfect? Of course not. The required crime and fidelity coverage for associations and management agents could be higher, but that might make coverage unaffordable for many associations. Smaller associations could also benefit from being required to have an audit, but the costs might bankrupt smaller associations. As SB 491 is discussed over the next several weeks, additional questions will certainly arise. However, this bill seems the best proposal to date for making certain associations understand their finances (through an audit) and for recovering monies in the event of wrongful acts by an association leader or community manager.
The Legislative Action Committee (LAC) of the NC Chapter of the Community Associations Institute supports SB 491. In fact, the LAC asks that you contact your legislator to discuss the benefits of the bill. If you want to know who represents you in the General Assembly, visit http://www.ncleg.net/representation/WhoRepresentsMe.aspx.
More details on this and other legislation will follow in the coming weeks.
Author: Jim Slaughter
Articles have been Reprinted with permission from Black, Slaughter, Black.
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