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Subject: Special Assessment has to be in annual budget?
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FredF5
(North Carolina)

Posts:12


06/09/2020 6:21 AM  
HOA is in NC. Can a special assessment be levied even though it was not part of the ratified annual budget?

JohnT38
(South Carolina)

Posts:370


06/09/2020 6:51 AM  
Posted By FredF5 on 06/09/2020 6:21 AM
HOA is in NC. Can a special assessment be levied even though it was not part of the ratified annual budget?





Yes, this is entirely possible. You need to read your governing documents and see what they say.
AugustinD


Posts:3900


06/09/2020 7:40 AM  
Posted By FredF5 on 06/09/2020 6:21 AM
HOA is in NC. Can a special assessment be levied even though it was not part of the ratified annual budget?
Is this a condominium? If a condominium, was it built before Oct 1, 1986?

Either way, from my quick check of North Carolina's HOA and condo statutes, I see nothing that says a board has to follow the budget, ratified or otherwise. Emergencies do arise.

I think all the veterans here will say that the annual budget is only a guide and tool to encourage corporations to be careful with expenses.

Your Bylaws or Declaration may place other limits on Special Assessments. To say more about this, a close reading of these documents would be necessary.
FredF5
(North Carolina)

Posts:12


06/09/2020 8:20 AM  
This is not a condominium. These are single family homes. The assessment is for Limited Common Elements = a roadway for exclusive use of some lots.

Since most of the costs are recurring like lawn mowing, the costs have usually been listed as a separate line item in the budget and added to the annual assessment invoice for those limited lots. However this year the board did not include those costs as part of the budget. The board now wants to invoice the lots mid-year for the costs to maintain the roadway. One of the lot owners says that's not permitted because it wasn't part of the ratified annual budget and a new budget meeting is required. I say since the covenants refer to them as "Special Assessment" they can be handled outside the ratified budget process even though - for convenience - the costs have been listed in the budget in previous years.

From the Covenants:

Limited Common Elements. Certain portions of the Common Elements may be designated as Limited Common Elements and reserved for the exclusive use or primary benefit of Lot Owners and occupants of specific Lots. By way of illustration and not limitation, Limited Common Elements may include entry features, landscaped medians and shared driveways. All costs associated with maintenance, repair, replacement. and insurance of a Limited Common
Element shall be assessed as a Special Assessment against the Lot Owners to which the Limited Common Element area is assigned.
DouglasK1
(Florida)

Posts:1529


06/09/2020 8:26 AM  
Posted By FredF5 on 06/09/2020 6:21 AM
HOA is in NC. Can a special assessment be levied even though it was not part of the ratified annual budget?


I've never been involved with one, but I think a special assessment is by definition outside of the normal budget so would not have be approved at the same time.

Escaped former treasurer and director of a self managed association.
AugustinD


Posts:3900


06/09/2020 8:31 AM  
Posted By FredF5 on 06/09/2020 8:20 AM
However this year the board did not include those costs as part of the budget. The board now wants to invoice the lots mid-year for the costs to maintain the roadway. One of the lot owners says that's not permitted because it wasn't part of the ratified annual budget and a new budget meeting is required.
Does this lot owner cite a section of the declaration or bylaws to support of his or her claim?
Posted By FredF5 on 06/09/2020 8:20 AM
I say since the covenants refer to them as "Special Assessment" they can be handled outside the ratified budget process even though - for convenience - the costs have been listed in the budget in previous years.
Unless this lot owner has a citation that says otherwise, for now, I think you are correct.

Posted By FredF5 on 06/09/2020 8:20 AM
From the Covenants: Limited Common Elements. Certain portions of the Common Elements may be designated as Limited Common Elements and reserved for the exclusive use or primary benefit of Lot Owners and occupants of specific Lots. By way of illustration and not limitation, Limited Common Elements may include entry features, landscaped medians and shared driveways. All costs associated with maintenance, repair, replacement. and insurance of a Limited Common Element shall be assessed as a Special Assessment against the Lot Owners to which the Limited Common Element area is assigned.
Does the Board appear to be complying with this section? Especially the part about special assessing only the owners whom the LCE serves?
AugustinD


Posts:3900


06/09/2020 8:47 AM  
If this North Carolina HOA has more than 20 lots and was created on or after January 1, 1999, then I suspect this owner is referring to the following NC statute sections:

===
§ 47F-3-102. Powers of owners' association.
Unless the articles of incorporation or the declaration expressly provides to the contrary, the association may:
...
(2) Adopt and amend budgets for revenues, expenditures, and reserves and collect assessments for common expenses from lot owners;
===
§ 47F-3-103. Executive board members and officers.
...
(c) Within 30 days after adoption of any proposed budget for the planned community, the executive board shall provide to all the lot owners a summary of the budget and a notice of the meeting to consider ratification of the budget, including a statement that the budget may be ratified without a quorum. The executive board shall set a date for a meeting of the lot owners to consider ratification of the budget, such meeting to be held not less than 10 nor more than 60 days after mailing of the summary and notice. There shall be no requirement that a quorum be present at the meeting. The budget is ratified unless at that meeting a majority of all the lot owners in the association or any larger vote specified in the declaration rejects the budget. In the event the proposed budget is rejected, the periodic budget last ratified by the lot owners shall be continued until such time as the lot owners ratify a subsequent budget proposed by the executive board.
===
§ 47F-3-108. Meetings.
(a) A meeting of the association shall be held at least once each year. Special meetings of the association may be called by the president, a majority of the executive board, or by lot owners having ten percent (10%), or any lower percentage specified in the bylaws, of the votes in the association. Not less than 10 nor more than 60 days in advance of any meeting, the secretary or other officer specified in the bylaws shall cause notice to be hand-delivered or sent prepaid by United States mail to the mailing address of each lot or to any other mailing address designated in writing by the lot owner, or sent by electronic means, including by electronic mail over the Internet, to an electronic mailing address designated in writing by the lot owner. The notice of any meeting shall state the time and place of the meeting and the items on the agenda, including the general nature of any proposed amendment to the declaration or bylaws, any budget changes, and any proposal to remove a director or officer.
===

