California Law Could Force Millions of Homeowners to Pay Higher HOA Fees

Millions of California homeowners could see their monthly costs rise under Assembly Bill 2050, a new law that would require homeowners associations (HOAs) to maintain a 30-year reserve fund and conduct regular reserve account studies. The bill is awaiting a decision from Gov. Gavin Newsom, who has until September 30 to sign it into law or veto it.

If an HOA's reserves are projected to fall below zero at any point within the next 30 years, the association must transfer at least 15% of its gross annual budget into reserves each year, beginning in January 2032. Should the HOA's budget be insufficient to cover this mandatory transfer, the bill requires the association to impose a special assessment on homeowners. The potential increase in monthly fees remains unclear.

According to U.S. Census Bureau data, nearly a quarter of households in California are part of an HOA, meaning the new law could affect a significant portion of the state's population. Proponents argue that the bill ensures HOAs are better equipped to manage maintenance and other ongoing expenses. Robert DeNichilo, legislative co-chair at the Community Associations Institute’s California Legislative Action Committee, stated that the bill budgets for the "actual cost of ownership."

However, the Consumer Federation of California has expressed opposition, advocating for capped fee increases and stronger consumer protections. Robert Herrell, the organization’s executive director, told the San Francisco Chronicle that the bill could lead to "massive assessment increases on 14 million Californians" and suggested that policies should include "reasonable limitations on what could be increased and how rapidly, along with some important guardrails on financial protection and responsibility."

Fannie Mae's upcoming requirement for condo associations to allocate 15% of their annual budgets to reserves, an increase from the current 10%, starting next year, may further influence the impact of this legislation. Researchers suggest that such measures can lead to more equitable fee structures for future homeowners by preventing the deferral of maintenance costs to later residents. Nathan Godin, a doctoral student at UC Berkeley Haas School of Business, noted that it is "better practice" to avoid "passing the buck on to future owners" through deferred expenses.

In California, HOAs currently have the authority to increase regular dues by up to 20% per fiscal year without a vote from community members. This new legislation aims to address long-term financial stability for these associations, though it raises concerns about immediate affordability for homeowners.