Key takeaways
Starting January 1, 2032, California's AB 2050 requires every HOA to update its reserve study each year and fund at least the minimum that keeps its reserve balance above zero for the next 30 years. Boards that start closing the gap in 2027 can do it in small steps across five budgets instead of one large special assessment.
- AB 2050 was signed September 29, 2026 and covers condos and planned developments alike under the Davis-Stirling Act.
- If an association's 30-year reserve projection drops below zero, it must move at least 15 percent of its gross yearly budget into reserves each year until it no longer does.
- Separately, Fannie Mae requires condos and co-ops to send at least 15 percent of assessment income to reserves for loan applications dated on or after January 4, 2027.
- A California board can raise regular dues up to 20 percent a year, and levy special assessments up to 5 percent of budgeted expenses, without an owner vote.
Written for: HOA & condo board members, Community association managers
Here is a question worth asking at your next board meeting: does your association have enough money set aside to pay for every big repair in the next 30 years? Now a harder one. Could your board show it on paper today?
Most boards can't, and that is normal. Nobody has asked them before. Starting in 2032, the State of California will ask every year.
This guide walks through how reserves work, what California and mortgage lenders require today, what AB 2050 changes, and how to use the five budgets between now and 2032. It ends with a 12-question scorecard you can fill in for your own association.
Download the Reserve Readiness Checklist (PDF): the 12 questions, a one-action plan, and a reference page with the key dates, the five AB 2050 rules and the two 15 percent rules. Print one for each board member.
Your association pays for two kinds of costs
Operating costs are the bills that come every month or every year: landscaping, insurance, management, utilities, the pool light that went out. They are paid from this year's dues.
Reserves pay for the big repairs you know are coming, just not this year: roofs, paint, asphalt, decks, pools, elevators. You save a little every year so the money is there when the work is due.
A reserve study is the 30-year map of that second kind of cost. It answers three questions: What do we own? What will it cost to replace? Are we ready?
Reserves should not be what is left over
Many budgets get built like this:
- Start with last year's budget.
- Raise each line about 3 percent.
- Whatever is left goes to reserves.
The problem is that insurance, management and landscaping keep going up. When reserves are the leftovers, they shrink every year and nobody ever voted to cut them.
A budget that holds is built the other way around:
- Start with the repairs coming in the next five years.
- Set the reserve amount the plan needs.
- Build the rest of the budget around it.
Make your reserve study a working plan, not a report in a drawer
- Look at the list every year. The study says when parts wear out. Your board decides what really happens, and when.
- Write down who decided. If the board moves a project, the study should say the board made that call, and why.
- Ask an expert before you wait. Before you push a roof or paint job out, have someone inspect it and put it in writing.
It is your report. If your board can't use it to make decisions, it is just paper. This matters more after 2032, when the study is updated every year and the board must fund the minimum it shows. A study the board does not trust becomes a bigger problem, not a smaller one.
Four ways to pay for a big repair
| Option | What the board can do in California | Best for |
|---|---|---|
| Raise regular dues | Up to 20 percent a year without an owner vote, if the annual budget report went out on time | Fixing the yearly amount |
| Special assessment | Up to 5 percent of the year's budgeted expenses without an owner vote | Filling a hole once |
| Ask the owners | Above either limit, owners vote | Larger increases |
| Borrow | An association loan is repaid from dues. Check your CC&Rs first; many require an owner vote to borrow | Spreading a large project over time |
A few details that get missed:
- The 20 percent power only works if the annual budget report went out 30 to 90 days before the fiscal year ends (Civil Code 5300 and 5605).
- Civil Code 5605 lets the board use the 20 and 5 percent powers even if the CC&Rs set a lower cap. Borrowing is different, and CC&Rs often restrict it.
- An owner vote often takes fewer yes votes than boards think. Quorum is more than half the members, and the increase needs a majority of a quorum (Civil Code 4070). In a 200-home association, that can be as few as 51 yes votes. Count before you give up.
