One of the scariest and impactful things that can happen to a Condo Association Owner is the dreaded Special Assessment. Special Assessments are caused by a number of things – poor budgeting, unexpected repairs or perhaps deferred maintenance from a Condo conversion. This can be a very disruptive time, but as an Owner, you have some options. Here are steps to help you with Condo Association Special Assessment preparation.
Do a Sanity Check on the Association’s Status
There are a number of warning signs that will tell you a Special Assessment is coming. Your Association’s reserves might be very low. You may have seen in your Condo Board minutes the discussion of testing of a particular major system – like your roof or fire alarm system. If a Board is behaving well, at least some of this information will be out in the open. If you’re starting to see a lot of concern about a major system needing repair, replacements or refurbishment, and you’re noticing that the budget doesn’t look so good, you’ve got a hint that a Special Assessment is coming.
Ask the Board What’s Going On
Most Boards won’t out and out lie to an Owner. They may hedge their words, particularly if a path hasn’t been decided. But if you’re noticing things like an underfunded reserve account and pending major repairs, the correct course of action is to ask the Board directly. This is best done in a meeting, but can also be done via email. There are a number of questions you can ask, such as what is the expected life of a major system, if the Association has sufficient reserve funding, and what is the Board’s timetable.
Identify How Much the Repairs Will Cost the Association – And You
One of the most important steps for an Owner in Condo Association Special Assessment preparation is identifying how much you personally might be liable for. Specific questions are:
- How much could you be on the hook for?
- When would you have to pay it?
The first question requires a little bit of math to determine. Let’s say hypothetically that the Association has 100 units, and the repairs will cost $100,000. If you want to be extremely conservative, assume the project will be over budget and cost 20% more – so in this case, $120k. 120k divided by 100 means 12k per unit. If your units vary in size, typically the Bylaws will dictate different terms based on size, but you’ve got a ballpark of what to expect. Based on your Association’s bylaws, your Association may be able to Assess a certain amount of money without a vote. It is important to know that number, particularly if you think a Special Assessment coming.
The second question is something you need to ask your Board. They likely won’t answer directly to prevent rumors from spreading, but they likely can give you a ballpark of “soon” or “next year,” which helps identify things.
Put It All Together
You do have the power to get a grasp on things if you’re proactive. To recap, for proper Condo Association Special Assessment preparation, you need to do the following:
- Identify if a Special Assessment may be coming – before it’s made official.
- Identify the timeline – is it a year away? Three years away?
- Identify how much you can be instantly assessed – and take whatever measures you need to protect your finances.
- Identify how much you would be assessed at the maximum.
- Identify how Condo fees might go up.
None of these spell good news. However, having a six-month or longer head start to work on your finances can put you in a better position than if you are caught flat-footed.
Selling Your Unit During a Special Assessment
It is also interesting to note how Special Assessments affect the sales process. Once a Special Assessment (or a vote for one) is announced, that information must be provided in the disclosure documents of your Condo. However, if it is not officially announced, it does not. If you are worried about the Assessment locking up your Condo from sale, and you won’t be able to afford a Special Assessment, you might consider a drastic measure like selling your unit. Alternately, if you’re trying to sell your unit during a Special Assessment, one common concession is escrowing Special Assessment funds with a time limit. This protects the buyer and helps sell your Condo, but it also gives you a chance to recoup the money if the Special Assessment doesn’t happen.
Informed and Involved Owners Get the Edge
Being an informed and involved Owner is beneficial to both you and your community. When it comes to Special Assessments, informed and involved Owners have a distinct advantage. If you pay attention to your community, you’ll know about the bad news months or even years before anyone else. When it comes to Condo Association Special Assessment preparation, you’ll get a head start, which is a huge advantage. Don’t waste it.
Enjoy this article? Please consider supporting the website at no cost to you.