What is a Condo Association Special Assessment?

Although the spirit that launched trends toward condominiums, cooperatives, and planned communities continues, the facilities themselves are beginning to show their age. Leaking roofs, docks and piers in need of repair, creaking elevators, etc., are just several examples. In fact, the financial needs of condo associations, HOAs and community associations are diverse.

Many condo associations do an excellent job of planning for replacement costs and are prepared when, for example, the condo association's roofs are in need of replacement. However, others accumulate reserve funds based on outdated or unrealistic cost estimates and discover they do not have the condo reserve funds to pay for the project. While many community associations and condo associations have planned ahead, there are those that have failed to consider large-scale repairs and capital improvement projects which their condo associations will be forced to deal with.

Special assessments become necessary when the condo association has elected not to provide condo reserves/replacement funds for capital expenditures and deferred maintenance, or the condo association experiences an unanticipated major expense.

This article summarizes general information regarding special assessments for community associations. It is imperative that you, the reader, refer to your state's applicable statutes and association documents regarding special assessments.

Special Assessments-Condo Associations and HOAs

The amount of the annual condo association assessment is determined by the condo association's budget each year. The condo owners pay that assessment according to the condo documents of the community-either monthly, quarterly or annually. Occasionally, condo associations face situations where they need monies in excess of the reseve funds raised by the annual assessment. In that event, the condo association normally is given the power to levy a "special" assessment.

The condo board normally adopts special assessments unless the governing documents require a membership vote. Where the condo board is authorized to adopt a special assessment, the action should be taken at a duly authorized meeting of the Condo Board of Directors and the membership should be provided notice of the meeting and what will be considered by the Condo Board of Directors. The notice requirements found in your state statutes and condo bylaws must be satisfied. For example, in certain states an assessment may not be considered at a condo board meeting unless a written notice of the meeting is provided to all members within a certain number of days before the meeting. It may be necessary for the notice to include both a statement that assessments will be considered at the meeting and the nature of the assessments. In addition, your state condo rules and condo bylaws will spell out how written notice of the meeting takes place-mailed, hand delivered, electronically transmitted, posted, etc., within a specific number of days before the meeting.

The special assessment becomes an obligation of the condo owners on the date the condo board or the membership adopts the resolution. The condo owner at the time the assessment is adopted is responsible for the payment of the special assessment, though the adoption of the assessment may create a lien against the condo owner's property. If the property is sold before the special assessment is paid, the assessment should be considered at closing as to who will assume responsibility for the debt-the condo seller or the condo buyer.

Special assessments will rarely be popular with homeowners and condo owners, but condo boards may be able to take some steps to make the payments less onerous and the assessment process less antagonistic. Condo Boards of Directors should deal sensitively with condo owners for whom the assessment represents a serious financial hardship. The condo board must treat all owners equitably; however, the condo board normally has the discretion to handle condo owners with special problems on a case-by-case basis, providing longer payment periods, temporary deferments, or other concessions where those arrangements will not have an adverse impact on the community or violate the condo association documents.

Some condo boards approach a special assessment like a military action - assuming that a quick strike, leaving owners little time to react and object, is best. Condo owners are likely to be more resistant and more suspicious if they feel "blind-sided" by the assessment. The more advance notice they get, the better. If time allows, the board should hold a special owners' meeting before voting on the assessment, to explain why the assessment is needed and to solicit alternative recommendations for dealing with the community's problems. In addition, the professionals recommending the work should attend the meetings to explain their recommendations and to answer owners' questions. The presence of these experts will take some of the "political" heat off the board and help convey the message that the condo board's decision was well thought out and based on the best advice available.

The condo funds collected as a result of a special assessment normally are restricted to the purpose stated in the resolution adopting it. Your state statutes and bylaws determine what happens if there are funds remaining after the completion of the project that caused the need for the special assessment. Can those excess reserve funds be added to the general fund to possibly reduce next year's annual assessment, or do they have to be returned to the membership proportionately? Check your state statute and the association documents to determine if that decision is at the condo board's discretion.

The HOA Boards of Directors has a fiduciary responsibility to present and pass an adequate budget each year to cover the expenses of the association. A special assessment should never be used in lieu of proper budgeting. The special assessment should only be used as a vehicle to cover those unanticipated expenses or capital or deferred maintenance items not onsidered in the reserves for the association. The owners should always be kept "in the loop" regarding the expenditures of their funds.  In case of the HOA or Condo Association needing funds, Condo Association Loans and HOA Loans are often a viable alternative. 

Source: Association Times