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Subject: Walk me through initiating Special Assessments
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CelesteS3


Posts:6


08/31/2019 5:42 PM  
I've been stuck with the role of Board President in a condo community that has been severely mismanaged over the years. Without the gory details, we're now in a position where we need to complete a major repair (due to lack of upkeep) and no funds to do so.

According to the CC&Rs, the Board can do whatever it wants for this repair. Raise dues to pay for a loan or initiate a special assessment. No caps or other provisions. I don't want to out this community or provide location information right now, but suffice to say we're NOT in California or the PNW, and our state has very few laws surrounding HOAs in general.

We have a mix of owner demographics. Some want the special assessment. Others are hand-to-mouth and would need an increase in dues or payment plan to avoid foreclosure.

I've read some posts where people had a mixed option. Some paid the special assessment in full, and others had a monthly payment plan. Is that decided up front, and we collect in full from that group, and then take out a HOA loan for those who are on a payment plan? Does the payment plan last forever, or can the owner decide at some point to pay their remaining portion in full?

Can someone walk me through a basic process? What is handled by the HOA, what is handled by the lender, what is handled by the attorney?

Sorry to be so broad but I'm over my head here. We've also been through a few HOA attorneys who have charged a lot and only made us more confused, and due to the low funds issue, I need a better basic grasp on the process before I call up legal again.
RichardP13


Posts:0


08/31/2019 6:05 PM  
How many units in complex?
MelissaP1
(Alabama)

Posts:8622


08/31/2019 6:12 PM  
It sounds more like you need to raise dues than special assessment. I am not sure a loan is the way to go for your HOA. A Special assessment isn't for a general raise of funds for the HOA. It usually is for a specific purpose like a roof, street, pool, or other major repairs. There is usually a defined estimate to get to.

So if your HOA is just short of money, then consider raising the dues. Some HOA Boards can raise dues up to 5% without a membership vote. If you think need more than that, then membership vote will be necessary.

Remember how a HOA budget is to work. It's a non-profit but not charitable one. It's to collect as much as it spends (Plus money in reserves). My recommendation if your HOA just has an all over need of maintenance/repairs then gather up estimates for all the needs. That amount then to be divided equally amongst ALL the owners. Don't just grasp the air for #'s. Have actual estimates in hand. Usually after a 3 bid process.

People respond to actual numbers and facts. Just saying the HOA needs more money doesn't cut it. Show them the areas that need the money and bring the numbers to the table.

Members can be liened for not paying the special assessments. So you may need to factor in the percentage who can't/won't pay once agreed upon for a special assessment/dues raise. Plus the legal cost of collecting. It takes money to make money.

Oh and let Richards start calling me and others names now...

Former HOA President
RichardP13


Posts:0


08/31/2019 6:25 PM  
I won't call you names Melissa, I would reserve that to the others.

Special assessments can be used to raise capital, if all is depleted. Normally they are for emergencies. As a normal rule, without n=knowing your state rules or docs, dues can't be raised up to 20% annually without a membership votes and a special assessment can be up to 5% of the annual budgeted expenses. An extraordinary emergency special assessment has no limits.

The reason I asked for the number of units is that it may be possible to get a SBA loan using a special assessment as collateral. You may also get some financing arrangement with the company doing the repairs, again using the special assessment as collateral.
RichardP13


Posts:0


08/31/2019 6:26 PM  
dues can be raised up to 20%
CelesteS3


Posts:6


08/31/2019 6:31 PM  
Hi, it is for a specific repair. We have a bid for the repair. Let's just say it's a roof so we can get over that hurdle.

It is 48 units.
RichardP13


Posts:0


08/31/2019 6:38 PM  
If it me in your shoes, I would look to get a loan and use an approved special assessment as collateral to re-pay the loan. What a financial institution will look for is history of delinquencies. If is very low, you could have a good shot.

Let's say the roof cost $480,000, each unit is responsible for $10,000. If they all have it, great. If not, it would be over time. How soon does the repair have to be done. If a roof, you have potential upcoming leaking and time might be of the essence.

Call a town hall meeting and lay out the facts.
MelissaP1
(Alabama)

Posts:8622


08/31/2019 6:40 PM  
Make sure you have done the 3 bids to get a good contract with a roofer. Be careful of those who want to do "insurance claims" for your roofs. It's not always the best route to go.

Whatever the best bidder is, then you have to take that amount and divide it up 48 ways. You all then need to vote to do the special assessment for that amount. It may take some time to collect that money. A factor you will need to consider.

Honestly, there's no good way to do a special assessment that won't cause people to be upset or refuse to pay. It's just the nature of the game. Unless your lucky for the membership to agree this is something needed and willing to pay to do it. Otherwise expect people to ask millions of questions like "Why are we paying for THEIR roof to be fixed?".

Former HOA President
SamE2
(New Jersey)

Posts:164


09/01/2019 5:32 AM  
What I did when I was in your situation was get a loan for the HOA. It was hard to find a bank and I ended up having to get a broker to put me in contact with a bank that would loan us the money. The interest rate was fair but we had to pay a lot of upfront costs. We then had a special assessment that covered the loan with the caveat the owners could prepay the assessment and get a prepayment discount. We had an attorney review the loan documents and write the resolution for the special assessment. We are a 24 unit condo and 21 units prepaid. We made the prepayment discount big enough to encourage people to prepay even if they had to go out and get a loan on their own.
CelesteS3


Posts:6


09/01/2019 8:22 AM  
This is really helpful.

So if they didn't repay, they were stuck with the payment plan for the loan term, and the payment plan was inherited by new owners?
JohnC46
(South Carolina)

Posts:8749


09/01/2019 8:47 AM  
Posted By CelesteS3 on 09/01/2019 8:22 AM
This is really helpful.

So if they didn't repay, they were stuck with the payment plan for the loan term, and the payment plan was inherited by new owners?




In one HOA we had a bank loan with each owner having to pay the bank their share. Technically it was done as a Special Assessment with over 75% of owners having to approve. The loan was secured via a lien on the person's home just like a mortgage. The payments plans were pay now with no interest or finance it for up to 5 years with interest. As such, the lien (if any) had to be settled upon sale of the unit. They became part of the selling/buying negotiation.

The "loans" were from $25K to $30K on units (townhomes) valued at $450K to $525K.

Over 85% of owners vote to approve the plan. Two owners took it to court and lost.
SamE2
(New Jersey)

Posts:164


09/01/2019 4:14 PM  
Posted By CelesteS3 on 09/01/2019 8:22 AM
This is really helpful.

So if they didn't repay, they were stuck with the payment plan for the loan term, and the payment plan was inherited by new owners?




We allowed the seller to settle the outstanding balance when they sold if they wanted to or the buyer could take it over.
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