Anybody who lives in a planned community most likely is part of a homeowners association which requires members to pay fees. The fees cover the day-to-day operating expenses of the community. Unfortunately, the regular dues don’t always cover all of the association’s expenses, especially if there are unexpected costs that the reserves can’t account for. This is where HOA special assessments come in.
In this article:
- Understanding HOA Special Assessments
- How HOAs Form Their Budget
- What Is an HOA Special Assessment?
- Why Special Assessments are Necessary
- How often should you charge a special assessment?
- Are HOA Special Assessments Legal?
- Consequences of Refusal to Pay
- The Bottom Line
Understanding HOA Special Assessments
To long-time members of homeowners associations, special assessments aren’t anything new. The need for them arises every now and then, especially in times of disaster or emergency. However, if you’re relatively new to the HOA scene, you may get confused. Why would an association charge you a special assessment on top of monthly fees? Shouldn’t an HOA have a reserve fund to cover unexpected expenses?
Before we further explain what special assessments are, it is important to understand how HOAs form their budget and how they receive their money.
How HOAs Form Their Budget
Every year, the board will craft a community budget that includes how much each household must pay in monthly HOA dues. These dues will go to two separate areas of the budget.
Most of it will help the HOA cover current year operating expenditures. This can include budget items like landscaping, pool maintenance, playground maintenance, insurance, and so forth.
The rest of the dues will go into the reserves, which is a part of the budget set aside for long-term repairs and replacements. This can include roof replacement for the community clubhouse or the cost of repaving the roads. The reserves also cover unforeseen costs that the association can’t plan for.
HOAs need to have a solid amount of money saved away in the reserves. Not all expenses can be foreseen, but most can. The board needs to plan 3, 5, or even 10 years in advance to plan for future repairs, maintenance, and other costs. Unfortunately, if the reserves don’t cover all of these costs, an HOA special assessment may be necessary.
What Is an HOA Special Assessment?
As you may have figured out by now, an HOA special assessment is an extra fee an association may charge homeowners in case reserve funds are insufficient. There are a few possible reasons why your HOA might impose a special assessment:
- The HOA board failed to properly calculate monthly expenses
- There is a budget deficit brought on by some homeowners defaulting on their monthly dues
- Unforeseen repairs are needed due to a natural calamity that the association’s insurance does not cover
- Some amenities or fixtures require upgrading or replacing
- The addition of new community amenities
As for the difference between regular vs special assessment, the former is the computed monthly dues homeowners pay for the year. As stated above, these monthly dues are budgeted by the HOA board. A special assessment, on the other hand, occurs sporadically, which means homeowners don’t pay them on a monthly basis. They cover special needs, as opposed to regular assessments, which cover day-to-day expenses.
Why Special Assessments Are Necessary
The board can plan all they want, but sometimes, their predictions are not accurate. If an HOA needs to come up with additional funds to cover an unfunded expense, the board of directors has the power to levy a special assessment to pay for the expense of a major repair or improvement.
Without special assessments, amenities and fixtures may stay in disrepair and continue to deteriorate with time. Expenses will not be covered, resulting in community-wide inconveniences and complaints. Members of the HOA board will have to deal with these complaints on a daily basis. Homeowners, on the other hand, will have to endure these nuisances.
How Often Should You Charge a Special Assessment?
The short answer is: Rarely.
HOAs should budget for emergencies and big projects in such a way that they have sufficient funds in their operating budget to cover the year’s expenses and sufficient funds in their reserves to cover repairs and emergencies. If an HOA MUST charge a special assessment, the question then becomes: How long of a period should we collect the special assessment over. Not all homeowners can afford a 1 time Special Assessment of $1,800 due in 30 days. The Board of Directors might consider lengthening the time frame to $150/month for 12 months.
It would be optimal to ask for expert professional advice from a Community Manager or HOA Attorney that the HOA is working directly with.
Are HOA Special Assessments Legal?
Simply put, yes. Special assessments are legal, and HOAs do have a right to charge them to homeowners. However, there are limitations. The HOA’s governing documents contain everything you need to know about your association’s rules on special assessments.
Homeowners must read the CC&Rs carefully, as they usually stipulate the conditions in which the association can levy this type of fee. Most documents, however, are vague in their wording. This is done intentionally to give HOAs a wider range of power when it comes to charging special assessments for unforeseen needs.
In many HOAs, the governing documents will also include procedures the board must follow in case of special assessments. This can be a voting requirement to approve the assessment or when to notify homeowners of the charge.
You may also look to any state or local laws that apply. For instance, in California, according to the California Civil Code §5605(b), an HOA can’t levy special assessments “which in the aggregate exceed 5 percent of the budgeted gross expenses of the association for that fiscal year without the approval of a majority of a quorum of members.”
Consequences of Refusal to Pay
Sometimes, an HOA special assessment can seem unreasonable or unjustified, leading some homeowners to default on the payment. When this happens, homeowners can expect consequences.
What the HOA can do as a response to unpaid special assessments is usually outlined in the governing documents. Typically, HOAs can levy late fees or fines against you.
They can also restrict your use of common areas and amenities until you’re fully paid. In more serious cases, the HOA can even place a lien on your property or take you to a small claims court.
While this may all seem unfair, as long as the HOA is acting within the law and its governing documents, there’s not much you can do. After all, as a homeowner in the development, you have an obligation to pay your share of the dues. This means paying the special assessment fee for a new fitness center even if you don’t plan on using it.
The Bottom Line
When it comes down to it, certain situations do give rise to HOA special assessments. You may not like the amount or even what the assessment is for, but your responsibility as a property owner is to pay your portion of the expenses. Special assessments aren’t necessarily bad. They exist in the community’s best interest.
The money will go to the betterment of the community anyway, so it would be best to comply. After all, no one wants to live in a rundown community with dilapidated amenities.
Even with a clear understanding of special assessments, many associations still turn to HOA management companies for assistance. Whether you need help with procedures, estimations, or collection, don’t hesitate to give us a call.
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