The Ultimate Guide to HOA Collections: Everything You Need to Know About Assessments

Written by Mitchell Drimmer

April 11, 2024

When you purchase a home or condominium in a Homeowners Association (HOA), you automatically become a member of the non-profit corporation that funds the community’s operations, maintenance, repairs, and improvements. You are also automatically obligated to pay any required assessments and fees. But what are those costs, what do they cover, and what happens if you don’t pay? This ultimate guide to HOA collections contains everything you need to know about assessments.

What is an Assessment?

Assessments are sometimes called dues, maintenance fees, or condo fees. No matter what you call them, you are obligated to pay them. These are regular payments that homeowners make to cover the costs of maintaining and caring for the community.

What Do These Fees Pay For?

While no two communities are identical, most assessments include your proportional share of the following:

  • Management Services: Nowadays, most governing documents require associations to be professionally managed. But even if your community is self-managed, there are likely costs for administrative and financial management. These can include outsourcing accounting, reserve study preparation, collections, investments or financial planning, and any postage, internet, or phone costs to communicate with the membership.
  • Insurance Costs: Associations must carry several insurance policies, including Directors & Officers, General Liability, and Property insurance. Some communities must also carry earthquake or flood policies. These costs can be significant in states or areas prone to natural disasters.
  • Assessments maintain and upkeep the common areas: The common areas include sidewalks, streets, landscaping, and shared amenities. Your share of the cost goes towards tree and plant trimming, landscaping irrigation, pest control, and restroom and clubhouse cleaning. They also cover the maintenance and repair of lighting, parks, playgrounds, pools, tennis and pickleball courts, water features, and golf courses. In condominium communities, these fees also cover the maintenance of the building’s structural, exterior, shared plumbing, and roofing components.
  • Utilities: Most HOAs include costs for refuse removal, common area electricity, water, and sewage, and sometimes even provide residents with cable television or internet services.
  • Security: While the board cannot guarantee your safety, it is tasked with keeping common areas reasonably safe and secure. So, assessments often include costs for surveillance cameras at recreational facilities, gates, parking patrol and enforcement, doormen, and sometimes even concierge staff.
  • Legal Expenses: The fees you pay also cover any necessary legal expenses, such as those to pursue or defend a lawsuit or advise the board and management when legislators change the rules governing HOAs so they stay compliant.
  • Improvements: When residents start clamoring for improvements to HOA facilities or amenities, the associated costs are paid from the association’s coffers. So, understand that if you beg the board to convert the tennis courts to pickleball, your assessments may increase to cover those fees.

How is the Assessment Amount Determined?

The amount of your assessments, condo dues, or maintenance fees are typically set annually by the board of directors or a membership vote, depending on the State you live in and the governing documents your community operates under. The total anticipated operational and reserve funding cost for the year is divided by the number of lots to determine the fee per lot. For example, the total annual cost is $100,000,000, and the association has 500 lots. In that case, each owner is responsible for their share of $200,000 per lot owned.

When Are Assessments Due?

The governing documents, including the Bylaws, Declaration of Restriction (CC&Rs), and Uniform Collection Policy, set how often an assessment is charged and when it is due. Using the example in the preceding section, some communities bill for the entire $200,000 once a year. Others break this up into quarterly payments of $50,000. Monthly assessments are the most common, costing approximately $16,667 per month in this example.

How Do I Know If I’m Paying Too Much?

The more services and amenities your HOA offers, the higher the overall cost of operating that community. Since the members share that cost, the more members there are, the lighter the load for each individual member. In other words, a large community with limited amenities or services will cost less per month than a small community with all the luxuries. A luxury high-rise in an expensive State like California or New York, with all the bells and whistles and lots of maintenance and staffing costs, could cost you $16,667 monthly. According to the American Housing Survey, the national average is only $170 per month. So, how do you know that what you are being charged is fair?

In short, review the annual budget, the CPA-prepared annual financial report, the reserve study report, and any quarterly or monthly financial statements. Look for any anomalies. For instance, if a significant fund exists for social events in a community that rarely hosts them and no financial reports show another line item, such as repairs and maintenance, is significantly over budget, you might have a problem. We wrote an informative article on what to do if you suspect your board or management company is misusing or extorting funds, which you can read here.

What is a Special Assessment?

Special assessments are a means to fund sudden and unexpected expenses that are not included in the budget. Sadly, some boards rely on this funding mechanism too frequently, which can wreak havoc on the members’ finances. However, most understand that special assessments are a last resort and not to be relied upon to fund repairs the board can anticipate, such as roof replacements.

What Happens if I Don’t Pay?

Not paying for assessments is not a good idea and can have serious consequences. Penalties may range from late fees to the association foreclosing on your home. Yes, you read that right. In most cases, the board has the right to take ownership of your lot to recover delinquent dues. Not paying for assessments can also hurt your credit and ability to receive financing for future purchases.

Failing to pay as promised also hurts the entire neighborhood. Your neighbors end up paying more to compensate for what you are not contributing. When enough owners become delinquent, the association’s ability to cover the necessary utility, maintenance, and operational costs is jeopardized. In turn, the formerly well-maintained community becomes a run-down deferred maintenance catastrophe waiting to happen. Property values start plummeting; before you know it, the neighborhood is yet another urban wasteland.

The Primary Objective of HOA Assessments

The primary objective of assessments is to preserve property values and maintain the community so it remains a nice place to live. Keep that in mind if you’re considering trying to defund the HOA by not paying your dues.

Are you a community association board member or manager of a community struggling to collect from delinquent owners? To avoid your community becoming a defunded urban wasteland, try our Free Collections Analysis to see how Axela Technologies can help you manage your delinquencies without spending a fortune.

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