SECTION 1365.  Unless the governing documents impose more stringent

standards, the association shall prepare and distribute to all of its

members the following documents:

   (a) A pro forma operating budget, which shall include all of the

following:

   (1) The estimated revenue and expenses on an accrual basis.

   (2) A summary of the association's reserves based upon the most

recent review or study conducted pursuant to Section 1365.5, based

only on assets held in cash or cash equivalents, which shall be

printed in boldface type and include all of the following:

   (A) The current estimated replacement cost, estimated remaining

life, and estimated useful life of each major component.

   (B) As of the end of the fiscal year for which the study is

prepared:

   (i) The current estimate of the amount of cash reserves necessary

to repair, replace, restore, or maintain the major components.

   (ii) The current amount of accumulated cash reserves actually set

aside to repair, replace, restore, or maintain major components.

   (iii) If applicable, the amount of funds received from either a

compensatory damage award or settlement to an association from any

person or entity for injuries to property, real or personal, arising

out of any construction or design defects, and the expenditure or

disposition of funds, including the amounts expended for the direct

and indirect costs of repair of construction or design defects.

These amounts shall be reported at the end of the fiscal year for

which the study is prepared as separate line items under cash

reserves pursuant to clause (ii).  In lieu of complying with the

requirements set forth in this clause, an association that is

obligated to issue a review of their financial statement pursuant to

subdivision (b) may include in the review a statement containing all

of the information required by this clause.

   (C) The percentage that the amount determined for purposes of

clause (ii) of subparagraph (B) equals the amount determined for

purposes of clause (i) of subparagraph (B).

   (3) A statement as to both of the following:

   (A) Whether the board of directors of the association has

determined or anticipates that the levy of one or more special

assessments will be required to repair, replace, or restore any major

component or to provide adequate reserves therefor.  If so, the

statement shall also set out the estimated amount, commencement date,

and duration of the assessment.

   (B) The mechanism or mechanisms by which the board of directors

will fund reserves to repair or replace major components, including

assessments, borrowing, use of other assets, deferral of selected

replacement or repairs, or alternative mechanisms.

   (4) A general statement addressing the procedures used for the

calculation and establishment of those reserves to defray the future

repair, replacement, or additions to those major components that the

association is obligated to maintain. The report shall include, but

need not be limited to, reserve calculations made using the formula

described in paragraph (4) of subdivision (b) of Section 1365.2.5,

and may not assume a rate of return on cash reserves in excess of 2

percent above the rediscount rate published by the Federal Reserve

Bank of San Francisco at the time the calculation was made.

   The summary of the association's reserves disclosed pursuant to

paragraph (2) shall not be admissible in evidence to show improper

financial management of an association, provided that other relevant

and competent evidence of the financial condition of the association

is not made inadmissible by this provision.

   Notwithstanding a contrary provision in the governing documents, a

copy of the operating budget shall be annually distributed not less

than 30 days nor more than 90 days prior to the beginning of the

association's fiscal year.

   (b) A review of the financial statement of the association shall

be prepared in accordance with generally accepted accounting

principles by a licensee of the California Board of Accountancy for

any fiscal year in which the gross income to the association exceeds

seventy-five thousand dollars ($75,000).  A copy of the review of the

financial statement shall be distributed within 120 days after the

close of each fiscal year.

   (c) In lieu of the distribution of the pro forma operating budget

required by subdivision (a), the board of directors may elect to

distribute a summary of the pro forma operating budget to all of its

members with a written notice that the pro forma operating budget is

available at the business office of the association or at another

suitable location within the boundaries of the development, and that

copies will be provided upon request and at the expense of the

association.  If any member requests that a copy of the pro forma

operating budget required by subdivision (a) be mailed to the member,

the association shall provide the copy to the member by first-class

United States mail at the expense of the association and delivered

within five days.  The written notice that is distributed to each of

the association members shall be in at least 10-point boldface type

on the front page of the summary of the budget.

   (d) A statement describing the association's policies and

practices in enforcing lien rights or other legal remedies for

default in payment of its assessments against its members shall be

annually delivered to the members not less than 30 days nor more than

90 days immediately preceding the beginning of the association's

fiscal year.

   (e) (1) A summary of the association's property, general

liability, earthquake, flood, and fidelity insurance policies, which

shall be distributed not less than 30 days nor more than 90 days

preceding the beginning of the association's fiscal year, that

includes all of the following information about each policy:

   (A) The name of the insurer.

