Special assessments and reserve fund shortfalls are among the most stressful financial challenges a Homeowners Association (“HOA”) can face. A special assessment is an additional fee levied on homeowners, typically outside the regular monthly dues, to cover unexpected or extraordinary expenses such as major repairs, capital improvements, or shortfalls in the reserve fund. Regardless of the circumstances that trigger the need for a special assessment, HOA boards must manage the process with care and precision. These assessments impact every homeowner, can place strain on community relations, and must comply with strict legal requirements.
Legal counsel plays a crucial role in guiding HOA boards through this process, helping them protect the HOA’s financial health while navigating complex procedural and legal obligations.
Determining the Board’s Legal Authority
The first and often most important step is determining whether the HOA has the legal authority to impose a special assessment. Governing documents vary widely: some allow the board to levy special assessments without a vote by the membership, while others require approval from a majority of unit owners. State laws may also impose caps, notice requirements, or specific voting thresholds.
Legal counsel reviews the declaration, bylaws, covenants, and applicable state statutes to determine the exact procedures that must be followed. This prevents the HOA from making decisions that could later be challenged as legally insufficient or unenforceable. Establishing a clear legal framework from the outset also helps the board communicate effectively with owners about what the law and governing documents require.
Guiding Procedural Compliance and Notice Requirements
Special assessments are highly regulated, so it is crucial for boards to strictly adhere to procedural rules governing notice, quorum, voting methods, and meeting timelines. Legal counsel ensures that each procedural step complies with both the governing documents and relevant state law. This may include preparing or reviewing notice letters, meeting agendas, ballot language, and voting materials.
Proper procedure not only protects the HOA’s legal position but also strengthens owner trust by demonstrating that the board is acting transparently and responsibly.
Drafting Clear and Enforceable Resolutions
Once a board decides to move forward with a special assessment, it typically adopts a formal resolution outlining key details such as the purpose of the assessment, the total dollar amount, the per-unit allocation, due dates, and penalties for nonpayment. Clarity is essential: unclear or overly broad language can create confusion, undermine enforceability, or expose the board to subsequent challenges or disputes.
Legal counsel can assist with drafting or reviewing these resolutions so that they are consistent with governing documents and legally enforceable. Counsel can also help ensure that the assessment is properly allocated among owners in accordance with each unit’s ownership interest or other formula specified in the declaration.
Supporting Communication and Managing Community Expectations
Reserve shortfalls and special assessments may lead to frustration and questions from homeowners. While boards need to be honest and transparent, they also must avoid statements that unintentionally admit liability, misstate the board’s authority, or create unrealistic expectations.
The HOA’s attorneys assist boards in developing communications that are accurate, clear, and legally sound. They help explain the financial need, the legal process, and the board’s fiduciary responsibilities. Effective communication reduces conflict, enhances owner understanding, and minimizes the risk of misinformation spreading through the community.
Advising on Collections and Enforcement
Once a special assessment is adopted, the HOA must act to collect it. Legal counsel is available to provide guidance on how to enforce the obligation lawfully, including:
- Drafting demand or delinquency letters
- Implementing payment plan policies
- Recording liens when necessary
- Ensuring compliance with the Fair Debt Collection Practices Act (FDCPA)
- Addressing bankruptcy considerations
Counsel will also help boards explore options, such as adjusting the annual budget, reducing expenses, or phasing specific capital projects, to make decisions that are both legally permissible and financially sustainable.
Addressing Claims of Mismanagement or Financial Irregularities
A reserve deficit may prompt homeowners to question whether current or prior boards properly managed reserve funds. Counsel may help investigate these concerns, advise on the board’s fiduciary duties, and recommend corrective actions. They also sometimes coordinate with accountants, auditors, or reserve study professionals to provide a comprehensive picture of the HOA’s financial condition. This process helps restore owner confidence while protecting the board’s credibility.
Key Takeaways
HOA Boards facing special assessments and reserve shortfalls must balance legal obligations, financial realities, and community expectations. By providing clear legal guidance, ensuring procedural compliance, and facilitating effective communication, attorneys enable HOAs to navigate these challenges with confidence and transparency.
At KingSpry, we encourage both homeowners and HOA boards to understand the legal and financial considerations surrounding special assessments and reserve shortfalls. By working with experienced legal counsel, HOAs and owners alike can ensure that assessments are correctly structured, compliant with governing documents and state law, and fairly allocated. From drafting clear resolutions to guiding procedural compliance and collections, our real estate attorneys provide practical guidance to help communities navigate these challenges with confidence and transparency. If we can be of any assistance, please contact our real estate attorneys at 610-332-0390 or ttolliver@kingspry.com.
