Millions of California homeowners to be hit with higher costs under new law

Get ready to pay up.

Californians may have to pay even higher homeowners association fees thanks to a law that could be signed by Gov. Gavin Newsom before the end of the month.

Assembly Bill 2050 would require HOAs to maintain a 30-year reserve fund and conduct a study of the reserve account.

If an HOA’s reserves fund is projected to fall below zero at any point during the 30 years, the association must transfer at least 15% of its gross annual budget into reserves each year beginning January 2032.

If the HOA’s budget can’t cover the required transfer, the bill requires the HOA to raise fees on homeowners through a “special assessment.” It’s not clear how much the bill could raise monthly fees for homeowners.

The law would affect millions, as nearly a quarter of California households pay HOA according to U.S. Census Bureau data.

Newsom has until September 30 to sign the bill into law or veto it.

The Consumer Federation of California criticized the bill, saying a better policy would include capped fee increases.

“We’re not against reserving, but it ought to be combined with some reasonable limitations on what could be increased and how rapidly, along with some important guardrails on financial protection and responsibility so the residents don’t get ripped off because the board acts like a kangaroo court,” Robert Herrell, the ogranization’s executive director told the San Francisco Chronicle.

“I don’t know that you want to sign a bill that’s essentially going to directly lead to massive assessment increases on 14 million Californians,” he continued.

Proponents of the bill say it would make sure HOAs are better able to keep up building maintenance and other costs. Robert DeNichilo, legislative co-chair at the Community Associations Institute’s California Legislative Action Committee, told the SF Chronicle that the bill budgets “the actual cost of ownership.”

In California, HOAs can can increase regular dues by up to 20% per fiscal year without a vote from community members.

The bill would be especially tough on condos. Fannie Mae will require condo associations to put 15% of their annual budgets toward reserves starting next year, an increase from the current 10%.

Nathan Godin, a doctoral student at the UC Berkeley Haas School of Business who conducted research on a similar 2022 law enacted in Florida, told the SF Chronicle that the bill could make HOA fee increases more fair to future homeowners.

“You don’t want to be basically passing the buck on to future owners,” Godin said. “You want to have this month-to-month payment instead of expecting some future special assessment. It’s just better practice.”

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