   (B) The type of insurance.

   (C) The policy limits of the insurance.

   (D) The amount of deductibles, if any.

   (2) The association shall, as soon as reasonably practicable,

notify its members by first-class mail if any of the policies

described in paragraph (1) have lapsed, been canceled, and are not

immediately renewed, restored, or replaced, or if there is a

significant change, such as a reduction in coverage or limits or an

increase in the deductible, as to any of those policies.  If the

association receives any notice of nonrenewal of a policy described

in paragraph (1), the association shall immediately notify its

members if replacement coverage will not be in effect by the date the

existing coverage will lapse.

   (3) To the extent that any of the information required to be

disclosed pursuant to paragraph (1) is specified in the insurance

policy declaration page, the association may meet its obligation to

disclose that information by making copies of that page and

distributing it to all of its members.

   (4) The summary distributed pursuant to paragraph (1) shall

contain, in at least 10-point boldface type, the following statement:

  "This summary of the association's policies of insurance provides

only certain information, as required by subdivision (e) of Section

1365 of the Civil Code, and should not be considered a substitute for

the complete policy terms and conditions contained in the actual

policies of insurance.  Any association member may, upon request and

provision of reasonable notice, review the association's insurance

policies and, upon request and payment of reasonable duplication

charges, obtain copies of those policies.  Although the association

maintains the policies of insurance specified in this summary, the

association's policies of insurance may not cover your property,

including personal property or, real property improvements to or

around your dwelling, or personal injuries or other losses that occur

within or around your dwelling.  Even if a loss is covered, you may

nevertheless be responsible for paying all or a portion of any

deductible that applies.  Association members should consult with

their individual insurance broker or agent for appropriate additional

coverage."

  SEC. 2.  Section 1365.2.5 is added to the Civil Code, to read:

   1365.2.5.  (a) The disclosures required by this article in regard

to an association or a property shall be summarized on the following

form:

      Assessment and Reserve Funding Disclosure Summary

(1)  The current assessment per unit is $_______ per ____.

     Note:  If assessments vary by the size or type of unit, the

     assessment applicable to this unit may be found on page ____

     of the attached report.

(2)  Additional assessments that have already been scheduled to be

     imposed or charged, regardless of the purpose, if they have

     been approved by the board and/or members:

______________________________________________________________________

___

: Date assessment is: Amount per unit per  : Purpose of the

assessment::

:        due:       : month (If assessments:

  :

:                   :are variable, see note:

  :

:                   :  immediately below): :

  :

:-------------------:----------------------:--------------------------

--:

:-------------------:----------------------:--------------------------

--:

:-------------------:----------------------:--------------------------

--:

:-------------------:----------------------:--------------------------

--:

:                   :  Total:              :

  :

----------------------------------------------------------------------

---

Note:  If assessments vary by the size or type of unit, the

assessment

applicable to this unit may be found on page ____ of the attached

report.

(3)  Based upon the most recent reserve study and other information

     available to the board of directors, will currently projected

     reserve account balances be sufficient at the end of each year

     to meet the association's obligation for repair and/or

replacement

     of major components during the next 30 years?

Yes _____      No _____

(4) If the answer to #3 is no, what additional assessments or other

    contributions to reserves would be necessary to ensure that

    sufficient reserve funds will be available each year during the

    next 30 years?

____________________________________________________

: Approximate date assessment  : Amount per unit    :

:        will be due:          :    per month:      :

                        :

:------------------------------:--------------------:

:------------------------------:--------------------:

:------------------------------:--------------------:

:------------------------------:--------------------:

:------------------------------:--------------------:

:                              :  Total:            :

:______________________________:____________________:

(5)  The following major components, which are included in the

reserve

     study, are NOT included in the existing reserve funding:

____________________________________________________________________

:Major component::  Useful remaining : Reason this major component :

:                :   life in years:  :     was not included:       :

:----------------:-------------------:-----------------------------:

:----------------:-------------------:-----------------------------:

:----------------:-------------------:-----------------------------:

:----------------:-------------------:-----------------------------:

:________________:___________________:_____________________________:

(6) As of the last reserve study or update, the current balance in

    the reserve fund is $____.  Based on the method of calculation in

    paragraph (4) of subdivision (b) of Section 1365.2.5, the

required

    amount in the reserve fund is $____, and if an alternate, but

    generally accepted, method of calculation is also used, the

required

    amount is $____.  (See attached explanation)

      NOTE: The financial representations set forth in this summary

are based on the best estimates of the preparer at that time.  The

estimates are subject to change.

