Question:
Are HOAs restricted from using brokerage companies to place contingency funds and reserve funds? We would like to take advantage of higher yield, low risk investments when compared to the interest earned in bank savings accounts.
– Thomas
Answer:
Hi Thomas,
In North Carolina, homeowners associations are not inherently restricted from using brokerage companies to place contingency funds and reserve funds, but they must adhere to certain legal and fiduciary obligations. The North Carolina Planned Community Act (Chapter 47F) and the HOA’s governing documents typically guide the management of reserve funds. These funds must be invested prudently, prioritizing safety and liquidity, since they are intended to cover significant repairs, maintenance, or emergencies.
Using brokerage accounts to access higher-yield, low-risk investments like certificates of deposit (CDs), Treasury securities, or money market funds may be permissible as long as the investments align with the HOA’s fiduciary duty to protect the financial health of the community. The HOA board must avoid speculative or high-risk investments that could jeopardize these funds. Additionally, the governing documents may specify restrictions on how reserve funds can be invested, and the board may need to seek approval from homeowners before changing investment strategies.
To ensure compliance and mitigate risks, the HOA board should consult with a financial advisor experienced in HOA fund management and seek legal advice to verify that the proposed investment approach complies with state laws and the HOA’s governing documents. Transparency with homeowners regarding how funds are managed and invested is also essential to maintain trust and accountability.
Disclaimer: We are not lawyers. The information provided on this website does not constitute legal advice.
