Tips Regarding Emergency Special Assessments

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

Emergency special assessments have saved many HOAs from disaster. One recent example occurred during the rise in property insurance premiums, forcing some HOAs to choose between immediately adding hundreds of thousands of dollars to their budget, or face a loss of insurance coverage. Other nasty budget surprises include major repair items that cannot wait after being discovered, or major legal expenses from defending lawsuits. Normally, the HOA’s ability to increase regular assessments by 20% in a single year handles most surprises. However, if Senate Bill 1007 becomes law next year in its current form, HOA boards will be unable to increase budgets by more than 8% in a year without a membership special vote. [At press time the bill had recently passed the Senate on a divided vote, and is now in the Assembly.]

Consequently, emergency special assessments may soon become more common and important, and HOA boards should become familiar with the legal requirements for such assessments. Civil Code Section 5610 allows for emergency special assessments to pay for three extraordinary expense types:

1. Those required by court order;
2. When necessary, due to a threat to health or safety, or when another hazardous condition is discovered; or
3. When a repair or maintenance expense is discovered that the HOA could not have predicted in the current budget, so long as the board adopts a written resolution explaining both the circumstances and why the expense could not have been reasonably foreseen. The resolution must be distributed to the members with the notice of special assessment.

Before adopting an emergency special assessment, consider these tips:

How quickly does the HOA need the funds? Civil Code Section 5615 states that notice must be provided to all members at least 30 and not more than 60 days before a special assessment can become due. So, don’t expect the money to come in immediately.

Consult HOA legal counsel - ensure the expense qualifies as an emergency special assessment under Section 5610.

Don’t assume that the members understand what the board understands about the need for the assessment. Take more time to educate your neighbors in the board written resolution. If the expense is related to major repairs, consider including an expert recommendation letter in the disclosure packet.  Even better, hold a special board meeting or even a “town hall” informational meeting to explain this unpleasant surprise to the community.  

One of the most common ways I see major special assessments becoming controversial is when the board treats the assessment as a “no-brainer” and neglects to sufficiently explain to the community why the expense is necessary. Boards, the members don’t have access to the information given to you directors – asking neighbors to “trust us” sometimes is not enough. 

Explore alternatives to the emergency assessment. Has the HOA accumulated sufficient reserve funds so that the HOA can temporarily borrow from those funds? The HOA must restore the borrowed funds within one year, as required by Civil Code Section 5515. This allows the HOA time to educate the community about the issue and determine how to pay for it, making members more likely to understand the need for and approve the assessment.

Funding HOAs is not easy and may become more difficult next year, but some planning and increased transparency may help.