Here's How Your HOA Can Avoid Special Assessments

Special assessments are often issued to an HOA when the association is underfunded for a large project that takes a lot of capital.

These assessments usually happen because there is a shortfall in the HOA budget and unexpected repairs, but in recent years inflation has become more of a factor as well, with significantly and rapidly rising insurance rates and construction projects the association may have planned. 

Projects of this magnitude include replacing the roof on a community building or renting/purchasing mechanical equipment for projects throughout the community. 

How Do Special Assessments Work?

Special assessments have to be levied on the individual property owners throughout the community to be able to gather the money to complete the project at hand. These are different from the types of notices or bills that HOA board members want to have to send to homeowners in their association.  

Although boards typically do everything they can to keep costs low, sometimes special assessments can cause homeowners within the community to pay hundreds or even thousands of dollars in special assessment fees on top of their typical monthly, quarterly, or annual dues. 

That poses the question: How does an HOA avoid leveling these unexpected expenses against their residents?

Consider Keeping a Reserve

A "reserve" is something that every HOA should have and grow over time when creating its annual operating budget. The "reserve" is similar to an "emergency fund" in one's budget. It's exactly what it sounds like, as the HOA ensures they have a specific amount of money put into a "rainy day fund" based on a reserve study. 

Having proper reserves helps the association from having to tap into the pockets of your homeowners in an emergency.  

Consider Funding Alternatives for Capital Projects

If your HOA is not able to keep a reserve large enough to cover capital projects, then consider funding alternatives to help get your big projects completed without having to levy special assessments against your residents.

If your HOA has a one-time project, it might be appropriate for the board to consider taking out a loan in the community's name.  Avoiding the use of special assessments when possible helps families avoid unexpected costs. The association can pay back the loan over time. Loans are only appropriate for some associations but can be an option to consider. 

Keep Your Insurances Updated

Be sure that your insurance payments are up-to-date for all insurance policies.  Keeping the association’s insurance premiums up-to-date help the HOA avoid extra expenses in the cases of disasters like floods, tornadoes, hurricanes, or wildfires that can strike communities with little-to-no notice.

Always Set a Realistic Budget

When budgeting for the upcoming year,  the board of directors should be realistic with the budget set. It should cover all operating expenses, reserve contributions per the reserve study, and extra savings for unforeseen expenses and emergencies. 

Raising HOA fees can be unpopular, but the board of directors should do what is best for the association. Sometimes this can be hard. Expenses should be reasonable but be in the whole’s interest.  It is usually better to raise regular assessments slowly over time than to keep them constant and then need a large increase or special assessment to make up for it. 

Conclusions

Sometimes, a special assessment fee can't be avoided, but proper planning can reduce the likelihood they will be needed.  

The fewer special assessments you have to use, the fewer surprises your residents will receive, and the easier the financial load of managing the association will be on everyone involved, especially your board members and property managers.