Learning the Basics of HOA Assessments

Have you ever heard of the saying, “There’s no such thing as a free lunch?”  With all the upkeep and maintenance expenses that come along with living in an HOA community, you may feel frustrated as a homeowner with the additional costs that seem to arise.

The advantages of living in a community managed by an HOA include things like access to amenities, building a community, use of facilities like a clubhouse or gym, well maintained grounds and a safer living environment.  But taking care of all these things costs money, and in order to have these them – your HOA board must either take care of them on a DIY basis (which still ensures a cost of materials and time) or hire a vendor.

Overtime, every residential community is going to have expenses that come up and as a member of an HOA-governed community, you have agreed to participate in contributing fees that are associated with maintenance and repair projects.  These fees are known as HOA assessments, HOA dues or HOA fees.  As members of the HOA, it’s important for you to be aware of what types of assessments are necessary and how your board plans to execute them properly.

There are 3 basic types of assessments.  Let’s take a look at each one in more detail:

Regular/General Assessments:

These assessments are determined by the board in the annual budgeting process. These expenses cover normal operations within the association and are generally billed monthly or quarterly.  However, an HOA board cannot increase the general assessment cost by more than 20% without getting prior approval from the community membership.

Special Assessments:

These assessments are for unexpected expenses or capital improvements and are levied against the membership. These assessments can be categorized in 3 ways:

      1. Membership Approved – If an assessment is determined to be more than 5% of the overall annual budget, the membership has to approve it.
      2. Board Approved – When an unexpected expense or capital improvement is expected to be less than 5% of the overall annual budget, it must be approved by the HOA board.
      3. Emergency – These are special assessments that do not have a cap and do not require membership approval. However, they must meet the necessary statutory requirements to be considered an emergency.  The circumstances to determine an emergency assessment must fall into one of these three categories:
      4. Court ordered extraordinary expense
      5. An expense in which the common interest of the development or any part of it that the association is responsible for poses a threat to personal safety within the community.
      6. An extraordinary expense that could not have been reasonably foreseen by the board in preparation and distribution of the annual budget and must be repaired in order to maintain the overall interest of the development. However, it is important to note that prior to the collection or imposition of an assessment under these circumstances, the board must pass a resolution which explains the necessary findings associated with the extraordinary expense or expenses involved and why it could not have been reasonably identified within the budgeting process.  Then, the resolution must be distributed to all members outlining the details of the emergency assessment.

Reimbursement Assessments:

These are most generally used when repairing common area damage that may have been caused by members or their guests/tenants and are reimbursed to the association.

What’s the difference between fees and assessments?  Fees are imposed for homeowners for goods and services like parking stickers, remotes, and keys.

Of course it would be great if your HOA could have enough funds in the reserve account to deal with these unanticipated expenses without having to levy assessments, but unfortunately, that isn’t most often the case.  Familiarize yourself with the community’s governing documents that specify these assessments, so that your HOA is prepared!

For more tips and helpful information on training HOA board members, be sure visit our blog or sign up for a free trial of our online lessons!