A Special Assessment is an extra assessment to the homeowners above what the regular monthly/annual assessments are. Usually, when a Association approves a Special Assessment, it is not looked upon favorably by both Lenders and potential homebuyers. It may result in reduced market value.
There are many reasons for a Special Assessment:
Underfunded Reserves – Roofs need to be replaced and the Reserve Fund is either too low or nonexistent
Unexpected Expenses – Funds may be needed for major unexpected plumbing leaks. Since they were unexpected, they weren’t planned for in the budget or the monthly/annual dues. Insurance may be insufficient to cover the entire expense.
The Association decides to add a pool, tennis courts, clubhouse and this new asset wasn’t included in the original Reserve Study and thus not funded.
Construction Defects – Major repairs may need to be done and the developer may be gone/filed bankruptcy, etc.
Poor Operating Cash Flow – High delinquencies among owners usually result in poor cash flow for the Association. In order to generate enough cash just to run and maintain the Association, they might need to assess owners an extra amount.
Reserve Study – A Reserve Study was completed and the analysis revealed that the Association’s Reserve Fund was extremely low as compared to the amount it needs to be on track. In this instance, the Association might decide to assess a Special Assessment in order to build up Reserves and catch-up any short fall.
The Association applies for a Bank Loan to replace all the roofs at once. In order to have the funds to make the monthly loan payments, the Association may approve a Special Assessment for the sole purpose of paying back the bank loan.
Authority to Approve a Special Assessment:
Usually the Associations Bylaws (governing documents) will describe the process the Association must follow in order to get a Special Assessment approved.
The Board of Directors may have full authority to pass the Special Assessment
The documents may require that the owners vote on it and a majority pass the Special Assessment.
Usually the Board will determine the payment options. This could include immediate payment, payment over months or years.