What is an assessment fee? Contrary to popular belief, HOA assessments are not exactly the same as HOA dues. It is essential to learn the difference between the two, especially if you are considering moving into an HOA community.
Separating HOA Assessments from HOA Fees
Before moving into any community governed by a homeowners association, it is imperative to evaluate any related fees that you might need to shoulder. No two associations are the same, so one HOA might charge a higher fee than another.
What is the difference between dues and assessments? To understand the distinction between these two terms, you must first understand how a homeowners association works. Homeowners associations exist to maintain the community, hence, keeping property values high. To carry out this type of work, HOAs naturally need to source their funds from somewhere. Enter you, the homeowner.
What Are HOA Fees?
HOA dues, which are sometimes referred to as HOA fees, are recurring fees homeowners pay to the homeowners association. The association uses these fees to cover the cost of maintenance and repairs required to keep the community’s common areas in good shape.
This includes landscaping expenses, insurance premiums, legal fees, utilities, and the like. Additionally, homeowners receive access to community amenities, such as clubhouses, pools, and tennis courts, in return.
What Are Special Assessments?
What is a special assessment? An HOA special assessment, also known as simply assessments, is a one-time fee imposed by a homeowners association to its members. Typically, HOAs only charge special assessments when unanticipated expenses arise.
For example, if a disaster occurs that affects the community, the HOA would usually turn to its insurance provider. But, if the HOA’s insurance is not enough to cover the cost of the associated expenses, it might need to levy special assessments. Another instance where an association may need to charge homeowner assessments is if the HOA board made inaccurate budget projections.
It is worth noting that homeowners associations should have a reserve fund with sufficient money to cover unexpected costs as well as major repairs and replacements. This is why it is important to perform a reserve study every few years to keep a healthy reserve level. Special assessments are usually the last resort for HOAs.
Calculating HOA Assessments vs HOA Dues
How are HOA dues calculated? The association calculates how much homeowners should pay based on the annual budget. Typically, the HOA board drafts a budget for the upcoming fiscal year consisting of projected expenses.
From this total amount, the board will divide it either equally or according to certain terms across all homeowners. You can find specific provisions for calculating HOA dues within the association’s governing documents. State laws may also play a role in determining your HOA dues.
How are HOA assessments determined? Most of the time, the amount the association needs to cover the cost of the unanticipated expenses will dictate how much it levies against homeowners.
For example, if the HOA requires $10,000 to pay for uninsured damages, it will split that amount among all the members of the association. The formula used to split the charge, though, will depend on the association’s HOA special assessment rules. To learn how your association divides up assessments, refer to your governing documents.
Assessments and Dues: Are There Limits?
Many factors can influence the cost of HOA dues. For instance, if you live in an affluent neighborhood, your HOA dues are likely higher than the average association. The nature and extent of an association’s amenities and common areas can also affect dues amounts because there are more expenses involved.
Can an HOA raise the fees? Yes, though there is usually a limit as to how high an HOA can increase its dues. You will normally find such stipulations within the HOA’s governing documents or state laws. Associations in Arizona, for instance, cannot raise dues by more than 20 percent without securing a majority vote from members.
Many CC&Rs also have regulations limiting the amount of the special assessment HOAs can charge. Some associations have a fixed amount, while others work on a percentage basis. It is necessary for homeowners and board members alike to familiarize themselves with the HOA’s governing documents. This way, you know what to expect and when an HOA board is in breach of its authority.
There are also some states that have laws that impose an HOA special assessment limit. In California, Civil Code Section 5605 mandates that associations cannot charge assessments that exceed 5 percent of the preceding year’s budgeted gross expenses without obtaining approval from members. Check your state laws to see if any regulations apply to your HOA assessments.
Can HOA Special Assessments Be Written Off?
Are special assessments tax deductible? In a word, no. You usually cannot deduct special assessments from your taxes. But, if you use the home as a rental property, you may be able to write it off. It is always best to check with your tax adviser first, though, to avoid any problems with your taxes.
Can I Get Out of Paying HOA Assessments?
Many homeowners wonder how to fight a special assessment or their monthly dues. Unfortunately, there is generally no way around these.
Homeowners agree to follow the covenants and rules within their association, including paying fees and assessments. So long as the HOA is exercising its power to levy assessments correctly, then you really have no choice but to pay it. Keep in mind that board members are not exempt from paying HOA assessments.
There will always be delinquent homeowners, though, in any given HOA. In case you fail to pay your dues and assessments, the association can force compensation through a number of means.
- Impose a Late Fee. Can an HOA assess fines? Yes, many associations do have the ability to charge penalties or fines if a homeowner has violated a covenant or rule. This includes defaulting on dues and assessments.
- Revoke Privileges. In some cases, an HOA may suspend your rights and privileges as a consequence of nonpayment. This can include anything from your right to vote on association matters to suspending access to community amenities.
- Take Legal Action. An HOA can file a lawsuit against delinquent homeowners to force payment.
- Attach a Lien. When you fail to pay your dues and assessments, a lien will automatically attach to your property. If you live in a super-lien state, the HOA’s lien has superiority over all other lien holders.
- Foreclose. An association has initiate foreclosure on a lien, causing you to lose your home.
The Importance of HOA Assessments
As a homeowner, you might feel that HOA assessments are unnecessary when there are already monthly dues to cover the association’s expenses. But, as in life, many things can go wrong in an HOA community. The board can make budgeting mistakes or unexpected costs might arise. And special assessments allow HOAs to source funds when the going gets tough.
Stay on top of your association’s dues and assessments with the help of Condo Manager’s state-of-the-art management software. We make dues and assessment payments a breeze for any size HOA. Give us a call at (800) 626-1267 or reach out to us online for a free demo.
- When Should Your Association Levy HOA Special Assessments?
- Are HOA Fees Tax Deductible?
- How To Plan For The Yearly HOA Budget?