Condo owners in California are being hit with special assessment fees—from $26,000 to $19 million—with few ways to fight back.
What would you do if you received an unexpected $26,000 HOA bill?
Residents of the Vilamoura condominium complex in San Clemente, CA, are facing that exact dilemma. The condo owners were recently hit with a $26,000 special assessment for roof replacement.
The residents were given three options: Pay in full, split it into two payments, or pay around $2,000 a month for six months, then $400 a month until the balance is paid off.
The condo owners argue that the HOA labeled it an emergency assessment, a designation they say is inaccurate because the association had long known the roofs needed repairs.
And this sort of issue keeps popping up. Over in Torrance, CA, residents were hit with assessments of more than $49,000 each to help pay for sweeping repairs to their condominium complex, ABC7 reports.
The 499-unit property is facing at least $19 million in work, including a $13 million overhaul of the building’s podium, along with repiping and elevator repairs.
Special assessments can hit any homeowner living in an HOA community. Knowing your options can help you make a more informed choice about how to cover the bill and minimize fees.
Condos in Ventura County in Southern California (Kevin Carter/Getty Images) Your HOA may offer a payment plan
A special assessment is an extra fee that homeowners must pay when their HOA doesn't have enough money in reserves to cover major repairs or unexpected expenses. Depending on the size of the bill, paying in full may not be feasible, even if you have a sizable emergency fund.
John Donikian, vice president of Best Interest Financial and a home financing loan officer, recommends first checking whether your HOA offers an installment payment plan.
“If your HOA offers reasonable payment terms, you may be able to pay the assessment without taking out a new loan,” he explains.
Erik Leland, a real estate broker with Realty First and treasurer and secretary of Mountain Park HOA, the second-largest association in Oregon, says payment plans are common for larger special assessments but less common for smaller bills.
“Associations want assessments paid as quickly as possible, but they realize on really large bills that not offering a payment plan would lead to a wave of foreclosures and a loss of property value," he says.
Payment plans vary by association.
“They can range from payment plans that span 12 months to up to five years. The monthly amount is set by the board and then added to the regular dues,” says Leland. The HOA’s governing documents outline the interest rate. For his association, interest is 7%.
Leland also recommends verifying that your HOA followed the correct process. He says most associations can't charge a special assessment by board vote alone. His association requires a membership vote, and two-thirds of the members must vote in favor of the special assessment for it to be approved.
“If you get hit with a special assessment, confirm the process was actually followed. If steps were skipped, it can be challenged,” he says.
Homeowners who challenge a special assessment should know that they're still responsible for payment while the dispute is ongoing.
What happens if you don’t pay
If a homeowner misses a payment, the consequences can escalate quickly.
The specifics vary by state, but as Leland explains, in Oregon, a homeowner's account enters delinquency after 30 days. At that point, fees and interest start accumulating. The association will then issue a demand letter, giving the homeowner another 30 days to pay or enter into a payment plan.
“If they still do not respond, the association sends it to their law firm for collection. Once the law firm has it, fees start accumulating much faster. The whole process from delinquency to the eventual lawsuit can happen in months.”
Communication is key.
“The moment an owner realizes they might not be able to pay, they should call the association manager and open a dialog. The worst outcomes come from the people who ignore it at the start,” he says.
Homeowners who are worried they may fall behind on payments should ask their association about its hardship policy, as some HOAs may offer extended payment plans or case-by-case accommodations.
“Regardless of how you handle it, engage with the association before it goes to the lawyers, or there will be a lot more fees to pay that you cannot get rid of,” Leland adds.
How to finance what you can’t pay out of pocket
Donikian says the ideal financing solution depends on your equity, credit profile, and how quickly you need the money.
“If you need outside financing, look into a HELOC or home equity loan first if you have enough equity,” he explains.
Homeowners who don’t have at least 15% to 20% equity in their homes may want to consider an unsecured personal loan instead. But rates are typically higher than secured loans.
He cautions against a cash-out refinance: “I’d be hesitant to recommend refinancing your entire mortgage to pay for a special assessment, especially if your first-mortgage rate is low.”
Homeowners should also think twice about reaching for a credit card.
“It’s very tempting just to use a credit card and forget about the assessment, but that can quickly turn one large expense into several expensive payments,” Donikian adds.
How to prepare before getting a big HOA bill
Special assessments are a possibility when you own a condo or home in an HOA community. To be prepared, Donikian suggests homeowners keep extra money in an emergency reserve, especially in an older building or community. Staying aware of your association's financial health is also important.
“Keep an eye on the HOA’s financial statements, reserve study, meeting minutes, and special assessment history,” says Donikian. “Those documents can give you an idea of when major repairs will be needed and if your HOA has the reserves to cover the costs.”
For those considering a home in an HOA community, Leland recommends reviewing the reserve study before buying.
“You want reserves funded to at least 70%,” he says. “A low reserve percentage with no plan to fix it worries me. That means a special assessment is likely if anything goes wrong.”