Special assessments - breaking the bad news

Last month, the president of our property management company attended our board meeting to give us an overview of our financial situation - basically, between several major repairs and increasing delinquencies, it's a mess. At that time, I said when we started preparing next year's budget, we would likely have to consider increases of at least 3% (the board can raise it up to 5% from the current year's fee).

Well, things have just gotten even messier - during Labor Day weekend, another home was hit with tree root damage to the plumbing system (third time this year). We don't have the final estimate of repairs, but at last count, the costs will be at least $9K. We had to take a huge amount out of reserves last month to finish paying for major repairs from a fire, so there's no help there. I spoke with our board president last night (I'm treasurer) and we both think the time has come for a special assessment.

We'll have more information when the board meets in two weeks, but I'm thinking we need to start planning a homeowner's meeting to explain what's going on and what our options are (we need 75% approval from the homeowners for a special assessment). At this time, our options are (1) raise the fee to 5%, (2) get homeowner approval to raise the rate 8% (that's what the bylaws allow) or (3) do the special assessment to get us past this hump.

Beyond that, I would like to set up a special strategic planning committee that would look at ways to deal with some of our fundamental problems and come up with a long term plan of attack, as well as cut next year's budget as much as possible (which will happen regardless).

My question to all of you is - did your community have to institute a special assessment and if so, how did you communicate that with the homeowners so they would be more likely to sign off on the deal? Any ideas regarding strategic planning and budget cuts is also welcome.

(and in case you're wondering, yes, we've taken more agressive steps to collect delinquencies during the last three years and will be reviewing the policy yet again, as well as consult with our attorney on what else we can do. Right now, I'm thinking of proposing that we double fees for every month the assessment remains unpaid and looking to hire another law firm that specializes in collections so we can refer some of the more troublesome cases)

Hi Sheila,

George's idea about borrowing money is something you should look at. You still might need a special assessment to pay it back, but the monthly amounts for each owner is smaller and stretched out over a longer time period than one big assessment, which mght be especially tough to get approved in these tough times.

One major thing: communicate, communicate, communicate. You need to be totally open and honest with the membership about the financial situation and why a loan and/or special assessment is needed. If the members feel that you are doing everything you can in their best interests, they will be much more likely to agree with your suggestions.

My HOA did a special assessment about five years ago to pay off a loan to replace all the wood fences in our HOA with vinyl fences. We spent about nine months researching and analyzing everything about the idea and had regular meetings with the membership to keep them informed about everything. Since vinyl fencing is about twice as expensive as wood fencing, we had half the money in Reserves and planned a loan for the other 50%.

We kept everyone informed as we got bids for both the fencing and the loan so everyone knew how much the project would cost, how much the loan would cost and how much the special assessment would be. By the time it came to a vote of the membership, the special assessment was approved by almost 90% of the owners.

Your in a tough spot right now, but look at all your options and keep the membership informed so they will support whatever decision you come up with.

Good Luck!

SheilaH - I've heard of associations having a cap on special assessments where anything over that requires a vote. However, the logic of owner's voting upon it alludes me. Reason is an outcome of the majority voting down the assessment doesn't solve the problem of funds that are required to run the association. Your strategic planning is spot on. I am curious how much reimbursement from insurance for the loss (fire) offset any out of pocket association expense. As well, was there a deductible the individual owner had to pay for the tree root damage? Seems you relied on using the reserve account to fund the loss, but curious what else covered the loss.

I would call the meeting to figure out how to move through the mess. And also look for anything that you can cut back on this year's budget. It will also help if you have the plan of action on collections at the meeting.

The tough thing is that if people just don't have the money to pay the assessments (or simply refuse) you are just not going to get the money. Yes, you can foreclose, but that doesn't guarantee that the money will come either since they probably also have a mortgage that needs to be paid.

Not looking to change reality of associations George. Logic still eludes me. What will the association do if 2/3rd's or more vote no to the assessment, let the elements rot, crumble?

Thanks to all for your comments! If you have more, please keep them coming.

MagdaS – we’re a community of townhomes, some ranch and the others two story, all set up in groups of four. The trees are considered part of the common area, so this falls on the association, since the problem originated outside the unit.

GeorgerwilliamsW – borrowing IS an option (I’d prefer that rather than a special assessment), but I’m concerned about the terms we’d get – or miss out on - given our finances. We hope to negotiate a payment plan with the repair company and go on from there. Borrowing the money will be an option we put to the homeowners.

MaryA1 – our last reserve study was in 2005 and before all of this happened, I thought we could do the next on in 2010, especially since we’ve done some long overdue projects since then. I agree we probably need to do it sooner, but right now, we don’t have the money.

SusanW1 – thanks for your suggestion on assessing the plumbing and mature trees (maybe that’s one thing a special assessment could also pay for). We have implored people to use Rid-X and products like that to help reduce the risk – I don’t know if they’ve done it, but now, maybe they’ll pay attention. Paying $$11-$12 for a box of the stuff to flush down the toilet every month is much better than facing repair bills of $7K or more.

GeraldT4 – we did get insurance money for the previous plumbing problems, but the number of incidents has me worried that our coverage would be put at risk (our insurance already went way up this spring) and so I don’t think we’re going to send this one in. We also have a $5K deductible, so there went $15K from the operating budget.

As for what happens if the members vote no? We’ll likely get the loan and raise the assessment – of course it will hurt everyone’s pocketbook, including mine, but unless someone comes up with a better idea, they’ll have no choice, but to live with it. A worse alternative would be filing for bankruptcy, but as bad as things are, I like to think we don’t have to take that step. Basically, this is the point of no return for the members – my first post on this board concerned homeowner apathy and now people will see what happens when they don’t pay attention. I’m up for re-election next year and am well aware that this could cost me my spot, but I don’t believe in biting my tongue when it comes to telling people the truth. It’s going to be interesting at any rate – I’ll keep everyone posted.

SC5, you should start another thread. The one you replied to is over 9 years old.

That is PRECISELY a/the reason for receivership.