How to fight a special assessment in your HOA: A complete guide

As homeowner associations (HOAs), special assessments can be welcomed necessities when underfunded. These assessments, often unexpected, are usually implemented when reserved funds fall short to address essential expenses. Learning how to manage, challenge, and avoid them is crucial for both homeowners and board members. In this article, we’ll cover everything you need to know to tackle special assessments effectively and help your community remain financially stable in the long run.

For board members, special assessments are typically welcomed necessities. But they are primarily needed because reserves have been underfunded and must be supplemented to pay for large capital projects such as replacing roofs or mechanical equipment.

Assessments are also sometimes imposed due to increased insurance premiums or budget shortfalls. And because they require residents to pay money above and beyond their regular monthly assessments and are often a significant amount (sometimes hundreds or thousands of dollars), they are typically not well received. But a professional property management company can help with this.

At FirstService Residential, we work closely with communities to put proper financial plans and budgeting tools in place that will help you strengthen your community’s finances and avoid, as much as possible, having to impose assessments over the long term.
 

The importance of an HOA reserve study

One of the best ways to understand your community’s future liabilities and provide the money is available when it becomes necessary to pay for them is to follow the guidelines put forth in your reserve study. We have seen some boards hesitate to strengthen reserves out of concern residents will question the reasoning behind carrying large reserve fund balances. However, the most equitable course to follow for current and future residents is to pre-fund capital expenditures.

"One of the biggest factors that drive a special assessment is when reserves have been underfunded. For example, when there's a large expense two or three years out and an association has not incrementally increased their fees to bolster reserves that would otherwise cover it, that can force a special assessment."

Jack Boselli, president of FirstService Residential’s Pennsylvania market

While your reserve study is one of the best defenses against having to impose assessments, it's not set in stone. Rather, it's a living, breathing document that needs to be tweaked over time. The common-use components reviewed in your study have life spans that are estimated and can change over time due to overuse, weather events, and plain old tough luck.

A good rule of thumb is to have professional contractors regularly assess the condition of common-use components to stay on top of when they will need to be refurbished or replaced. If you plan for and address issues sooner rather than later, you can avoid a special assessment down the road.
 

Can you challenge a special assessment?

Yes, homeowners can challenge a special assessment, though the process depends heavily on the specifics outlined in the HOA’s governing documents. Before taking action, consider the following:

• Review governing documents: Your HOA's Covenants, Conditions, and Restrictions (CC&Rs) serve as the community’s rulebook. They will specify the HOA board’s authority for imposing a special assessment and detail any procedures (like notice or voting requirements) that must be followed.
   
• Understand the assessment’s justification: It’s essential to determine whether the assessment addresses a legitimate need, such as emergency repairs or underfunded capital projects. Request documentation detailing the scope, breakdown of costs, and the justification for the assessment.
   
• Work with other homeowners: If a significant group of residents believes the assessment is poorly executed or unnecessary, band together to approach the board. A united request for clarity or fewer financial burdens can carry more weight.

While challenging a special assessment may not void it entirely, it forces transparency and encourages the board to make decisions that align with proper community practices.
 

What is a special assessment appeal?

If you disagree with a special assessment, an appeal process may be available to you. An HOA typically has outlined procedures for appealing board decisions, including special assessments. Here’s an overview of what the process could look like:

The first step is to file a formal, written explanation of your disagreement. Be concise but thorough, and include specific reasons, such as improper processes or a belief that the assessment is unnecessary.

Next, many associations will hold a board meeting to address complaints. This provides homeowners an opportunity to voice their concerns publicly. If the initial appeal process does not lead to resolution, mediation is often an option. In this step, a neutral third party helps the HOA and the challenging homeowner(s) reach an agreement.

As a final option, though typically a last resort, you may take the dispute to court. Be prepared for a potentially lengthy and expensive process if you proceed with this step.

The special assessment appeal process may help resolve disputes fairly, but it requires patience and persistence.
 

How to challenge a special assessment

To effectively challenge a special assessment, you’ll need proper preparation and collaboration with other homeowners. Consider following these guidelines:

1. Examine the details: Obtain a clear understanding of the financial documents tied to the assessment. Are there unexplained discrepancies or unrealistic cost projections?
    
2. Request transparency: The HOA board has a duty to justify its need for a special assessment. Request full access to meeting minutes, bids for work, or reserve fund studies linked to the assessment.
    
3. Communicate directly: Formal communication with your board is most effective. Professionally present your concerns and continue to follow up until clear answers are provided.
    
4. File formal challenges: If initial conversations don’t resolve your concerns, work through the formal grievance or appeal process defined by the community’s governing documents.

Can you avoid special assessments?

While special assessments may not always be preventable, proactive financial planning can reduce the likelihood of their occurrence. Here are some strategies to consider:

• Reserve fund contribution: Encourage your board to secure reserve funds by planning capital expenses well in advance.
   
• Predictive reserve studies: By conducting and updating reserve studies regularly, associations can anticipate expenses before they turn into emergencies.
   
• Alternative funding options: Consider utilizing HOA loans to spread the financial burden over a longer timeframe rather than relying on one-time assessments.
   
• Strategic budgeting: Review that your HOA implements a transparent, reality-based budget to cover essentials. Delaying necessary expenses often leads to higher costs later.

Partnering with a professional management company can provide tailored solutions for your community’s financial health.
 

Funding alternatives for HOA capital projects

Borrowing money for capital projects is sometimes a viable financing alternative. For example, a community that intends to replace roofs over the course of several years might discover that it would be more advantageous to replace all of them at the same time, thereby eliminating bills for interim repairs.

A good property management company will have the resources to present financial alternatives to its associations.

Instead of just saying you need a one-time assessment, your property manager should be able to help you get a loan and go through the approval process with your community."

Isadora Goh, vice president, client accounting at FirstService Residential

Lauren Starner, vice president of community and lifestyle, adds, “With a loan, you’re paying for a capital expenditure over a period of time versus a one-time assessment that you might not be able to afford but you need.”
 

Take control of your community’s finances

Special assessments are often an unavoidable part of HOA living, but they don’t have to destabilize your household or community. Occasionally, we see boards resist the best practice of raising regular assessments – either because they don’t want to deal with the residents’ reaction to it or they don’t want to pay more themselves, or both. However, in our experience, the decision not to raise regular assessments invariably results in the need for a special assessment.

One of the easiest ways to avoid having to impose a special assessment is to develop budgets that are reality-based.  A realistic budget is comprised of two basic categories: the amount of money you need to properly care for your community and the amount of money you must put into your reserve fund according to your reserve study. Then, budget for those two categories each and every year.

If your property management company isn’t offering sound budget guidance and funding alternatives, consider partnering with FirstService Residential. Exclusively offered to our managed properties, our expert team at FirstService Financial can help with community lending, cash management, and insurance coverage to best advice and support your board when dealing with any financial matter.

Contact us to learn more about how FirstService Residential can support your community’s well-being.