See https://www.ncleg.net/enactedlegislation/statutes/html/bychapter/chapter_47f.html

I do not see much, if any, support for the owner's claim that a new budget meeting is required.
FredF5
(North Carolina)

Posts:12


06/09/2020 9:35 AM  
Thank you AugustinD for the replies.

To answer your questions:

The owner does not cite any specific language in the covenants or bylaws.

The board has been complying with the LCE assessment going as far back as I can see the finance records to at least 2007. They follow § 47F-3-103. Each year there's been a ratified budget with an assessment for all lots for the Common Elements and an additional assessment for the limited lots to cover the costs for the LCE upkeep. It's just for this year the estimate for the LCE costs was not put into the budget and the extra assessment was not invoiced.

What's a little unusual for me is I have always thought of a "Special Assessment" as a unique billing for an individual project or cost, but we have an opinion letter from the HOA attorney from many years ago which specifically mentions the Special Assessment in our covenants covers recurring costs for the LCEs like roadside lawn mowing, street lighting, etc. Rather than invoicing the limited lots each time a cost is incurred (e.g. monthy), the HOA has been handling the LCE invoicing on an annual basis at the start of the year like a normal budget and expense process because that is way more practical.

I'm building my argument for generating the extra assessment invoices mid-year without a budget as follows:
Since the assesssment for the LCEs is specifically called a "Special Assessment" in our covenants, and since I'm hearing feedback that Special Assessments fall outside of the ratified budget process, and our attorney stated recurring maintenance costs are covered by our Special Assessment, and I don't find anything to the contrary in our covenants and bylaws, I think we are on firm ground.
JeffT2
(Iowa)

Posts:556


06/09/2020 1:40 PM  
Posted By FredF5 on 06/09/2020 8:20 AM

From the Covenants:

Limited Common Elements. Certain portions of the Common Elements may be designated as Limited Common Elements and reserved for the exclusive use or primary benefit of Lot Owners and occupants of specific Lots. By way of illustration and not limitation, Limited Common Elements may include entry features, landscaped medians and shared driveways. All costs associated with maintenance, repair, replacement. and insurance of a Limited Common
Element shall be assessed as a Special Assessment against the Lot Owners to which the Limited Common Element area is assigned.


Does your declaration specifically spell out what areas of your neighborhood are designated as Limited Common Elements, and also assign those Limited Common Elements to certain lots? If not, you can't special assess those lot owners for expenses.
JohnC46
(South Carolina)

Posts:9877


06/09/2020 1:48 PM  
Posted By FredF5 on 06/09/2020 9:35 AM
Thank you AugustinD for the replies.

To answer your questions:

The owner does not cite any specific language in the covenants or bylaws.

The board has been complying with the LCE assessment going as far back as I can see the finance records to at least 2007. They follow § 47F-3-103. Each year there's been a ratified budget with an assessment for all lots for the Common Elements and an additional assessment for the limited lots to cover the costs for the LCE upkeep. It's just for this year the estimate for the LCE costs was not put into the budget and the extra assessment was not invoiced.

What's a little unusual for me is I have always thought of a "Special Assessment" as a unique billing for an individual project or cost, but we have an opinion letter from the HOA attorney from many years ago which specifically mentions the Special Assessment in our covenants covers recurring costs for the LCEs like roadside lawn mowing, street lighting, etc. Rather than invoicing the limited lots each time a cost is incurred (e.g. monthy), the HOA has been handling the LCE invoicing on an annual basis at the start of the year like a normal budget and expense process because that is way more practical.

I'm building my argument for generating the extra assessment invoices mid-year without a budget as follows:
Since the assesssment for the LCEs is specifically called a "Special Assessment" in our covenants, and since I'm hearing feedback that Special Assessments fall outside of the ratified budget process, and our attorney stated recurring maintenance costs are covered by our Special Assessment, and I don't find anything to the contrary in our covenants and bylaws, I think we are on firm ground.




Even though I do not like using the expression "Special Assessment" as it generally means something else, I believe your Covenants (as posted) allow you to (and you should) handle this situation outside of the overall association budget.
FredF5
(North Carolina)

Posts:12


06/09/2020 3:22 PM  
JeffT2,

Yes, the developer filed two amendments to the declarations before handing over. He created two LCE roadways and called out the specific lots that were responsible for the upkeep.

Thank you all for the advice. It's very helpful.
BoardM3
(Arizona)

Posts:27


06/12/2020 4:14 PM  
I did not read all the other replies, so I'm not sure if this was mentioned: The HOA does have other options instead of issuing Special Assessments, including taking a loan. They are a non-profit organization and should have the authority to do so, pending no strange rules in their governing documentation. This would require an HOA Board willing to do the research - its not quite as easy as a special assessment, but a loan can be paid back over time without having to financially burden the residents of the community with a special assessment, especially during this time of record unemployment...
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