Here Are Important HOA Special Assessment Rules to Know
No homeowners association (HOA) board ever wants to levy a special assessment. However, there may be circumstances when there is no other choice. Imposing a special assessment is a move that your board should not undertake lightly.
Take a natural disaster like Hurricane Harvey. For some Texas associations, the cost of repairing or replacing common structures that were damaged by the storm far exceed available insurance coverage or planned expenses.
Before you go forward with a special assessment, make sure that you have a thorough understanding of when these added fees are appropriate and how to go about collecting them. The following “do’s” and “don’ts” are a good place to start.
DO…check your HOA’s governing documents first.
DON’T…assume that your board has unlimited authority.
Although Texas law allows HOAs to levy special assessments, check your association documents for specific regulations about how and when you can implement them in your association. For example, your board may only be authorized to approve special assessments if they don’t exceed a certain dollar amount. The special assessment could also require homeowner approval.
DO…restrict special assessments to major projects.
DON’T…use special assessments to keep up with rising operating costs.
Special assessments should only be implemented if your HOA or condominium association faces an unplanned capital expenditure – such as a major repair or replacement – or needs to make a significant improvement that you cannot fund any other way.
Examples of appropriate repairs and replacements include:
DO…communicate with homeowners early and openly.
DON’T…blindside homeowners with an unexpected special assessment.
Herbold emphasizes the importance of being transparent about the need for a special assessment. “Communicating openly can help minimize homeowner resistance,” he says. If time allows, he recommends holding a meeting to explain the reason that the special assessment is necessary. This is also a way to give homeowners an opportunity to ask questions and voice their opinions. Prompt communication is especially important in the case of a needed emergency repair or a catastrophic loss.
DO…offer flexible payment options.
DON’T…ignore the financial burden a special assessment may present.
For some homeowners, even a modest fee can present a financial hardship to some. Providing payment options eases the burden on these residents and increases the chance that they will do everything they can to meet their obligation.
DO…create an annual association budget that addresses all your needs.
DON’T…neglect to include unexpected possibilities in your annual budget.
One reason that boards sometimes end up needing a special assessment is because they fail to budget for unforeseen costs. Creating a contingency line item will help to address this issue.
Boards sometimes fail to allocate enough money to fund their reserves or to cover their insurance needs. According to Herbold, “If the board has planned well, it should be able to take money from its reserves when costly projects come up.”
DO…rely on financial experts.
DON’T…make financial decisions without professional help.
Obtaining a reserve study, and following the preventative maintenance guidelines in the study, is crucial for adequately funding your reserves. “A good community management company can be a great asset in selecting a reserve study specialist who will do the job right,” says Herbold.
Herbold also recommends turning to your management company to help you get legal counsel if necessary, as well as to find the best rates on loans and insurance. “You want to make sure that anyone you’re working with – whether that’s an attorney, an insurance broker or a financial manager – has the specialized knowledge to address the unique requirements of an association,” he explains.
A special assessment can be an important tool for funding needed work. Used wisely, it can preserve the value of your HOA’s property.
Take a natural disaster like Hurricane Harvey. For some Texas associations, the cost of repairing or replacing common structures that were damaged by the storm far exceed available insurance coverage or planned expenses.
Before you go forward with a special assessment, make sure that you have a thorough understanding of when these added fees are appropriate and how to go about collecting them. The following “do’s” and “don’ts” are a good place to start.
DO…check your HOA’s governing documents first.
DON’T…assume that your board has unlimited authority.
Although Texas law allows HOAs to levy special assessments, check your association documents for specific regulations about how and when you can implement them in your association. For example, your board may only be authorized to approve special assessments if they don’t exceed a certain dollar amount. The special assessment could also require homeowner approval.
DO…restrict special assessments to major projects.
DON’T…use special assessments to keep up with rising operating costs.
Special assessments should only be implemented if your HOA or condominium association faces an unplanned capital expenditure – such as a major repair or replacement – or needs to make a significant improvement that you cannot fund any other way.
Examples of appropriate repairs and replacements include:
- Poor drainage around a building causing basement leaks and extensive repairs in an aging high-rise building
- Repair leaks in a pool due to ground shifting
- The unexpected replacement of townhome roofs that have prematurely exceeded their useful life
- A large deductible on an unexpected insurance claim
- Replace and upgrade all the front doors in an urban-living community to increase home values
- Conversion to xeriscape landscaping to save money over time by reducing maintenance and irrigation requirements and eliminating regular replacement of non-native plants
DO…communicate with homeowners early and openly.
DON’T…blindside homeowners with an unexpected special assessment.
Herbold emphasizes the importance of being transparent about the need for a special assessment. “Communicating openly can help minimize homeowner resistance,” he says. If time allows, he recommends holding a meeting to explain the reason that the special assessment is necessary. This is also a way to give homeowners an opportunity to ask questions and voice their opinions. Prompt communication is especially important in the case of a needed emergency repair or a catastrophic loss.
DO…offer flexible payment options.
DON’T…ignore the financial burden a special assessment may present.
For some homeowners, even a modest fee can present a financial hardship to some. Providing payment options eases the burden on these residents and increases the chance that they will do everything they can to meet their obligation.
DO…create an annual association budget that addresses all your needs.
DON’T…neglect to include unexpected possibilities in your annual budget.
One reason that boards sometimes end up needing a special assessment is because they fail to budget for unforeseen costs. Creating a contingency line item will help to address this issue.
Boards sometimes fail to allocate enough money to fund their reserves or to cover their insurance needs. According to Herbold, “If the board has planned well, it should be able to take money from its reserves when costly projects come up.”
DO…rely on financial experts.
DON’T…make financial decisions without professional help.
Obtaining a reserve study, and following the preventative maintenance guidelines in the study, is crucial for adequately funding your reserves. “A good community management company can be a great asset in selecting a reserve study specialist who will do the job right,” says Herbold.
Herbold also recommends turning to your management company to help you get legal counsel if necessary, as well as to find the best rates on loans and insurance. “You want to make sure that anyone you’re working with – whether that’s an attorney, an insurance broker or a financial manager – has the specialized knowledge to address the unique requirements of an association,” he explains.
A special assessment can be an important tool for funding needed work. Used wisely, it can preserve the value of your HOA’s property.