Understanding HOA Special Assessments: A Guide for Homeowners

The one thing every homeowner in an HOA agrees on is that they don’t want to pay extra fees. There may be disagreements over what those fees pay for, but no one ever asks to pay more.

But unexpected costs are part of HOA life. That’s why you need to know about special assessments.

What is a Special Assessment?

A special assessment is a fee charged by a homeowner’s association in addition to standard dues. It’s an extra bill that all HOA members must pay when unexpected expenses arise.

Special assessments are part of your HOA’s governing documents. There you can learn the steps the board must take to collect additional money. A special assessment is an option when the HOA does not have enough money to cover a major expense.

Your HOA may be lacking funds for a project for any number of reasons. Don’t assume it’s because the board didn’t prepare a proper budget. New HOAs are especially susceptible to these added fees because they haven’t had time to build up reserve funds.

Reserve funds usually pay for major maintenance. An established HOA can also absorb emergency maintenance with these funds. Reserve funds are set up as a way to manage both expected and unexpected costs.

Your reserve fund will slowly accrue the money necessary to, for example, replace a roof. The roof is estimated to last a certain number of years. If the roof is torn off in a storm long before its anticipated replacement date, your HOA may or may not have enough reserve money to pay for it.

What do Special Assessments Pay For?

Special assessments usually pay for emergencies. The aforementioned roof is just one example. Most areas of the United States are susceptible to some type of severe weather.

Floods, wildfires, earthquakes, tornadoes, and hurricanes are some of the major causes of HOA emergencies. Damages to buildings and landscaping can be extremely costly to repair.

Insurance may cover those expenses. But there might be a high deductible. Or there may be a significant wait time before those funds become available.

Special assessments are sometimes used for capital improvement projects. These are projects that increase the property’s value or lifespan. They are not regular maintenance. That distinction needs to be clear for any proposed special assessment.

Special Assessment Laws

Local and state laws may impact special assessments. Homeowners should understand the laws in their area to protect themselves and their HOA.

The Davis Stirling Act

In California, the Davis Stirling Act caps special assessments at 5% of the current annual budget of the HOA. The example given on their website is excellent.

If your HOA had budgeted $100,000 of expected expenses for this fiscal year, the board may not levy a special assessment of more than $5,000. That $5,000 is to be split among members of the association. Members must be given proper notice of the assessment.

The Davis Stirling Act preempts anything in your CC&Rs or Bylaws. Those governing documents do, however, establish how the assessment is allocated to each unit.

This law does not give the board a blank check. Any special assessment must be approved by the members. A simple majority of a quorum is needed. If the assessment fails and is necessary for maintenance, the HOA might be able to get court approval.

The Davis Stirling Act only impacts California, but it’s a good example. The goal of these laws is usually to protect homeowners from excessive or unwarranted special assessments.

Your state may also have special assessment limits in place. Both homeowners and board members should understand the rules and regulations of special assessments. Homeowners so they can avoid overpaying. Board members because they are obligated to know when local or state law supersedes HOA governing documents.

Communicating Special Assessments to Homeowners

The hardest part of special assessments is getting the community on board. No matter what your governing documents say about who approves these added fees, no HOA board should proceed without a meeting.

Meetings and written communication keep the community informed. If the special assessment is the result of an extreme weather event, members will be concerned for their own health and safety as well as that of the property.

Be tactful and empathetic when discussing special assessments. Some of your community members are going to experience financial hardship as a result of these fees. Be flexible, sensitive, and community-minded while working on solutions.

Make your case well. Use the presentation tools you have for budget meetings to explain clearly what the special assessment is for and why it wasn’t anticipated in the budget. Make handouts and have charts, graphs, and pictures. Have an expert help explain why the project is necessary.

Know the assessment amount before presenting it to members. Use Homey tools to personalize this meeting and articulate to homeowners why an emergency special assessment is necessary to maintain the safety and quality of the community.

Most special assessments come at a time when people are vulnerable. Emergencies are stressful. Make room for people to express their needs and concerns by being as prepared as possible when you meet. Allow HOA members an opportunity to express their frustration and use data and graphs to help answer their questions.

If the special assessment is for a capital improvement project, your communication with community members needs to be even more thorough. The HOA board needs to show the members that the project is both necessary and beneficial.

Avoiding Special Assessments

Your HOA can do two major things to avoid special assessments: create a realistic budget and fully fund the reserve account.

A realistic budget avoids frequent cost overruns that can eat into reserve funds. If your HOA consistently under-budgets routine maintenance and other costs, it is risking special assessments.

Purchasing location-appropriate insurance is a priority. Get several different estimates and do your homework about the best coverage for your situation. The additional dues may save members from a hefty special assessment down the road.

Updated reserve studies done by professionals underpin your reserve funding. Depending on your location that funding should take into account the likelihood of severe weather.

Don’t second-guess the reserve study because you don’t want to raise fees. Homeowners will be far angrier at a special assessment. Be honest about the resources the HOA needs to properly serve the community.

Even the best insurance is unlikely to cover all the costs of a major weather event. A buffer in the reserve budget helps cover any shortfall. This is a delicate balance. The reserve account should be fully funded. And the best insurance should be purchased. But sometimes that’s not realistic.

The HOA board is obligated to do its best to achieve a satisfactory balance between fees and funding. Consult with an expert to get a full picture of your board’s options. If your community cannot fully fund its reserve account, make sure your homeowners are aware.

Sometimes special fees are unavoidable. Newer HOAs faced with unexpected asset failure or weather damage may have no other choice. Regular communication about HOA funds helps both board members and homeowners.

Community members trust an HOA board that takes its financial responsibilities seriously. Trust and easily accessible information make special assessments, if they are necessary, easier for everyone.

If your HOA is staring down a special assessment, contact Homey for the tools you need to help your community. Have all your information in one place and access tools for meeting planning presentations.