Do you know what a special assessment is and how they work? If you are living within an HOA-managed community, you might find you have a special assessment to deal with. Typically, HOA special assessments are fairly rare, but they will mean an extra and unexpected cost for the homeowner.
So what is an HOA special assessment, and how will it affect you? We take a look at how this can impact you if you live in a homeowners association community.
What is a Special Assessment in Real Estate?
The HOA special assessment should only happen in unusual circ*mstances. This should typically only be required by the HOA board in emergencies or when unexpected bills are due in the community. The special assessment will mean an extra payment is required from the homeowners above their normal monthly HOA fees.
The special assessments can occur whether you are living in a condo or a house, just as long as the community is governed by an HOA, you might be expected to pay. It is one of the many things you need to know about buying a condominium.
HOA Community Expenses
The idea of the special assessment is to find the money to pay for unexpected repairs, and are needed because the association doesn't have the funds in their budget to cover the costs.
When you are living in this type of community, you'll need to pay the special assessments when they happen. This isn’t a planned expense by the HOA, and it will be unexpected for homeowners, but it will still need to be paid, or there could be consequences.
What is a Special Assessment Tax?
Special assessments can also happen with property tax to fund local projects. If the city or county has decided that they need to complete a project, perhaps road maintenance or new construction, they might add a special tax assessment.
While this is similar to what an HOA might do, it is unrelated. This increase in property tax will be on top of what a homeowner is already paying.
Why are Special Assessments Charged by HOAs?
Generally, HOAs only resort to these assessments when something has gone wrong and they unexpectedly have a large bill to pay. It could be something that requires an urgent repair that the association doesn't have the funds to cover. Even so, there will need to be a vote on this before it will be charged to the community.
These assessments can also happen when the HOA has not budgeted well for the year. If the homeowners association has underestimated the expenses for the coming year, the normal HOA fees will not cover the costs. This can lead to the board resorting to calling for a special assessment, and unexpected additional costs for homeowners.
Dealing with a Special Assessment
Coping with the extra expense of an assessment from your HOA can be difficult if you're not ready for such a cost. Sometimes these charges can be quite large, but there are some things you can do to better deal with the situation.
Paying the special assessment fee
You might be required to pay the assessment charge very quickly if the amount of money isn't that high. But if you are required to pay a large amount, this might be spread out over many months or even a year. The homeowners association board will decide how quickly the money needs to be paid based on the urgency and other factors.
What can you do if you disagree with a special assessment?
When you move into the home, you will have signed a contract with the HOA. These HOA covenants, conditions, and restrictions will legally set out the rules for living in the community and will also include a section about special assessments. This means that if the HOA triggers a special assessment, you are legally required to pay.
However, if you do not agree with the assessment or are unable to pay, you might be able to do something. This could mean legal action, which isn't going to help you if you cannot find the money to pay the assessment, as legal costs could be very high. If it is found by the judge that the assessment is reasonable, as outlined in the contract you agreed to, you could be liable for more legal costs.
If you simply ignore requests to pay the assessment, there will likely be late fees you due as per the HOA covenants. You also run the risk of your homeowners association taking you to court, as well as being restricted in your usage of community facilities.
So that you don't find yourself in a situation like this, you could set aside some money each month to cover unexpected costs like these. If you have concerns about something like this happening, you can also attend the homeowners association board meetings, where these matters will be discussed before being put to a vote.
Do Special Assessments Change the Way You Buy and Sell a Home?
If you have to deal with a special assessment when you are either buying or selling a home, it could add more stress. The point at which the sale closes will affect who is required to pay the assessment costs. You need to be ready to deal with this if this is something that is happening in the HOA community you have an interest in.
The unexpected fees and costs are one of the reasons you may want to reconsider buying a condo.
When you're buying a home, the real estate agent has to disclose a special assessment. The date on which the special assessment comes into effect will decide who ends up paying the charge. If this is after closing, the buyer will have to pay. When the assessment happens before closing, it will be the seller who pays the bill and it isn't normally passed on to the buyer.
Special assessments can put off buyers, as it could be seen as a sign that the association isn't managed very well. While this might not actually be the case, it can create fear that these assessments will happen regularly.
Doing Your Research
If you are considering buying a home within an HOA community, you need to be aware of what the situation is with special assessments and how it could affect your purchase. If there is an assessment in progress, it could indicate that the housing association isn't very well managed, and this could understandably give you second thoughts.
