Special Assessments Are An Unwelcome Necessity

Adopt an Assessment Approval Strategy

HOA Boards with an assessment approval strategy can usually achieve their funding goal. Homeowners getting a notice of a special assessment is as welcome as a bill from the IRS. A few homeowners who have the extra funds will simply write a check; most will expect detailed justification for an assessment. Expect that some homeowners will object to the extra expense, regardless of proven necessity. 

The “Trust” Hurdle. Anticipate that Boards who inherit property challenges from a prior Board will have an extra hurdle in regaining their community’s trust. Factor this into any timing calculations for the approval process. Transparency and detailed communication are key to earning homeowners’ trust.

Budget Allocation. The HOA’s operating budget can address regular maintenance and can cover larger, recurring items not provided for in an HOA’s reserve study. Not all painting, plumbing, and wood repair projects require reserve funding. Boards should resist levying a special assessment in lieu of proper budgeting. Assessments should be a last resort. These should only cover unanticipated expenses or deferred maintenance items not provided for in the association’s reserves. 

Communication. Boards should advise members that they are looking into solutions and costs upon discovery of the problem. Use the term “assessment” only after the Board determines the assessment is necessary. 

Steps to Win Assessment Approval

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

Notify owners early. Give them as much time as possible to become more comfortable with the idea. Often, Boards act too quickly. They hope if they push it through quickly that owners won’t have time to react and will simply pay up. This method rarely works, as ​homeo​wners 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 and give them time to process it. Use illustration over explanation. Fully document all the information necessary to support the need for an assessment: 

  • A detailed explanation of what requires repair or replacement
  • Explain how the damage occurred
  • Work that will 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. Anticipate challenges and articulate these using comprehensive documentation and imagery. 

Present creative financing options. Create a plan that will minimize the financial impact to owners as much as possible. Detail how the Board will implement the assessment. Include 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

The Board has the latitude to provide options that mitigate the extra financial burden for owners.

A Board must treat all owners equitably, but it usually has the discretion to handle special cases on an individual basis. Some options might include providing longer payment periods, temporary deferments, or other concessions. The options should not adversely impact the community or violate the HOA’s governing documents.

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. If this owner is a board member, their financial challenges should never prevent the rest of the community from benefiting from an assessment.

Other owners may offer to provide financial aid to a neighbor to help them meet an assessment obligation. Assessments deemed worthy of passing are for the benefit of the entire community.

Funding Options for Special Assessments

An assessment will almost always be necessary to fund a large project. If a vote doesn’t pass the first time, the Board can begin the process again. An emergency repair that is not in the HOA’s reserve study does not require membership approval. 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. It will require a membership vote, and homeowners pay their entire share in a lump sum. Payment can either be annual or incremental, depending on funding needs.
  2. Construction loan.
    • This is a bank loan with interest. It can be problematic in that an HOA’s CC&Rs can require a very high approval rate. Except on rare occasions most governing docs require a membership vote.
  3. HOA dues increase.
    • Unless the governing documents state otherwise, Boards can increase dues up to 20% per year without a membership vote. The downside of this is that higher dues 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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