- Owners must get individual notice of an increase 30 to 60 days before it is due (Civil Code 5615).
Where the money sits matters too
Saving the money is half the job. Where you keep it is the other half. Ask three questions about your reserve accounts:
- Is it safe? Know how much of your balance is insured. FDIC insurance covers up to $250,000 per depositor, per bank, per ownership category, and an association counts as one depositor. Larger balances need a plan.
- Is it ready? Your reserve study is also a cash schedule. Keep cash on hand for this year's projects, and match longer terms to projects that are years away.
- Is it earning? Money parked in a checking account often earns nothing. Reserves that earn interest help pay for the repairs.
Ask for a written investment policy that your board adopts and reviews every year. Two rules already apply: the board must review reserve account statements and reconciliations at least every quarter (Civil Code 5500), and withdrawals need two signatures (Civil Code 5510).
California's reserve rules today, and what changes in 2032
Today, when the replacement cost of your major components is at least half your yearly budget, the board must have the property inspected at least every three years and review the reserve study every year (Civil Code 5550).
| The rule | Today | Starting January 1, 2032 |
|---|---|---|
| The study | The board reviews it every year | The study is updated every year |
| What it shows | Each component, its remaining life, its cost, the yearly amount needed and a funding plan | Adds the minimum contribution that keeps the reserve balance above zero for 30 years |
| Owners | Reserve summary and funding disclosure go out with the budget, 30 to 90 days before year end | Still sent every year |
| The money | Statements reviewed every quarter; two signatures to withdraw | No change |
| Funding | Not required. The law says so (Civil Code 5570) | Required: at least the minimum, every year |
That first row is one of the quiet but big changes. Today the law says review. In 2032 it says update.
Lenders already check condo reserves
Mortgage lenders are not the law, and nobody fines you. But if a buyer can't get a normal loan, your neighbor can't sell. Two dates matter for condos and co-ops:
- August 3, 2026: Fannie Mae eliminated Limited Review (Freddie Mac retired its Streamlined Review). Most condo loans now get a full look at the budget, the reserves and any deferred repairs.
- January 4, 2027: at least 15 percent of assessment income must go to reserves, up from 10 percent, for loan applications dated on or after that day.
This lender test applies to condos and co-ops. Planned developments sit outside it. AB 2050 does not.
AB 2050 makes funding your reserves the law
Governor Newsom signed AB 2050 (Caloza, Chapter 796, Statutes of 2026) on September 29, 2026. It covers every California common interest development under the Davis-Stirling Act, condos and planned developments alike. The new funding and reserve study rules start January 1, 2032.
Starting that day:
- Your reserve study shows the minimum yearly amount that keeps your reserve balance above zero for the next 30 years.
- The board updates the study every year.
- You must put in at least that minimum every year.
- If your 30-year projection drops below zero, move at least 15 percent of your gross yearly budget into reserves each year until it no longer does.
- If the budget can't cover it, levy a reserve funding special assessment. The normal limits apply, and above them owners vote. No more than once every nine years.
These are new Civil Code 5550(b) and 5552(a) to (e). The law as signed does not name a penalty or an agency that enforces it. There is also no small-association or hardship exemption. Ask your association's attorney how it applies to you.
For the full legal detail, see our California reserve requirements guide.
The question changes
For years, boards have asked "What percent funded are we?" Percent funded compares your cash to the value of what has already worn out, so it moves with every guess about how long things last. Change a roof's life estimate and percent funded jumps, even though no cash moved.
AB 2050 asks a different question: will our reserve account stay above zero every year for the next 30 years? You either have the cash when the work comes due or you don't.
Percent funded isn't going away. It still appears in the disclosure owners receive every year, and lenders and buyers still look at it. (Our guide to percent funded and contribution rates explains how it is calculated.) But a plan can look healthy for a decade and still run out of cash in year 13. One year's balance tells you very little. The 30-year cash flow tells you whether you are solvent.
