Buying a home within a homeowners association community comes with several responsibilities, including paying HOA dues and assessment fees as stipulated by the HOA governing documents.
These payments are mandatory and backed by the laws of the association involved. Many people often wonder if an HOA board has the power to change the assessment allocations.
Keep reading to find out the answer!
What is an HOA Assessment?
An HOA special assessment is different from regular HOA dues. An HOA assessment is typically a one-time annual fee that homeowners pay to HOA management to cover unexpected expenses, such as a new roof or other significant costs.
The HOA board comes up with an annual budget for the association at the beginning of every year, and the budget is what informs homeowners how much they will need to pay as their HOA monthly dues.
However, the dues alone are sometimes insufficient to cover the numerous expenses of a homeowner’s association’s management responsibilities.
For example, unforeseen circumstances, including a price hike in goods and services, can create shortfalls in the budget. Also, emergency projects or repairs can affect the budget. Therefore, a special assessment is needed to cover all the additional expenses.
Factors Influencing HOA Assessment Allocations
Every HOA board needs to factor in the amount required for the emergency work or supplementary budget to arrive at an allocation for each homeowner. All assessment allocations primarily depend on the funds needed per each expense.
Keep in mind that each scenario may differ from one HOA to another, and the amount is subject to the association’s governing document.
Most associations limit how much they can charge, and some states have bylaws they must adhere to. For instance, in California, the law requires the HOA board to seek homeowners’ approval when allotting assessments more than five percent of the year’s gross budget.
Note: Every association member, including board members, must pay the same assessment amount established for the residents if they live on the premises.
Various Ways HOA Board Allocate Assessments Rates
A homeowner’s share of an assessment is defined by the HOAs governing documents. These fees and how it is shared are set during the formation of the association. It varies depending on the following:
- Uniform Rate: All community members are allotted the same rate regardless of the size of the home or units. That is, the budget is divided equally among the homeowners.
- Variable Rate: With this form, the homeowners are charged based on the size of their home or lot, i.e., on a percentage of the square foot they cover. The bigger your space, the more you pay in assessment. You may see this as unfair; however, it doesn’t violate any public law.
- Hybrid/Blended Rates: This is when HOA management blends the uniform and the variable rate when allocating assessments. In one case, all residents can have the same assessment for a specific budget, but the rate can vary depending on the benefits each member gets in another case.
Can Homeowners Challenge Assessment Allocation?
No one wants to pay extra fees, even if it’s one dollar more. Homeowners also have a monthly or quarterly budget according to their earnings and expected expenses. Therefore, any emergency spending becomes challenging, just as paying an HOA assessment.
The HOA management may have no other option than to impose fees. It is a legal mandate, usually documented in the HOA governing document. Once you become a member, you have little power to challenge an assessment allocation.
Remember, you can only contest it if it’s above the accepted limit or violates the association’s rules or state laws. If you believe this to be true, be prepared to show all the documentation needed to support your claims.
Consequences of not Paying Assessments
- Suspension of homeowner’s rights and privileges
- Ability to seek legal assistance for a lawsuit against the homeowner(s)
- Place a lien on the owner’s property
- Initiate foreclosure
Can HOA Boards Increase Assessment Allocations?
The HOA board of directors has the mandate to manage (collect and disburse) dues for the running of the association. This gives them a broader perspective about the financial situation of the association.
They come up with an annual budget dependent on projections. Any shortfall in the forecast means the association would be short of money to undertake its responsibilities.
To solve this shortfall, an HOA may levy an assessment or increase the monthly dues. The amount charged depends on how much is needed to secure the budget or undertake the emergency project.
So, homeowners get their assessment in the form already stated. But, can the board unilaterally raise assessment allocation or dues?
Most homeowners associations governing documents clearly state how much the board charges as dues or assessment. However, the board can raise the regular assessment (dues) to 20%, and they can also increase the dues up to 20% of the previous budget without your approval.
This, however, does not apply to special assessment allocations. The highest fee a board can levy as a special assessment allocation without prior membership approval is 5% of the gross budget in the year under review.
The HOA can do this regardless of the amount limitations set in the governing documents. However, anything more than 5% would need approval for the homeowners, except for emergencies.
How to do the 5% calculation
If the HOA has an annual budget of $200,000, the 5% maximum non-approval special assessment the board can charge is $10,000. This $10,000 is what can be shared among the homeowners to pay.
After the board approves an assessment, they should communicate it to the members before levying it. HOA special assessments can be the only resort for the board of directors during an emergency or budget shortfall.
However, communication is vital when levying such fees, even if it is 5%, which doesn’t need membership approval. If the board requires more than 5% of the budget, they need to consult the homeowners for approval, and this may require forming a quorum and subsequent voting for approval.
Depending on the size of the assessment will determine whether or not an HOA can change its allocations. There are rules and laws in place to protect communities and their residents from any wrongdoing when it comes to assessment allocations.