Why Does the HOA Need Special Assessments?

Being part of a homeowners association means agreeing to pay annual dues. These dues cover day-to-day operational expenses, but a portion is also set aside in a reserve fund to pay for long-term repairs and replacements. These are often higher cost projects such as replacing the clubhouse roof, installing a new HVAC system, or repaving the parking lot. They are projects that are only done every few years, not something that is addressed annually.

With a well-funded reserve, the HOA often has the money necessary to cover these expenses. However, if an emergency arises, or the association has not budgeted well, that may not be the case. If the roof needs to be replaced five years earlier than expected due to a storm and insurance doesn’t cover the cost, the HOA may need to administer a special assessment.

What is a Special Assessment?

A special assessment is a fee that is charged to homeowners on top of their regular dues. It is divided equally among all members. The HOA will often do what it can do avoid special assessments, but sometimes they are necessary. Depending on the association’s governing documents, the board may be required to get member approval if the fee exceeds a certain amount. For smaller fees, they may not need to open it to a vote. In addition, there are often limitations to how much can be charged in special assessments each year – though, ideally, these situations arise infrequently.

In some instances, the HOA may opt for a special assessment if the cost of the repair would deplete the majority of the reserve fund. They may be concerned about being able to rebuild it enough before planned expenses arise, or having to delay these projects. The board may discuss its options with members to gather input on how to move forward and openly debate what is the best decision.

Do You Have to Pay a Special Assessment?

In short, yes, as part of the HOA, you are required to pay. The board may ask for the full amount upfront, or it may be able to break it down into smaller payments across several months. This will depend on the situation and how much flexibility the board has with its finances.

If members refuse to pay, this can put the association in a more serious financial bind. Plus, it could cause major safety concerns or limit the use of amenities. The board does not make the decision to levy a special assessment lightly, and it is essential to communicate with homeowners how the decision was made, and why the expense is necessary. If problems are not addressed in a timely manner, this could mean that annual dues will rise in the future to account for increased expenses.

Reducing Risks of Special Assessments

Ensuring that the HOA has a solid budget that meets its operational needs and allows for adequate savings in the reserve is one of the best ways to reduce risk. Regularly reviewing insurance coverage to make sure that it fits the association’s needs and will provide necessary funds in an emergency is also key. The board should also schedule reserve fund studies to ensure it is appropriately budgeting for future expenses and adjusting savings for economic changes.

Special assessments are not ideal, but sometimes they are unavoidable. Kuester can help associations navigate the special assessment process and review financial management to effectively plan for the future. Contact us today to learn more.

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Bryan Kuester

Bryan Kuester

Bryan is the CEO of Kuester Management Group. He has over 15 years of managing community associations throughout North and South Carolina.

His specialties include Community Association Management - maintenance, budgeting for operational and reserve funding, long-range planning, covenant enforcement, amenity management, onsite management, large scale management.