   (b) For the purposes of preparing a summary pursuant to this

section:

   (1) "Estimated remaining useful life" means the time reasonably

calculated to remain before a major component will require

replacement.

   (2) "Major component" has the meaning used in Section 1365.5.

Components with an estimated remaining useful life of more than 30

years may be included in a study as a capital asset or disregarded

from the reserve calculation, so long as the decision is revealed in

the reserve study report and reported in the Assessment and Reserve

Funding Disclosure Summary.

   (3) The form set out in subdivision (a) shall accompany each pro

forma operating budget or summary thereof that is delivered pursuant

to this article.  The form may be supplemented or modified to clarify

the information delivered, so long as the minimum information set

out in subdivision (a) is provided.

   (4) For the purpose of the report and summary, the amount of

reserves needed to be accumulated for a component at a given time

shall be computed as the current cost of replacement or repair

multiplied by the number of years the component has been in service

divided by the useful life of the component.  This shall not be

construed to require the board to fund reserves in accordance with

this calculation.

  SEC. 3.  Section 1365.3 is added to the Civil Code, to read:

   1365.3.  Unless the governing documents impose more stringent

standards, any community service organization as defined in paragraph

(3) of subdivision (c) of Section 1368 whose funding from the

association or its members exceeds 10 percent of the organization's

annual budget shall prepare and distribute to the association a

report that meets the requirements of Section 5012 of the

Corporations Code, and that describes in detail administrative costs

and identifies the payees of those costs in a manner consistent with

the provisions of Section 1365.2.  If the community service

organization does not comply with the standards, the report shall

disclose the noncompliance in detail.  If a community service

organization is responsible for the maintenance of major components

for which an association would otherwise be responsible, the

community service organization shall supply to the association the

information regarding those components that the association would use

to complete disclosures and reserve reports required under this

article.  An association may rely upon information received from a

community service organization, and shall provide access to the

information pursuant to the provisions of Section 1365.2.

   1365.5.  (a) Unless the governing documents impose more stringent

standards, the board of directors of the association shall do all of

the following:

   (1) Review a current reconciliation of the association's operating

accounts on at least a quarterly basis.

   (2) Review a current reconciliation of the association's reserve

accounts on at least a quarterly basis.

   (3) Review, on at least a quarterly basis, the current year's

actual reserve revenues and expenses compared to the current year's

budget.

   (4) Review the latest account statements prepared by the financial

institutions where the association has its operating and reserve

accounts.

   (5) Review an income and expense statement for the association's

operating and reserve accounts on at least a quarterly basis.

   (b) The signatures of at least two persons, who shall be members

of the association's board of directors, or one officer who is not a

member of the board of directors and a member of the board of

directors, shall be required for the withdrawal of moneys from the

association's reserve accounts.

   (c) (1) The board of directors shall not expend funds designated

as reserve funds for any purpose other than the repair, restoration,

replacement, or maintenance of, or litigation involving the repair,

restoration, replacement, or maintenance of, major components which

the association is obligated to repair, restore, replace, or maintain

and for which the reserve fund was established.

   (2) However, the board may authorize the temporary transfer of

moneys from a reserve fund to the association's general operating

fund to meet short-term cashflow requirements or other expenses, if

the board has provided notice of the intent to consider the transfer

in a notice of meeting, which shall be provided as specified in

Section 1363.05.  The notice shall include the reasons the transfer

is needed, some of the options for repayment,and whether a special

assessment may be considered.  If the board authorizes the transfer,

the board shall issue a written finding, recorded in the board's

minutes, explaining the reasons that the transfer is needed, and

describing when and how the moneys will be repaid to the reserve

fund.  The transferred funds shall be restored to the reserve fund

within one year of the date of the initial transfer, except that the

board may, after giving the same notice required for considering a

transfer, and, upon making a finding supported by documentation that

a temporary delay would be in the best interests of the common

interest development, temporarily delay the restoration.  The board

shall exercise prudent fiscal management in maintaining the integrity

of the reserve account, and shall, if necessary, levy a special

assessment to recover the full amount of the expended funds within

the time limits required by this section.  This special assessment is

subject to the limitation imposed by Section 1366.  The board may,

at its discretion, extend the date the payment on the special

assessment is due.  Any extension shall not prevent the board from

pursuing any legal remedy to enforce the collection of an unpaid

special assessment.

