Overview
Reserve studies are supposed to give homeowners an honest picture of whether their HOA has enough money saved for the future repairs and replacements of their HOA’s major common area assets (or components). Under the Davis-Stirling Act, HOAs must conduct these studies and disclose the results (Civil Code 5550, 5570). For a quick-reference guide, see my Fact Sheet: “California HOA Reserve Study Requirements: How Often They’re Required and What Must Be Included.”
But some boards—the ones that I refer to as HOA boards from Hell—fraudulently manipulate the numbers, e.g., extending lifespans, lowballing replacement costs, or even omitting (or de-listing) major components, solely to make the HOA’s finances look better than they really are. When that happens, homeowners end up paying the price through surprise special assessments and declining property values. This Fact Sheet explains how HOAs manipulate reserve studies and the steps you can take to protect yourself.
For a deeper dive into this topic, see my full article on “Everything You Wanted to Know About Reserve Studies.”
You can also watch my two-part HOA HELL podcast episode, “What Every California Homeowner Needs to Know About HOA Reserve Funds” (Part 1 and Part 2).
Key Points
HOAs from Hell sometimes fraudulently manipulate reserve studies to hide their financial problems. Such bad HOA boards do this in a variety of ways, including:
- Extending useful life without evidence. A lot of bad HOA boards may pressure preparers (or directly change a reserve study prepared by an expert) to list roofs, balconies, or staircases as lasting longer than they realistically will. This artificially inflates the “percent funded” number.
- Lowballing replacement costs. Some bad HOA boards will insist on unrealistically low cost estimates, which artificially inflates the “percent funded” number.
- Omitting major components (also called “de-listing”). Many bad HOA boards intentionally leave out big-ticket items like balconies, retaining walls, or staircases to artificially increase that “percent funded” number.
- Improperly borrowing from reserves. Bad boards may dip into reserve funds for unrelated expenses without following the required legal processes (Civil Code 5510 and 5515).
- Hiding or editing professional findings. Some bad HOA boards override reserve preparers’ reports, refuse inspections, or edit studies after delivery to members.
The consequences of these dishonest actions always fall on the homeowners. Manipulation leads to underfunded reserves, which, if unabated, will inevitably trigger future massive special assessments that could, depending on the extent of the fraud, amount to tens of thousands of dollars per household. Consequently, when dishonest HOA boards engage in this sort of reserve study manipulation, they are not protecting the community. On the contrary, they are virtually guaranteeing that you and your fellow homeowners (at least those who still live in the community when it’s time to pay the piper) will have to fund those repairs via special assessments. Knowing how to spot the red flags is the first step toward fighting back.
FAQs
How do California HOAs manipulate reserve studies?
Bad HOAs may manipulate reserve studies by fraudulently inflating the useful life of components, lowballing replacement costs, or leaving major items out of the report. These tricks make the HOA look more financially stable than it really is.
Why would a California HOA board want to manipulate a reserve study?
Bad HOAs fraudulently manipulate reserve studies to avoid raising assessments or to hide deeper, systemic (and serious) financial problems. They make the HOA look healthier in the short term, but the result is usually massive future special assessments that you’ll have to pay later.
What are the red flags that a California HOA reserve study is being manipulated?
Red flags include identical components listed with different lifespans, suspiciously low cost estimates, major components missing from the study, unexplained changes to specific components from the prior reserve study, or visible deterioration that doesn’t match the reserve report.
Can California HOA boards borrow from reserves without following the rules?
No. Civil Code 5510 and 5515 restrict how reserves can be used and borrowed. Boards must give notice, disclose a repayment plan, and restore the money within a year unless properly documented. Skipping these steps is a violation of the Davis-Stirling Act and a breach of fiduciary duty.
What happens to homeowners if a California HOA manipulates its reserve study?
When boards manipulate reserve studies, homeowners are left with underfunded reserves. If that problem gets serious enough, it almost always leads to steep special assessments, which can cost each household tens of thousands of dollars in the future.
What can homeowners do if they suspect manipulation of a California HOA reserve study?
Homeowners can demand records under Civil Code 5200, review meeting minutes, compare current and past reserve studies, and ask tough questions at board meetings. Organizing with neighbors adds pressure and makes it harder for boards to hide wrongdoing.
About MBK Chapman Fact Sheets
Homeowners searching for answers online will often come across articles that appear authoritative, but are actually written as search-engine marketing content rather than by an experienced HOA lawyer. These pieces tend to prioritize keyword density over clarity, accuracy, or legal context, which often leaves homeowners more confused than informed.
At MBK Chapman, our Fact Sheets are part of our HOA Law Library and are written by Michael Kushner, an HOA lawyer with decades of hands-on experience representing California homeowners. In fact, Michael Kushner is the HOA lawyer who pioneered the systems and strategies used by some of California’s most successful homeowner-side HOA law firms.
Each Fact Sheet is deliberately concise, statute-based, and designed as a quick-reference guide to help homeowners understand key HOA laws and enforcement rules at a glance.
AND DON’T FORGET TO TUNE INTO MY PODCAST, HOA HELL
YOU CAN ALSO ORDER MY GROUNDBREAKING BOOK
HOA HELL | California Homeowners’ Definitive Guide to Beating Bad HOAs
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