House Bill 636

AN ACT TO REGULATE MANAGING AGENTS OF HOMEOWNERS' ASSOCIATIONS REGARDING THEIR DEPOSIT AND MANAGEMENT OF ASSOCIATION FUNDS; TO PROVIDE CERTAIN DEFINITIONS FOR THE ACT; TO PROVIDE THE BOARD OF A HOMEOWNERS' ASSOCIATION TO CONDUCT CERTAIN PERIODIC FINANCIAL REVIEWS; TO REQUIRE TRANSFERS OF FUNDS ABOVE A CERTAIN AMOUNT TO BE AUTHORIZED BY PRIOR WRITTEN BOARD APPROVAL; TO REQUIRE THE HOMEOWNERS' ASSOCIATION TO MAINTAIN FIDELITY BOND COVERAGE FOR ITS DIRECTORS, OFFICERS, AND EMPLOYEES IN AN AMOUNT THAT IS EQUAL TO OR MORE THAN THE COMBINED AMOUNT OF THE RESERVES OF THE ASSOCIATION AND TOTAL ASSESSMENTS FOR THREE MONTHS; TO REQUIRE THE ASSOCIATION'S FIDELITY BOND TO ALSO INCLUDE COMPUTER FRAUD AND FUNDS TRANSFER FRAUD; TO PROVIDE THAT IF THE ASSOCIATION USES A MANAGING AGENT OR MANAGEMENT COMPANY, THE ASSOCIATION'S FIDELITY BOND COVERAGE SHALL ADDITIONALLY INCLUDE DISHONEST ACTS BY THAT PERSON OR ENTITY AND ITS EMPLOYEES; AND FOR RELATED PURPOSES.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:

SECTION 1. (1) A managing agent who accepts or receives funds belonging to homeowners' association shall deposit those funds that are not placed into an escrow account with a bank, savings association, or credit union or into an account under the control of the association, into a trust fund account maintained by the managing agent in a bank, savings association, or credit union in this state. All funds deposited by the managing agent in the trust fund account shall be kept in this state in a financial institution domiciled in the State of Mississippi and insured by the Federal Deposit Insurance Corporation, and shall be maintained there until disbursed in accordance with written instructions from the association entitled to the funds.

(2) At the written request of the board of the homeowners' association, the funds the managing agent accepts or receives on behalf of the association shall be deposited into an interest-bearing account in a bank, savings association, or credit union in this state, provided all of the following requirements are met:

(a) The account is in the name of the managing agent as trustee for the association or in the name of the association.

(b) All of the funds in the account are covered by insurance provided by the Federal Deposit Insurance Corporation.

(c) The funds in the account are kept separate, distinct, and apart from the funds belonging to the managing agent or to any other person for whom the managing agent holds funds in trust except that the funds of various associations may be commingled as permitted pursuant to subsection (4) of this act.

(d) The managing agent discloses to the board of the homeowners' association the nature of the account, how interest will be calculated and paid, whether service charges will be paid to the depository and by whom, and any notice requirements or penalties for withdrawal of funds from the account.

(e) No interest earned on funds in the account shall inure directly or indirectly to the benefit of the managing agent or the managing agent's employees.

(f) Transfers of greater than Ten Thousand Dollars ($10,000.00) or five percent (5%) of an association's total combined reserve and operating account deposits, whichever is lower, shall not be authorized from the account without prior written approval from the board of the homeowners' association.

(3) The managing agent shall maintain a separate record of the receipt and disposition of all funds described in this section, including any interest earned on the funds.

(4) The managing agent shall not commingle the funds of the association with the managing agent's own money or with the money of others that the managing agent receives or accepts, unless all of the following requirements are met:

(a) The managing agent commingled the funds of various associations on or before the July 1, 2020, and has obtained a written agreement with the board of each association that the managing agent will maintain a fidelity and surety bond in an amount that provides adequate protection to the associations as agreed upon by the managing agent and the board of each association.

(b) The managing agent discloses in the written agreement whether the managing agent is deriving benefits from the commingled account or the bank, credit union, or savings institution where the monies will be on deposit.

(c) The written agreement provided in accordance with this subsection (4) includes, but is not limited to, the name and address of the bonding companies, the amount of the bonds, and the expiration dates of the bonds.

(d) If there are any changes in the bond coverage or the companies providing the coverage, the managing agent discloses that fact to the board of each affected homeowners' association as soon as practical, but in no event more than ten (10) days after the change.

(e) The bonds assure the protection of the association and provide the association at least ten (10) days' notice prior to cancellation.

(f) Completed payments on the behalf of the association are deposited within twenty-four (24) hours or the next business day and do not remain commingled for more than ten (10) calendar days.

(5) The prevailing party in an action to enforce this section shall be entitled to recover reasonable legal fees and court costs.

(6) As used in this act, "association" means a homeowners' association duly organized as a nonprofit organization with tax-exempt status under Section 501(c)(3) of the Internal Revenue Code.

(7) As used in this act, "completed payment" means funds received that clearly identify the account to which the funds are to be credited.

(8) As used in this act, "managing agent" is any person who, for compensation or in expectation of compensation, exercises control over the assets of a homeowners' association. A "managing agent" does not include any of the following:

(i) A regulated financial institution operating within the normal course of its regulated business practice.

(ii) An attorney at law acting within the scope of the attorney's license.

SECTION 2. Unless the governing documents impose more stringent standards, the board of a homeowners' association shall do all of the following:

(a) Review, on a monthly basis, a current reconciliation of the association's operating accounts.

(b) Review, on a monthly basis, a current reconciliation of the association's reserve accounts.

(c) Review, on a monthly basis, the current year's actual operating revenues and expenses compared to the current year's budget.

(d) Review, on a monthly basis, the latest account statements prepared by the financial institutions where the association has its operating and reserve accounts.

(e) Review, on a monthly basis, an income and expense statement for the association's operating and reserve accounts.

(f) Review, on a monthly basis, the check register, monthly general ledger, and delinquent assessment receivable reports.

SECTION 3. The review requirements of Section 2 of this act may be met when every individual member of the board, or a subcommittee of the board consisting of the treasurer and at least one other board member, reviews the documents and statements described in Section 2 of this act independent of a board meeting, so long as the review is ratified at the board meeting subsequent to the review and that ratification is reflected in the minutes of that meeting.

SECTION 4. Notwithstanding any other law to the contrary, transfers of greater than Ten Thousand Dollars ($10,000.00) or five percent (5%) of a homeowners' association's total combined reserve and operating account deposits, whichever is lower, shall not be authorized from the association's reserve or operating accounts without prior written board approval. This section shall apply in addition to any other applicable requirements of this act.

SECTION 5. Unless the governing documents require greater coverage amounts, the homeowners' association shall maintain fidelity bond coverage for its directors, officers, and employees in an amount that is equal to or more than the combined amount of the reserves of the association and total assessments for three (3) months. The association's fidelity bond shall also include computer fraud and funds transfer fraud. If the association uses a managing agent, the association's fidelity bond coverage must additionally include dishonest acts by that person or entity and its employees.

SECTION 6. This act shall take effect and be in force from and after July 1, 2020.