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When Should Your Association Levy HOA Special Assessments?

rainy day fund savings | hoa special assessments

In certain situations, a homeowners association may decide to levy a special assessment. Most homeowners are not amenable to this because of the unexpected financial burden. To prevent any misunderstandings between homeowners and the board, here’s what you need to know about HOA special assessments.

The Basics of HOA Special Assessments

Living in an HOA community comes with perks and privileges. You gain access to attractive amenities such as swimming pools, basketball courts, and gyms, as well as convenient services like landscaping, maintenance, and security. In order to pay for the maintenance and upkeep of these common areas, the HOA will collect monthly or quarterly assessments. However, many new homeowners are surprised when they are asked to pay for an additional fee called HOA special assessment.


What Is an HOA Special Assessment?

Compared to monthly or quarterly HOA assessments, HOA special assessments are one-time fees used to finance capital improvement projects. Ideally, HOA reserves fund capital improvement projects.

However, not all associations are able to maintain adequately funded reserves. HOA boards may also decide to levy a special assessment due to significant property damage following a natural disaster. Since these events are unexpected, the association may not have saved enough to pay for the repairs and replacements.


Are Homeowners Required to Pay for HOA Special Assessments?

Yes, homeowners are legally obligated to pay HOA special assessments. Every HOA will have a section regarding special assessments written in their Covenants, Conditions, and Restrictions (CC&Rs). A standard Covenant to Pay Assessments will include the annual/quarterly/monthly assessment dues, assessments for rule violations, and special assessments. Upon joining an HOA community, homeowners sign a contract which means that they accept all the stipulations in their governing documents.


How Does a Special Assessment Work?

hoa admin meeting | hoa assessmentHOA boards must first send an HOA special assessment notice to inform homeowners of an impending collection. However, if the amount exceeds the HOA special assessment limit stipulated in the governing documents, the board must obtain approval from the homeowners.

For instance, the governing documents stipulate that special assessments must not exceed 5% of the total budget. If the HOA needs more than 5%, they must hold a meeting with a quorum. The board needs a majority vote to proceed with the special assessment. Although, this requirement can be waived in emergency situations.

The board must send the HOA special assessment notice 30 to 60 days ahead of the established due date. After the due date, homeowners who do not pay their assessments within 15 to 60 days may be declared delinquent. The HOA can levy late fees and interest charges. They could also place a lien on delinquent homeowners’ properties.


How Are Special Assessments Calculated?

When the board collects a special assessment, the total amount must be equally divided among the homeowners. Each homeowner must pay the same rate.


Does Homeowners Insurance Cover Special Assessments?

If homeowners have loss assessment coverage, their insurance provider may cover the costs of HOA special assessments. Make sure to double-check with your insurance provider to avoid unexpected or surprise charges.


Reasons to Levy HOA Special Assessments

HOA boards have the authority to levy a special assessment on homeowners. However, they must abide by the HOA special assessment rules or limits written in the governing documents. Here are possible reasons why your HOA might levy a special assessment.


1. A Special Assessment to Cover Inadequate Assessments

The HOA may levy a special assessment if they determine or anticipate that the association funds will not be enough to cover the expenses for the fiscal year. This could be due to extraordinary circumstances, which led to spending more than what was budgeted, or it may also be due to improper budgeting.


2. A Special Assessment Due to Defray Costs of Capital Improvement Project

HOA special assessments can also be levied to cover the costs of capital improvement projects. If the association’s reserves are not enough, the special assessment may be necessary to pay for the repairs or replacements of major components or assets.


3. A Special Assessment Due to Insufficient Insurance Coverage

insurance coverage | hoa special assessmentHOAs can rely on their insurance coverage to cover the costs of property damage due to natural disasters. However, there are instances when the insurance payout is not enough to cover.

Thus, the board may decide to levy a special assessment to make up the difference between the insurance payout and the actual cost of repair or replacement.


4. A Special Assessment to Replenish Reserves

HOA boards may levy a special assessment to replenish the reserve account. Associations must always have an adequate amount saved in their reserves in case there are emergencies, natural disasters, and other unfortunate situations.


5. Other Reasons Deemed Appropriate by the Board

The board has the authority to levy special assessments for reasons that they deem appropriate. They could use it for expenses incurred as a result of performing their duties and obligations. However, in some cases, the governing documents will first require approval from the homeowners via a majority vote.


What Are Special Individual Assessments?

There are also cases where the HOA board may levy special assessments to specific homeowners. Here are some possible reasons for levying special individual assessments.

  • A special assessment to cover property damage in common areas caused by the willful misconduct or negligence of a homeowner.
  • If a homeowner’s property is creating a nuisance or hazard, the HOA may levy a special assessment to cover the costs of correcting the said nuisance or hazard.
  • If a homeowner’s action results in the increase of HOA insurance rates, the board may levy a special assessment to cover the additional insurance costs.
  • A special assessment to cover the delinquencies of a homeowner who was responsible for maintaining/overseeing a project.


Understanding Why Boards Levy HOA Special Assessments

It can be shocking to receive a notice for a special assessment — on top of the HOA fees that you already have to pay. However, homeowners must also understand the reasons why the board has decided to levy the special assessment. If major components are left unfinished or utilities are left unpaid, there will be major consequences for the entire community. Your quality of life could deteriorate without the added funds from HOA special assessments. To avoid them in the future, homeowners should consider working with the board to find better financial management solutions.

Need help with HOA special assessments? Condo Manager has the software that can make HOA financial management a breeze. Call us at (800) 626-1267, email us at sales@condomanagerusa.com, or contact us online to learn more about our HOA software solutions.