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SPECIAL ASSESSMENTS GUIDE Many homeowners associations HOAs effectively plan for the future and prepare for costs associated with typical maintenance and replacements However when a major repair or capital improvement project is needed those that don t have adequate funds set aside may have reasons to worry If this happens or the association faces a significant unforeseen expense a special assessment might be required Read on to learn about special assessments how to avoid them and more DA L L A S F O RT WO RT H AU ST I N SA N A N T O N I O H O U ST O N

What s an HOA Assessment Assessments are fees that all association members are legally required to pay Depending on the governing documents and procedures they can be collected annually quarterly or monthly These fees are the primary source of income for an association and are used to ensure the association can successfully perform the various duties and tasks for which it s responsible What HOA fees cover depends on the community but typically this money is used to pay for repairs maintenance administration and reserve funds for future repairs and improvements What s an HOA Special Assessment Occasionally associations need money in excess of the funds raised by regular assessments to pay for unexpected costs When this happens the association may have the power to levy a one time or short term special assessment to cover the additional costs The rules and processes for adopting a special assessment vary by association In some cases a membership vote is mandatory for approval in others it isn t If the board is authorized to adopt a special assessment it must do so at an official board meeting and community members must be given notice of the meeting and topics of discussion Check the governing documents bylaws and state statutes for specific special assessment requirements and limitations WHAT DO SPECIAL ASSESSMENTS PAY FOR While many communities do plan ahead some don t prepare for large scale repairs and capital improvement projects Special assessments should only be used to pay for unanticipated items or expenses not considered in the association s reserve fund The following are examples of major expenses that may require a special assessment Replacement of siding Private roads Roofing Replacement or renovation of a community clubhouse Addition of community tennis courts or swimming pools Addition or replacement of access gates

TAX 1040 Can Special Assessments be Claimed on Taxes Yes homeowners can usually claim special assessment payments on taxes if they were used for maintenance and repairs However residents should consult a tax professional before claiming special assessment payments on taxes How are Special Assessments Calculated Special assessments are almost always tied to direct costs How an HOA divides that cost is up to the board and the governing documents It s common for an HOA to share the total costs equally among all homeowners For example if there was an unexpected elevator repair of 100 000 the board may ask each of their 100 residents to pay 1 000 to cover the total repair bill How to Avoid HOA Special Assessments The board of directors has a fiduciary duty to create a budget that will cover all expenses a special assessment shouldn t be an excuse for inefficient budgeting Special assessments can typically be avoided if proper long term plans are in place and adequate reserve funds are set aside

TIPS FOR COMMUNICATING SPECIAL ASSESSMENTS It s no surprise that special assessments aren t typically popular with homeowners Fortunately there are steps that boards can take to eliminate a bit of the pressure of the payment and process including BE SENSITIVE Not all homeowners are in the same situation Board members must be sensitive and recognize that a special assessment may cause more financial hardship on some than others While everyone must be treated equally the board may be able to handle certain situations on a case by case basis and provide payment plans or another alternative Check the community s governing documents for additional information GIVE NOTICE Homeowners are more likely to resist or be suspicious if they feel blindsided by a special assessment Always offer time to react be transparent about the association s financial health and keep homeowners in the loop regarding a potential assessment HOLD A MEETING If possible the board should hold a specific meeting before adopting a special assessment Doing this will give the board members time to explain the decision and allow homeowners to propose recommendations and give feedback BRING IN THE PROFESSIONALS Ensure your association s experts and professional partners are at the meeting to answer questions and support the board s recommendation Their presence will help alleviate tension and reassure homeowners that a special assessment is in the community s best interest