3 Types of HOA Maintenance Fees Owners Cannot Escape
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A homeowners’ association, under its governing documents and state statutes, has the power and authority to collect annual assessments, special assessments, and capital improvement assessments from community members to fund common community areas maintenance expenses.
A few examples of common community areas are parks, pools, gyms, sidewalks, elevators, and other spaces intended for the use of community members, except those portions which lie within the boundaries of the owner’s property.
As we will discuss below, an association’s Board has a responsibility to maintain a budget, collect assessments, and protect the community against unreasonable costs in the maintenance of common areas.
Operational And Reserve Funding Expectations
A well-governed association is driven by board members that understand the duty to protect the interest of its members by preserving property values and minimizing risks by having a robust financial plan.
To establish adequate funding, the Board must consider the community’s day-to-day operating expenses and prepare for unexpected expenditures. These basic expectations fall under the Board’s fiduciary obligation to act in good faith and exercise the basic duties of proper management. We have previously discussed “The Fiduciary Duties of HOA Board Members,” which elaborates on what the law requires of an HOA Board concerning its obligations toward member homeowners.
Successful associations have operating and reserve funding to avoid imposing an unexpected financial burden on its members. The operating funds pay for the association’s operational and maintenance expenditures.
A few examples of operational expenditures include insurance, property taxes, utility bills, landscaping, administration fees and costs, legal fees, and any repair and maintenance necessary to keep the common areas operating efficiently.
The reserve fund pays for major unexpected repairs, alterations, or improvements such as purchasing new equipment, replacing roofs, fences, renovating sidewalks, parks, or landscaping. A few states like Ohio, Florida, and California require associations to maintain reserve funds.
Annual Assessments
Each year, the association’s Board meets and, upon reflection of the budget of previous years along with consideration of future costs, determines the budget for the coming year.
Once the budget is determined, the Board divides the costs and assigns maintenance assessments to each member as directed by the association’s CC&Rs, equally or by percentage. The association’s financial transactions can be found in the books and records available for the inspection by community members.
Typically, the association collects the maintenance fees on a monthly, quarterly, semi-annual, or annual basis following the guidelines in the CC&Rs.
KEY POINTS:
To determine the factors your Board uses to set the amount and cycle of assessment payments, one must read the CC&Rs and Bylaws.
Most HOA documents limit an annual assessment increase to a certain percentage.
Associations must give notice of increased assessments to all owners before implementation.
Owners cannot avoid, or withhold payment of HOA fees even if an owner believes the association is not fulfilling its obligations.
If a neighbor fails to pay his or her share of assessments, the association may consider the annual budget inadequate and levy an extra assessment against all owners to cover the deficit.
Special Assessments
In addition to the annual assessments, the association may impose a special assessment against all owners to cover for unexpected costs and expenses for the repair or improvement of the common areas.
This financial recourse is likely when an association does not have a reserve fund or needs extra financial resources to complete a major repair or improvement. However, when considering the implementation of a special assessment, the Board must follow the rules of the association’s CC&Rs and state laws.
KEY POINTS:
State laws and the CC&Rs may restrict the association’s ability to levy special assessments.
Depending on the HOA documents, a membership vote may be required to approve a proposed project that would trigger a special assessment.
Capital Improvement Assessment
A capital improvement is a planned discretionary permanent replacement, renovation, or alteration to the property that serves to (1) increase the value, (2) makes it more useful, or (3) prolong its life. Some examples of capital improvements include building a new structure, swimming pools, roof repairs to add value to the property.
KEY POINTS:
State laws and the association’s governing documents may restrict the Board’s actions, and cap the spending on capital improvement projects.
In general, the implementation of capital improvements requires a membership vote. However, if an improvement falls under the Board’s duty and authority to maintain, a membership vote may not be necessary.
To determine if a project falls under a capital improvement, one must review the underlying special facts and circumstances. Due to the complexity involved, homeowners should consult with an attorney to make such determination.
What happens when owners don’t pay?
If an owner fails to pay the maintenance fees, the association may enforce the assessment obligation as permitted by the CC&Rs and state law. The actions an association may take include:
Suspend the owner’s right to vote,
Suspend the right to use the common areas,
Suspend access to utilities.
Suspend rights and privileges to cable TV, laundry facilities, and parking,
Collect rent from the owner’s tenants.
Record a lien against the property
File a collection lawsuit against all owners on the property deed,
Initiate foreclosure proceedings to sell the property.
If the association starts collection efforts, the defaulting owners may be responsible for all past due assessments, late fees, interest, administrative fees, collection costs, and legal fees.
For this reason, we encourage owners to make an effort to resolve delinquencies before the association’s collection efforts to avoid additional fees and costs.
Homeowner Tips
Review the association’s CC&Rs and Survey Map to determine which areas of the community fall under the association’s responsibility to maintain. Homeowners can view these documents on the county recorder’s website.
Homeowners dealing with financial hardship, and are not able to pay the HOA fees, should communicate with the association’s representative in writing to make a good faith effort to set up a plan.
Homeowners may be able to negotiate a reduction of the overall delinquency under special circumstances, but keep in mind that the association will not consider a waiver of “hard costs,” which may include maintenance assessments, legal fees, administrative fees. However, some associations will consider waiver of soft costs, such as late fees, interest, and fines to resolve the delinquency.
Homeowners dealing with foreclosure should consult with an attorney to determine the legal options.