Special Assessments?

Don’t Rely on Special Assessments for Major Repairs If You Can Help It!

Because many people are hurting financially right now, your homeowners association board might be considering whether or not you should underfund your HOA’s reserves.

As usual, there are differences among state laws governing associations’ reserve practices, so whatever approach you take, you should start by checking your state law.

Boards who decide to underfund figure that if they ever needed to undertake a major repair, they could make up for a shortfall through a special assessment. No harm. No foul. Right?

For this week’s tip, we spoke to David C. Swedelson, principal at Swedelsen & Gottleib, a law firm that represents associations in the Los Angeles area.

David pointed out the problem with this logic: “What happens if homeowners don’t fund the special assessment?”

Beyond that problem, David explained why the decision not to fully fund reserves comes with unhappy consequences: “If I were going to buy and saw that one association had somewhat healthy reserves and the other didn’t have much in reserves, I’d know the second association was likely to special assess as it went along.”

The bottom line? Underfunding reserves undermines property values and could even be interpreted as a breach of your fiduciary duty to the association. So if you really think it’s right for your HOA, get advice before you act.