California Bill Could Increase HOA Fees for Millions

Millions of Californians could see their monthly homeowners association (HOA) fees increase if Assembly Bill 2050 is signed into law. The bill, which aims to protect homeowners from unexpected repair costs, requires HOAs to build up their reserve funds to cover major repairs and long-term maintenance.

Governor Gavin Newsom has until September 30 to decide the fate of the legislation, introduced by Democratic Assemblymember Jessica Caloza, alongside Republican Assemblymember Diane Dixon and Democratic Assemblymember Richard Chavez Zbur. The bill passed the state legislature last month.

If enacted, AB 2050 would mandate that HOAs maintain sufficient funds in their reserve accounts to cover projected expenses over a 30-year period, ensuring balances do not fall below zero. Starting in January 2032, associations projected to exhaust their reserves within this timeframe would be required to allocate at least 15 percent of their gross annual operating budget to reserves each year. Should an association's operating budget be insufficient to meet the required funding level, it would be compelled to levy a special assessment to cover the shortfall.

The measure is designed to shield homeowners from sudden, substantial bills for essential repairs, such as those for roofs, paving, and mechanical systems. However, critics warn that these new requirements could force HOAs to raise monthly dues or implement special assessments to manage the additional financial burden.

Frederick Blum, broker and owner of San Diego-based Blum Realty Group, expressed concern that the financial pressure could be particularly acute for homeowners in associations that have historically underfunded their reserves. He noted that HOA dues are already considerable in many California communities, with rising insurance costs being passed on to owners through increased fees. Blum highlighted instances where HOA boards have opted against implementing recommended funding plans outlined in reserve studies, potentially leading to significant shortfalls that homeowners may now be required to cover.

"For communities in that position - and there are many - the financial impact on the impacted owners is far from hypothetical," Blum stated. "It is the difference between what the association has been collecting and what it will now be required to collect and that will be very significant in many cases."

He added that drastic increases in dues can make it difficult for homeowners with fixed-rate mortgages to afford their properties. Higher HOA fees can also negatively impact property values by making homes less accessible to potential buyers, as lenders consider these costs when assessing mortgage affordability.

Blum pointed to an example in Oceanside where a condominium association's mismanagement led to dues increases exceeding 20 percent and multiple special assessments. Consequently, condos in that association are now selling at an average discount of 15 percent compared to two years prior. He also cited a hypothetical underfunded association with 25 homes needing an additional $90,000 annually for reserves. If this cost were divided equally, each homeowner could face an additional $300 per month, raising a $500 monthly bill to $800, totaling $3,600 annually before other potential increases.

Supporters of the bill argue that robust reserves can prevent homeowners from facing unexpected, large repair bills. However, Blum cautioned that the process of building these reserves might itself necessitate special assessments or increased dues, especially in associations with significant funding gaps, in a state already contending with rising insurance costs and inflation.

This situation mirrors a debate unfolding in Florida, where stricter reserve-funding requirements were implemented after the 2021 collapse of the Champlain Towers South in Surfside. Investigations into that tragedy revealed structural issues and years of deferred maintenance, alongside warnings from engineering reports that the building's association lacked the funds for necessary repairs, raising questions about why critical work had not been undertaken prior to the disaster.