Don't mix up the two 15 percent rules
| Mortgage lenders | AB 2050 (California law) | |
|---|---|---|
| Who | Condos and co-ops, when an owner sells or refinances | Every California HOA, planned developments too |
| Starts | January 4, 2027 | January 1, 2032 |
| 15 percent of | Assessment income, going to reserves | The gross yearly budget, moved into reserves |
| When | A test on most condo loan reviews | Only if the 30-year projection drops below zero |
| If you miss | Buyers may not get a normal loan. Sales slow or fall apart | A reserve funding special assessment, with an owner vote above the limit |
A condo can be caught by both. A planned development only by AB 2050. The state law does not replace the lender rule; they run side by side.
Waiting makes the gap more expensive
Take one association with a $300,000 gap between what it contributes and the minimum that keeps it above zero. Here are three ways to close it:
| Start | What it takes |
|---|---|
| In 2027 | $60,000 extra a year, for five years |
| In 2030 | $150,000 extra a year, for two years |
| In 2032 | $300,000 at once, likely a special assessment and an owner vote |
This is simple division with no inflation or interest. In real life the gap grows while you wait, because construction costs keep rising.
A plan for the five budgets between now and 2032
- 2027: Know your number. Ask for the 30-year cash flow and the minimum that keeps you above zero.
- 2028: Close the gap in steps. Raise the reserve amount a little each year, not all at once.
- 2029: Put the money to work. Adopt an investment policy that matches your 30-year schedule.
- 2030: Tell owners early. Explain the law and your plan before the bill arrives. Owners accept a schedule they understand. They fight a surprise.
- 2031: Check and confirm. Update the study. Make sure the 2032 budget meets the minimum.
These years are a suggestion, not a legal schedule; many boards can do several steps at once. Each step lands at a decision you already make every year: adopting the budget.
Score your association: the 12 questions
Answer yes only if your board could show it on paper today.
A. Plan and pay
- Our reserve study was updated or reviewed in the last 12 months.
- We know this year's reserve contribution in dollars, without looking it up.
- We know our three biggest projects in the next five years, and what each will cost.
- We set the reserve amount first in the budget. It is not what is left over.
B. Today's rules
- We know if we are a condo or a planned development, and if lenders test our reserves.
- Condos and co-ops: at least 15 percent of assessment income goes to reserves. (Planned developments: mark yes.)
- Our budget report and reserve summary go to owners 30 to 90 days before year end.
- We know where our reserve money sits, how much is insured, and what it earns.
C. Ready for 2032
- Our study shows our reserve cash flow year by year for the next 30 years.
- Our reserve balance stays above zero in every one of those 30 years.
- We know the gap between what we put in now and the minimum that keeps us above zero.
- Our owners have heard about AB 2050 and what our board plans to do.
How you did: 10 to 12 yes answers puts you ahead of most associations. With 6 to 9, you are on your way: fix your weakest section. With 0 to 5, start now and get your 30-year number. These bands are a rough guide, not a legal or industry standard.
Most boards score lowest on section C. That is expected. Those questions are new as of September 29, 2026, and you have five budget cycles to turn them into yes.
One action, one name, one date
A scorecard only helps if something happens next. Before you put it down, write:
- The one action: the "no" that matters most.
- Who does it: a person's name, not "the board."
- By when: a real date. Your next board meeting is best.
- Who needs to know: owners, your manager, your reserve study provider, your banker.
If you can't pick one, start with this: ask your reserve study provider whether your current contributions keep your balance above zero for 30 years, and how big the gap is. That one question turns scorecard items 9, 10 and 11 into a yes.
Download the Reserve Readiness Checklist (PDF) and bring it to your next board meeting.
This guide is based on "Planning Reserves and Managing Mandates," an ECHO educational session presented in November 2026. It is not legal or investment advice. Check the specifics with your association's attorney and your governing documents.
