Special Assessments Are An Unwelcome Necessity

Adopt a Winning Assessment Strategy

Notice of a special assessment to homeowners is as welcome as a notice from the IRS that they owe more taxes. A few who have the extra funds will simply write a check, but most homeowners will expect detailed justification before approving an assessment. Some will object to the extra expense, regardless of proof that an assessment is necessary. HOA Boards can get assessments approved by having a winning strategy to get homeowners to approve assessments.

Anticipate that Boards who recently inherited property challenges from a prior, unpopular Board will have an extra hurdle in regaining their community’s trust. Factor this into any timing calculations for the approval process.

The HOA’s operating budget can address regular maintenance as well as cover larger, recurring items not provided for in an HOA’s reserve study. Not all painting, plumbing, and wood repair projects require reserve funding. Nor should Boards levy a special assessment in lieu of proper budgeting. Assessments should only be a last resort to cover unanticipated expenses or deferred maintenance items not provided for in the association’s reserves. 

Once a problem is identified, advise members the Board is looking into solutions and costs. In initial communications, refrain from using the term assessment until after the Board determines that funds actually need to be raised. 

How to Get an Assessment Approved Once It’s Warranted

The Special Assessments and Alternatives section of The Davis-Stirling Act that governs associations, provides detailed legal guidance and definitions. This is a helpful beginning for Boards who are uncertain about the requirements and procedures in imposing a special assessment.

In practice, there are a number of steps Boards can follow to make the assessment process less controversial.

Notify owners early. Give them as much time as possible to become more comfortable with the idea. Often, Boards act too quickly, thinking the faster they push it through that owners won’t have time to react and will simply pay up. This method rarely works. ​Homeo​wners are more likely to be defensive and resistant if they feel they’re being blindsided.

Respect homeowners’ time, money, and intelligence. That said, have as many meetings as are necessary to build and reinforce the need and provide homeowners with progress updates. 

Be transparent. Share as much information as possible, with the exception of vendor contracts that are in the negotiation process.

Drown them in data, then give them time to process it. When the Board is ready to present its case, use illustration over explanation and fully document all the information necessary to support the need for an assessment, such as: 

  • A detailed explanation of what requires repair or replacement
  • Explain how the damage occurred
  • Parts of the work to be outsourced vs. done in-house
  • What the cost will be
  • Where the association is financially and why reserves won’t cover it
  • Explain the special assessment process and why the community needs it
  • Show the calculated expense
  • Show how the result will improve residents’ enjoyment of the community and their property values or prevent greater, long-term damage
  • Explain how the board will prevent this from happening again

Use expert professionals. Experts can help articulate the reasoning behind the assessment and answer owners’ questions. Explain why the project can’t wait and provide a detailed scope of work and associated costs with start and end dates,. Any anticipated challenges should be articulated using comprehensive documentation and imagery. 

Present creative financing options. Minimize the financial impact to owners as much as possible and have a plan for how you’re going to implement the assessment, how big will it be, and the types of payment plans you’re going to offer. 

Budget for “noncollectable” assessments. Invariably, some residents won’t pay and the Board will have to adjust budgeting.

Mitigate Financial Hardship of an Assessment to Homeowners

HOA Boards can get assessments approved by providing options that mitigate the extra financial burden for owners.

While a Board must treat all owners equitably, they usually have discretion in handling special cases on an individual basis. Some options might include providing longer payment periods, temporary deferments, or other concessions that will not adversely impact the community or violate the HOA’s governing documents. Other owners may also be willing to provide financial aid to a neighbor to help them meet an assessment obligation. After all, the assessments deemed worthy of passing are for the benefit of the entire community.

Often, there are some owners on fixed incomes who bought beyond their means and cannot afford additional financial obligations. Without any other financial recourse, these owners often end up selling their unit and moving. In no event, particularly if this owner is a board member, should their financial challenges prevent the rest of the community from benefiting from an assessment.

Funding Options for Special Assessments

There are a few options for funding a large project, and if a vote doesn’t pass the first time, the Board can begin the process again. A loan does not need membership approval if a repair is deemed an emergency and is not in the HOA’s reserve study, so check with your association’s attorney. Some funding options include:

  1. Special assessment. Homeowners make a one-time payment to fund the project. This is usually the preferred and most common approach, but it will require a membership vote. Homeowners can pay their entire share in a lump sum payment, either in annual or incremental payments, depending on funding needs;
  2. Construction loan. This is a loan that is paid back to the bank with interest. It can be problematic in that an HOA’s CC&Rs can require a very high approval rate. Most governing docs require a membership vote, but on rare occasions a vote is not needed;
  3. HOA dues increase. Dues can be increased up to 20% per year without a vote unless the governing documents state otherwise. However, higher dues payments may discourage potential buyers, making it more difficult for homeowners to sell their units.

Most owners will understand the need to resolve a problem that negatively impacts their property values or precludes lenders from loaning to owners or potential owners.

Boards should consult with their HOA manager to coordinate with expert vendors and capitalize on approval methods to successfully navigate the assessment process.

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