The 3 Types of HOA Maintenance Fees Owners Cannot Escape
TABLE OF CONTENTS:
- Operational and Reserve Funding Expectations
- Annual Assessments
- Special Assessments
- Capital Improvement Assessment
- What Happens When an Owner Fails to Pay?
The association's authority to charge maintenance assessments or fees was explained in the article "Homeowners Association Assessment Liability (HOA Fee)." This article clarifies the three (3) types of HOA maintenance fees an owner is contractually obligated to pay and purpose of those fees.
The association, under its documents and local laws, has the authority to charge annual, special, and capital assessments against all owners in the community to pay for the maintenance expenses and improvements to the common areas. The common areas consist of parks, pools, gyms, sidewalks, and any other area in the community, except those portions which lie within the boundaries of the owner's property.
Operational And Reserve Funding Expectations
A well-governed association is driven by board members that understand the duty to protect the interest of its members by preserving property values and minimizing risks by having a strong financial plan. To succeed, the board must consider its day-to-day operating expenses and prepare for unexpected expenditures to establish adequate funding. These basic expectations fall under the board's fiduciary obligation to act in good faith and exercise the basic duties of good management.
Successful associations have operating and reserve funding to avoid imposing an unexpected financial burden to its members. The operating funds pay for the association's operational and maintenance expenditures. Some examples include insurance, property taxes, utility bills, landscaping, administration fees and costs, legal fees, and any repair and maintenance necessary to keep the common areas operating efficiently. The reserve fund pays for major unexpected repairs, alterations, or improvements such as purchasing new equipment, replacing roofs, fences, renovating sidewalks, parks, or landscaping. Some associations are legally required to keep a reserve fund.
Before each year starts, the association's board of directors estimates the costs and expenses to be incurred in performing its functions and adopts an annual budget. Thereafter, the board determines the amount of the annual assessment each property owner must pay following the directions outlined in the association's Declaration of Covenants, Conditions, And Restrictions (CC&Rs) and Bylaws.
Typically, the fee amount is charged equally to all property owners in the community, however, the association's documents may dictate other factors, such as the percentage of ownership in the common areas. With respect to the cycle of payments (e.g. annual, semi-annual, quarterly, or monthly) the board must set the schedule following the guidelines in the CC&Rs.
- To determine the factors your board uses to set the amount and cycle of assessment payments, you must read your CC&Rs and Bylaws.
- Most HOA documents limit an annual assessment increase to a certain percentage.
- Associations must give notice of increased assessments to all owners before implementation.
- Owners cannot avoid, or withhold payment of HOA fees under any circumstances, even if an owner believes the association is not fulfilling its obligations.
- If your neighbor fails to pay his or her share of assessments, the association may consider the annual budget inadequate and levy an extra assessment against all owners to cover the deficit.
In addition to the annual assessments, the association may impose a special assessment against all owners, to cover for unexpected costs and expenses for the repair, or improvement of the common areas. This financial recourse is likely when an association does not have a reserve fund or needs extra financial resources to complete a major repair or improvement. However, when consideringthe implementation of a special assessment, the board has the obligation to follow the rules of the association's documents and local laws.
- State laws and the CC&Rs restrict the association's ability to levy special assessments.
- Depending on the HOA documents, a membership vote may be required to approve a proposed project that would trigger a special assessment.
Capital Improvement Assessment
A capital improvement is a planned discretionary permanent replacement, improvement, or alteration to the property that serves to (1) increase the value, (2) makes it more useful, or (3) prolong its life. Some examples of capital improvements include building a new structure, swimming pools, roof repairs, or any other improvement, alteration or replacement that adds value to the property.
- Local laws and the association's governing documents restrict the board's actions, and cap the spending on capital improvement projects.
- In general, the implementation of capital improvements requires a membership vote. However, if an improvement falls under the board's duty and authority to maintain, a vote may not be required.
- In order to determine if a project falls under a capital improvement, one must review the underlying special facts and circumstances. Do to the complexity involved, an association attorney should be consulted to make such determination.
Under the governing documents and local laws, each and every owner listed on the deed of the property is contractually obligated to pay his or her portion of the above-referenced maintenance assessments. This obligation remains until the transfer of title, and owners cannot waive, or escape this liability for any reason.
What Happens When An Owner Fails To Pay?
If an owners fails to pay the maintenance fees, the association may enforce the assessment obligation as permitted by the CC&Rs and law. This may include:
- Suspending the owner's right to vote and to use the common areas until past due assessments are paid.
- Suspending access to utilities.
- Suspending the owner's rights and privileges to cable TV, laundry facilities, parking, etc.
- Collecting rent from the owner's tenants.
- Recording a lien against the property
- Filing a collection lawsuit against all owners listed on the title of the property
- Commencing foreclosure proceedings to sell the property
If the association makes a decision to pursue collection efforts, the amount due and owing will include all past due assessments, late fees, interest, administrative fees, collection costs, and legal fees incurred by the association as a result of the delinquency. For this reason, we encourage owners to make an effort to resolve a delinquency prior to the association's collection efforts to avoid additional fees and costs.
- To determine which areas of your community fall under the association's responsibility to maintain, read your CC&Rs and view your association's Survey Map. You can view both documents by visiting your county recorder's office or website.
- If you are dealing with financial hardship and not able to make your HOA fees, communicate with your association's representative in writing to make a good faith effort to set up a plan to cure the delinquency.
- You may be able to negotiate a reduction of the overall delinquency under special circumstances, but, keep in mind that the association will not consider waiver of "hard costs" such as maintenance assessments, actual costs, legal fees, administrative fees, etc. However, some associations will consider waiver of soft costs, such as late fees, interest, and fines to resolve the delinquency.
- If you are dealing with a foreclosure matter, talk to a legal expert to determine your legal options.