Homeowners might encounter an HOA special assessment every once in a while. Although different from regular dues, a special assessment also serves as a way for an HOA to secure funding. Both homeowners and board members should understand the ins and outs of special assessments.
What is an HOA Special Assessment?
A homeowners association special assessment is an additional fee that an HOA collects from members. It is an extra charge on top of the regular dues.
Ideally, special assessments should be uncommon. If the board plans the budget well, there should be no need to charge a special assessment. Still, mistakes can happen, and unforeseen circumstances can force an HOA to levy this extra charge.
Whether or not an HOA has the authority to issue a special assessment in the first place depends on state laws and the governing documents. More often than not, if an HOA’s governing documents don’t grant express authority, an HOA can’t levy special assessments.
What is a Condo Special Assessment?
Special assessments are not limited to single-family communities. Condo associations operate on a budget and collect regular fees from unit owners. When something unexpected happens, the board can charge a condominium special assessment, as permitted by state laws and the governing documents.
Condo fees and special assessments tend to be higher. This is because unit owners share a bigger responsibility to maintain the entire building and common areas. There are more facilities to keep in good condition, such as stairwells, elevators, lobbies, and hallways.
HOA Special Assessment vs HOA Fees
It is important to differentiate between special assessments and regular dues. A special assessment is a one-time, additional charge that comes into play under certain circumstances.
In contrast, as the name suggests, regular fees or dues are paid regularly. Homeowners pay these dues monthly, quarterly, or annually. These dues cover the community’s operating expenses. On the other hand, special assessments usually cover the cost of emergencies or unplanned expenses.
The Role of Special Assessments in HOAs
If homeowners already pay monthly dues, why would an HOA need to charge special assessments? There are a few reasons why this extra assessment might be necessary.
For one thing, the HOA board is not perfect. Board members can plan the budget and anticipate costs, but unforeseen expenses can still crop up. The board might underestimate a certain expenses, resulting in a need to charge special assessments.
An HOA special assessment can also cover emergency repairs or maintenance. While the HOA’s insurance policy should be the first line of defense, emergency expenses can go over the coverage limit. If an HOA also has inadequate reserves, it may charge a special assessment.
Can Homeowners Refuse to Pay HOA Special Assessments?
In general, homeowners can’t refuse to pay special assessments to their HOA. When they first buy their home, they agree to abide by the association’s rules and fulfill their own obligations, including paying assessments when necessary.
Of course, it is important to check whether an HOA has the authority to levy special assessments in the first place. Nonpayment can result in a number of potential consequences, including the loss of a home.
What is the Maximum Special Assessment for HOA?
The answer to this question depends on state laws and the governing documents of an HOA. Some states have laws that explicitly limit how much an HOA can charge in special assessments, but many others don’t.
If the law is silent, board members should consult their CC&Rs and bylaws. These documents typically address the HOA special assessment limit and any associated requirements. For example, an HOA may allow special assessments, but anything over a certain percentage or amount might require a vote.
In Texas, there is no law that limits special assessments. For this reason, homeowners and board members should refer to their governing documents instead.
Rules for an HOA Special Assessment in Texas
While there is no maximum amount for a special assessment in Texas, there are still laws that govern this additional fee.
- Open Board Meeting. According to Section 209.0051, an HOA board must discuss or vote on a special assessment at a board meeting open to all homeowners.
- Ballots. According to Section 209.0058, votes concerning special assessments must be in writing. Members must also sign the ballot, but an HOA can also use secret ballots.
- Payment Plans. According to Section 209.0062, HOAs with more than 14 lots must establish payment plans that allow owners to pay their delinquent special assessments without any further monetary penalties.
HOA Special Assessment Rules for Nonpayment
As with nonpayment of regular dues, nonpayment of special assessments can also have unsavory consequences. These consequences will depend on state laws and the governing documents. More often than not, they involve the following penalties:
- Late Fees. Associations often charge late fees or interest when homeowners miss the deadline for paying special assessments. These charges can grow the longer the balance remains unpaid.
- Collection Agency. The HOA may send the account to a collections agency if payments remain outstanding. The board must follow specific legal steps before pursuing this route.
- Liens. The HOA can also file an assessment lien against the property. Just like with collections, the association must meet certain legal requirements first.
- Foreclosure. If the debt continues, the HOA may pursue foreclosure through the courts to recover the unpaid amount.
Is HOA Special Assessment Tax Deductible?
In most cases, HOA special assessments are not tax-deductible for individual homeowners. Of course, this can vary depending on the type of residence.
- Personal Residence. If an owner lives on the property as their primary residence, the IRS treats dues and special assessments as non-deductible.
- Rent Out the Property. If the property is a rental or investment property, an owner may deduct HOA special assessments as a business expense, but only in specific situations.
- Home Office. If eligible for the home office deduction, homeowners may deduct a portion of the HOA fees and special assessments. The deduction must be in proportion to the space they use for business.
Since circumstances can vary, homeowners should consult a tax professional about special assessments. Doing so can help them avoid penalties.
Proceed With Caution
An HOA special assessment serves an important purpose within a community, but it is not always necessary. As usual, state laws and the HOA’s governing documents should dictate whether or not an association can levy this assessment and what circumstances can call for it. That said, it is not something an HOA board should charge without regard.
Preferred Association Management Company offers exceptional HOA management services to communities in Central Texas. Call us today at 512-918-8100 or contact us online to learn more!
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