   (d) When the decision is made to use reserve funds or to

temporarily transfer moneys from the reserve fund to pay for

litigation, the association shall notify the members of the

association of that decision in the next available mailing to all

members pursuant to Section 5016 of the Corporations Code, and of the

availability of an accounting of those expenses.  Unless the

governing documents impose more stringent standards, the association

shall make an accounting of expenses related to the litigation on at

least a quarterly basis.  The accounting shall be made available for

inspection by members of the association at the association's office.

   (e) At least once every three years, the board of directors shall

cause to be conducted a reasonably competent and diligent visual

inspection of the accessible areas of the major components which the

association is obligated to repair, replace, restore, or maintain as

part of a study of the reserve account requirements of the common

interest development, if the current replacement value of the major

components is equal to or greater than one-half of the gross budget

of the association which excludes the association's reserve account

for that period. The board shall review this study, or cause it to be

reviewed, annually and shall consider and implement necessary

adjustments to the board's analysis of the reserve account

requirements as a result of that review.

   The study required by this subdivision shall at a minimum include:

   (1) Identification of the major components which the association

is obligated to repair, replace, restore, or maintain which, as of

the date of the study, have a remaining useful life of less than 30

years.

   (2) Identification of the probable remaining useful life of the

components identified in paragraph (1) as of the date of the study.

   (3) An estimate of the cost of repair, replacement, restoration,

or maintenance of the components identified in paragraph (1).

   (4) An estimate of the total annual contribution necessary to

defray the cost to repair, replace, restore, or maintain the

components identified in paragraph (1) during and at the end of their

useful life, after subtracting total reserve funds as of the date of

the study.

   (f)  As used in this section, "reserve accounts" means both of the

following:

   (1) Moneys that the association's board of directors has

identified for use to defray the future repair or replacement of, or

additions to, those major components which the association is

obligated to maintain.

   (2) The funds received and not yet expended or disposed from

either a compensatory damage award or settlement to an association

from any person or entity for injuries to property, real or personal,

arising from any construction or design defects.  These funds shall

be separately itemized from funds described in paragraph (1).

   (g)  As used in this section, "reserve account requirements" means

the estimated funds which the association's board of directors has

determined are required to be available at a specified point in time

to repair, replace, or restore those major components which the

association is obligated to maintain.

   (h)  This section does not apply to an association that does not

have a "common area" as defined in Section 1351.

  SEC. 5.  Section 1368 of the Civil Code is amended to read:

   1368.  (a) The owner of a separate interest, other than an owner

subject to the requirements of Section 11018.6 of the Business and

Professions Code, shall, as soon as practicable before transfer of

title to the separate interest or execution of a real property sales

contract therefor, as defined in Section 2985, provide the following

to the prospective purchaser:

   (1) A copy of the governing documents of the common interest

development, including any operating rules, and including a copy of

the association's articles of incorporation, or, if not incorporated,

a statement in writing from an authorized representative of the

association that the association is not incorporated.

   (2) If there is a restriction in the governing documents limiting

the occupancy, residency, or use of a separate interest on the basis

of age in a manner different from that provided in Section 51.3, a

statement that the restriction is only enforceable to the extent

permitted by Section 51.3 and a statement specifying the applicable

provisions of Section 51.3.

   (3) A copy of the most recent documents distributed pursuant to

Section 1365.

   (4) A true statement in writing obtained from an authorized

representative of the association as to the amount of the association'

s current regular and special assessments and fees, any assessments

levied upon the owner's interest in the common interest development

that are unpaid on the date of the statement, and any monetary fines

or penalties levied upon the owner's interest and unpaid on the date

of the statement.  The statement obtained from an authorized

representative shall also include true information on late charges,

interest, and costs of collection which, as of the date of the

statement, are or may be made a lien upon the owner's interest in a

common interest development pursuant to Section 1367 or 1367.1.

