Assessment Increases - What If I Can’t Pay?

By Kelly G. Richardson, Esq. CCAL, HOA Homefront Column

Dear Kelly: Can HOAs increase the 20% for monthly dues plus add a 5% special assessment at the same time? P.M., Pacoima

Dear P.M.:

HOAs are not as flexible as individual homeowners in their ability to readjust cash flow or draw on credit to pay for unexpected household expenses. HOAs set a budget annually for the twelve-month calendar year, but sometimes mid-year expenses arise or increase beyond what the budget anticipated. Because of this, California law gives HOA boards some latitude in adjusting HOA assessments. Civil Code Section 5605(b) allows boards to increase regular assessments up to 20% over the prior year and to impose a special assessment in an amount equal to up to 5% of the HOA’s budget gross expenditures for the year.

Some CC&Rs or Bylaws (usually older ones) have more strict limitations on what the board can do without a membership vote. However, Section 5605(b) says “notwithstanding more restrictive limitations” in the governing documents, the board can follow the permission of the statute and impose assessments or increases within the statute without a member vote.

Even though HOA boards have the legal power to impose substantial assessment increases, they owe it to their neighbors to provide a specific explanation as to why assessments must be increased.

Sincerely, Kelly

Dear Mr. Richardson: What can HOA unit owner do if they don't have and won't have the money to pay for a special assessment? F.B., Redondo Beach.

Dear F.B.: Special assessments are normally the way associations handle unexpected expenses, which cannot be handled within the association’s budget.

A special assessment may be necessary for a variety of reasons. Many HOAs in the past few years have had to impose major special assessments to pay for unexpected huge insurance cost increases, and sometimes major project refurbishments require a special assessment to make bank loan payments. Another factor causing special assessments in many HOAs is the new Civil Code Section 5551, requiring inspection of certain balconies, walkways, and stairs. Lastly, many HOAs have not prudently followed their reserve studies by accumulating funds to offset the ongoing deterioration of common area elements and are increasingly at risk of major special assessments to fund those repairs.

Homebuyers should look closely at the overall health of the HOA’s finances when buying into an association. Sometimes the assessments can seem affordable, but homes in unhealthy HOAs may be less affordable than appearances.

If the HOA has passed a special assessment or an increase in regular assessments, homeowners should know that the inability to pay assessments is not a legal excuse. HOA boards must work to collect the assessments from all owners, regardless of their situations. The HOA cannot function if everyone doesn’t pay their fair share.

If a homeowner is unable to pay assessments the consequences can be very expensive and even disastrous. At some point, the HOA will send the matter to collection, and the assessment collection company will begin adding their fees to the debt. Once the debt, excluding late fees, interest, and collection costs, reaches $1,800 the HOA can begin foreclosing on the member’s property. The quicker a homeowner gets in front of the delinquency, the better. The problem only becomes worse with time, so address delinquency early.

Best regards, Kelly