An HOA special assessment is something that most homeowners will encounter at least once during their residency. While homeowners associations collect regular dues, unexpected costs or emergencies may arise, forcing them to levy special assessments.
An HOA special assessment is a fee that homeowners associations charge outside of the usual regular dues. Typically, special assessments come into play when there is an unanticipated expense or an emergency.
To better understand special assessments, knowing how HOA finances work is essential. A homeowners association relies primarily on regular dues as its primary source of income. These dues are calculated based on the HOA board's annual budget. This budget consists of all anticipated costs as well as reserve contributions.
However, there are cases wherein the board will come up short on operating funds. This is where a homeowners association special assessment enters the picture. The special assessment supplements the HOA’s income to cover costs that aren’t typically in the budget.
Here are some common examples of HOA special assessments:
There may be some confusion regarding regular HOA dues and special assessments, especially for homeowners who have never experienced living in HOAs. They may be surprised to receive a special assessment notice after paying their annual dues. This is entirely normal, though, under the right circumstances.
What is the difference between an assessment and a special assessment?
A regular assessment, also known as HOA dues, is a fee that homeowners pay regularly to the association. Dues are a part of the HOA’s operating fund, which covers day-to-day or regular expenses.
If dues aren’t enough to cover expenses, an HOA will need to secure additional funding. Boards usually achieve this through the imposition of special assessments. It is worth noting that the need for special assessments doesn’t often come up. It is not something that HOAs charge frequently. As such, homeowners need not always worry about having to accommodate a surprise fee.
Two things can give an HOA the authority to levy special assessments: state laws and governing documents.
While state laws can vary, and not all states have HOA-specific statutes, they generally give associations the power to levy special assessments. For instance, in Florida, homeowners associations can levy special assessments under the Florida Homeowners Association Act. However, HOAs must provide written notice of any meeting where special assessments will be considered.
An association’s governing documents, particularly the CC&Rs, should highlight HOA special assessment rules. These include the authority to levy special assessments, notice requirements, and even voting requirements to pass a special assessment.
Given the nature of special assessments, some homeowners may understandably feel concerned about overcharging. While the HOA board must act in the association's best interest, it is not unheard of for an association to charge exorbitant special assessments.
The law bars associations from levying special assessments over a specific limit in some states. For instance, California law prohibits HOAs from imposing a special assessment exceeding 5% of the fiscal year’s budgeted gross expenses unless most members approve it. If the governing documents dictate a lower limit, then the governing documents shall prevail.
Speaking of which, an association's governing documents may also present limitations when it comes to special assessments. If the CC&Rs dictate that an HOA may only levy a special assessment up to a certain amount, then the board must adhere to that restriction. Some statutes and HOA regulations require associations to secure membership approval before charging a special assessment.
As with regular dues, nonpayment of special assessments can also give rise to certain consequences. After all, homeowners agree to uphold financial obligations when they join an HOA community. In doing so, they also accept the repercussions of noncompliance.
Here are the most common penalties for nonpayment of an HOA special assessment.
One of the most prevalent strategies to get homeowners to pay their debts is to tack on an additional fee for late or nonpayment. If an owner does not settle their special assessment on time, the HOA may impose a late fee or an interest charge. This causes the homeowner’s debt to increase.
Keep in mind that not all HOAs have the power to impose late fees or interest charges. State laws and an HOA’s governing documents should provide more guidance on this matter.
Depending on state laws and the governing documents, an HOA may temporarily revoke a member’s rights or privileges until they settle their debt with the association. This includes suspending access to amenities and even removing voting privileges.
An HOA may also use a collection agency or a law firm to collect unpaid special assessments. A collection agency is a third-party company that collects debts and charges a percentage of the collected sum as a fee. In some instances, an HOA may also file a case with the small claims court to get homeowners to pay.
An HOA may be able to place a lien on a member’s home for refusing to pay special assessments. The lien will make it difficult for the owner to sell their home, as they must satisfy the lien beforehand.
Furthermore, an HOA can choose to foreclose on the lien. A foreclosure will involve selling the home and using the proceeds to recover the debts of the member.
It is important to note that not all HOAs can place a lien and foreclose on a home based on special assessments alone. Make sure to check state laws and the governing documents to understand an HOA’s powers. When in doubt, it is always a good idea to consult a lawyer or an HOA management company.
An HOA special assessment plays a critical role in the financial health of an association. However, the need for special assessments should come rarely. If an HOA levies special assessments regularly, it could be a sign of poor governance and budgeting.
Vanguard Management Group offers exceptional HOA management services, including help with special assessments. Call us today at 813-930-8036 or contact us online to learn more!