What Are Association Special Assessments?
Unexpected association expenses happen. One of the ways you can go about paying for them is a special assessment. These are special fees you charge your members on top of their usual monthly fees to cover deferred maintenance or unexpected repairs or replacements. Here’s what you need to know about this method of raising funds.
What Are Special Assessments?
If your HOA/COA is following good practices, a portion of the monthly fees from unit owners should be going toward your reserve fund. This fund is meant to pay for unexpected association expenses as they arise. But even if you’re allocating some of your monthly fees toward the reserve fund, there still may be times when these funds are not sufficient to cover a costly repair or replacement. For example, maybe a storm extensively damaged your roof and insurance will not cover the full replacement amount. This would be a time when a special assessment would be in the best interest of your HOA or COA.
Sometimes, you may go about this by adding a small additional fee onto your members’ monthly assessments until you can afford to cover the major expense. Other times, an association may pass these fees onto homeowners by asking them to pay a one-time lump sum. This would make the most sense for a crucial, time-sensitive repair or replacement.
Special assessment fees aren’t always necessarily evenly distributed among unit owners. In some cases, the larger a unit owner’s property is, the greater their fee will be.
In most cases, when the need for a special assessment arises, the board will adopt it. However, some governing documents may require a vote from members to adopt the special assessment. Even if the governing documents don’t require such a vote, it’s still key for the board of directors to keep the members informed. Send a notice to them before the board of directors meets to discuss the possibility of an assessment. Your bylaws should have some kind of rule on how much notice to provide and in what manner.
How Special Assessments Can Help Your Association
Your association may do a great job of managing its finances but even then, sometimes the unexpected happens and you need more money than you’ve budgeted for a repair or replacement. Most associations will agree that using a special assessment to cover the cost is a better option than trying to obtain a loan.
Although you might feel bad levying a special assessment on your community, remember that a repair or replacement is in everyone’s best interest. Your members don’t want to be burdened with a leaky roof or broken elevator.
Keep in mind that the funds from a special assessment usually must be exclusively used for the explicit purpose of the special assessment. Different states and community association bylaws will have different rules on what to do with leftover funds. In the state of Florida, however, any excess funds must be returned to the owner or credited for future assessments.
How to Avoid Special Assessments
The ability to use special assessments should not be treated as a substitute for wise budgeting practices. They should be a last resort. If you’re finding that your HOA or COA’s budget is consistently falling short of your real needs, it may be time to assess how you’re budgeting.
Although occasional special assessments may be inevitable, there are things you can do to help make them less common. The most important thing you can do is conduct an annual reserve study. This is when a neutral third party (a reserve study firm) assesses when you might need repairs and replacements in your community. This helps you to plan ahead more accurately.
Not only is it a great tactic for your board, but your members will appreciate it too. It’s a sign of properly managing your finances and it decreases the likelihood of a special assessment. A reserve study will help ensure that you’re using the most accurate up-to-date cost estimates for any potential repairs and replacements rather than relying on outdated information.
How to Reduce the Burden of Special Assessments for Unit Owners
It’s important to remember that although special assessments are sometimes necessary, they are still a burden for your members. Handling the situation with sensitivity will go a long way. The more notice you give owners, the better off you’ll be. This will avoid anyone feeling blindsided and it will give them more time to prepare their finances.
Unfortunately, you may encounter some unit owners that refuse to pay their assessment fees. Your governing documents should cover the consequences of late assessment fees. In most cases, you will fine these non-compliant unit owners. You may also limit their ability to use common areas and amenities.
Members have a right to know as much as they can about the special assessment even if they have no power over it. Because of this, you might consider holding a meeting with owners where you can explain why the assessment is necessary and answer any questions they might have. Make sure you have professionals at the meeting that can explain why the repair or replacement is necessary and timely. The more transparent you are regarding the special assessment, the better off everyone will be and the less you’ll have to worry about members refusing to pay.
Typically, the board has the ability to help ease the burden for unit owners. Although the end result must be an equitable one, the board can make adjustments for members on a case-by-case basis. The board might consider temporary deferments for some owners and payment plans for others. Obviously, all of this must be done in a way that isn’t at the expense of the overall community and doesn’t violate any of the association documents.
Protect Your Association’s Finances with LM Funding
Once you successfully pass a special assessment the next course of action will be persuading the unit owners to pay it. The last thing your association should be worried about is needing to pay your attorney while you are trying to fund your reserves. LM Funding may be the solution you’re looking for! We give HOAs and COAs a “minimum payoff guarantee” on day one and also pay for all the collection-related legal fees and costs! Passing a special assessment is hard enough. Let us handle the collection process for you!
If you’d like to learn more, you can contact LM Funding by calling (866) 235-5001 or emailing email@example.com today!