   (5) A copy or a summary of any notice previously sent to the owner

pursuant to subdivision (h) of Section 1363 that sets forth any

alleged violation of the governing documents that remains unresolved

at the time of the request.  The notice shall not be deemed a waiver

of the association's right to enforce the governing documents against

the owner or the prospective purchaser of the separate interest with

respect to any violation.  This paragraph shall not be construed to

require an association to inspect an owner's separate interest.

   (6) A copy of the preliminary list of defects provided to each

member of the association pursuant to Section 1375, unless the

association and the builder subsequently enter into a settlement

agreement or otherwise resolve the matter and the association

complies with Section 1375.1.  Disclosure of the preliminary list of

defects pursuant to this paragraph does not waive any privilege

attached to the document.  The preliminary list of defects shall also

include a statement that a final determination as to whether the

list of defects is accurate and complete has not been made.

   (7) A copy of the latest information provided for in Section

1375.1.

   (8) Any change in the association's current regular and special

assessments and fees which have been approved by the association's

board of directors, but have not become due and payable as of the

date disclosure is provided pursuant to this subdivision.

   (b) Upon written request, an association shall, within 10 days of

the mailing or delivery of the request, provide the owner of a

separate interest with a copy of the requested items specified in

paragraphs (1) to (8), inclusive, of subdivision (a).  The items

required to be made available pursuant to this section may be

maintained in electronic form and requesting parties shall have the

option of receiving them by electronic transmission or machine

readable storage media if the association maintains these items in

electronic form.  The association may charge a reasonable fee for

this service based upon the association's actual cost to procure,

prepare, and reproduce the requested items.

   (c) (1) Subject to the provisions of paragraph (2), neither an

association nor a community service organization or similar entity

may impose or collect any assessment, penalty, or fee in connection

with a transfer of title or any other interest except for the

following:

   (A) An amount not to exceed the association's actual costs to

change its records.

   (B) An amount authorized by subdivision (b).

   (2) The amendments made to this subdivision by the act adding this

paragraph do not apply to a community service organization or

similar entity that is described in subparagraph (A) or (B):

   (A) The community service organization or similar entity satisfies

both of the following requirements:

   (i) The community service organization or similar entity was

established prior to February 20, 2003.

   (ii) The community service organization or similar entity exists

and operates, in whole or in part, to fund or perform environmental

mitigation or to restore or maintain wetlands or native habitat, as

required by the state or local government as an express written

condition of development.

   (B) The community service organization or similar entity satisfies

all of the following requirements:

           (i) The community service organization or similar entity

is not an organization or entity described in subparagraph (A).

   (ii) The community service organization or similar entity was

established and received a transfer fee prior to January 1, 2004.

   (iii) On and after January 1, 2006, the community service

organization or similar entity offers a purchaser the following

payment options for the fee or charge it collects at time of

transfer:

   (I) Paying the fee or charge at the time of transfer.

   (II) Paying the fee or charge pursuant to an installment payment

plan for a period of not less than seven years.  If the purchaser

elects to pay the fee or charge in installment payments, the

community service organization or similar entity may also collect

additional amounts that do not exceed the actual costs for billing

and financing on the amount owed.  If the purchaser sells the

separate interest before the end of the installment payment plan

period, he or she shall pay the remaining balance prior to transfer.

   (3) For the purposes of this subdivision, a "community service

organization or similar entity" means a nonprofit entity, other than

an association, that is organized to provide services to residents of

the common interest development or to the public in addition to the

residents, to the extent community common areas or facilities are

available to the public.  A "community service organization or

similar entity" does not include an entity that has been organized

solely to raise moneys and contribute to other nonprofit

organizations that are qualified as tax exempt under Section 501(c)

(3) of the Internal Revenue Code and that provide housing or housing

assistance.

   (d) Any person or entity who willfully violates this section is

liable to the purchaser of a separate interest that is subject to

this section for actual damages occasioned thereby and, in addition,

shall pay a civil penalty in an amount not to exceed five hundred

dollars ($500).  In an action to enforce this liability, the

prevailing party shall be awarded reasonable attorneys' fees.

   (e) Nothing in this section affects the validity of title to real

property transferred in violation of this section.

   (f) In addition to the requirements of this section, an owner

transferring title to a separate interest shall comply with

applicable requirements of Sections 1133 and 1134.

   (g) For the purposes of this section, a person who acts as a

community association manager is an agent, as defined in Section

2297, of the association.

  SEC. 6.  The provisions of this act shall apply to reports and