AZ Special Assessment Laws?

Started by JanetK2 • 9 replies • 1739 views

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JanetK2 (Arizona)
Posts: 1

Posted:

Question.
Does anyone know the Law in Arizona with regard to a "special assessment"?

According to our CC&Rs: A special assessment for the purpose of "defraying", in whole or in part the cost of any construcion, reconstruction, repair or replacement of improvement upon a common area... 2/3rd votes etc..

Question:
The word defraying is where I am hung up. If we have money in our reserve and the Board just made a list of things they want to "eventually" upgrade, no timeline attached, and they already said we need to put $110K in our reserve can they do this?

We currently have money in our reserve, but with the upgrades they eventually want to do, we will need more money, can they impose this special assessment?

Also, are special assessments only for emergency purposes? Example, if a car runs into our entrance monument and it is destroyed and we need xx amount of dollars to repair, a special assessment can be imposed with 2/3 vote

Thank you.

TimB4 (Tennessee)
Posts: 21,059

Posted:

Janet,

It sounds like there isn't enough money in the Reserves and the funds are needed to catch up to where you should be (if the Reserves were 100% funded).

Ask to see a copy of the Reserve Study.

Keep in mind that you need 2/3 of the membership to agree to the special assessment. That does happen but takes a lot of work.
If, after you have reviewed the Reserve Study, you determine that a special assessment isn't needed, then lobby the membership to vote no.

GenoS (Florida)
Posts: 4,276

Posted:

Real "reserves", as usually defined, absolutely should have timelines for when things need to be upgraded or replaced. That's the whole point of reserves: to be ready with money on hand when something's useable life is up. Sounds like you don't have real "reserves", but a slush find of sorts that's called "the reserves" but is actually something quite different.

KerryL1 (California)
Posts: 14,550

Posted:

Also, JanetK, the construction of something new should not be paid for out of reserves. Reserves must only be used to repair and replace existing items (components). Even "upgrades," if significant and not required by building codes, etc., shouldn't come entirely from reserves and probably should be approved by Owners.

If a car damages any of your common areas, one hopes your HOA carries adequate insurance.

I don't know AZ statutes on special assessments and there's probably something in your governing documents too. We do have a couple of knowledgeable AZ posters who might chime in.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Your reserves work for capital replacement/repairs. It's not for accidents/emergencies. It's for things like Roof replacements or road projects like seal coating.

Now if your HOA was to use money out of it's reserves, it would work much like 401K loan. Where you can borrow money out of your 401K but you have to pay it back/replace it. So that would take a special assessment most likely.

Now your HOA may have a special assessment to exclusively pay for this specific project. We did that for a pool deck/re-smooth the lining. There were spots cutting people's feet. It wasn't an reserve project but one people wanted.

A HOA is ONLY funded by it's members for it's members. So if you all want/need something, you all have to raise the money to do it.

Former HOA President

BenA2 (Texas)
Posts: 1,273

Posted:

I don't see anything in what you wrote that would give the HOA the authority to assess a special assessment to build the reserve fund. Even though the eventual purpose of the reserve fund may be to pay for, or defray the cost of, construction, repair, etc. I think the special assessment would have to be for something specific. The reserve fund may be severely underfunded but there is no way of knowing for sure what the money will be used for.

The proper way to handle this would be do a special assessment when it is necessary because there are no funds in the reserves and the construction or repairs have to be done.

A special assessment is usually there for unforeseen incidents, not necessarily emergencies, but, unless AZ law says differently, it can be for whatever the CC&Rs say.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

I would assume a Special assessment could be done for any number of reasons. That said, it is up to the owners to approve such and if they do so it can be done.

JenniferG11 (Texas)
Posts: 667

Posted:

Quote:

Posted By JanetK2 on 06/23/2018 2:15 PM
Question.
Does anyone know the Law in Arizona with regard to a "special assessment"?

According to our CC&Rs: A special assessment for the purpose of "defraying", in whole or in part the cost of any construcion, reconstruction, repair or replacement of improvement upon a common area... 2/3rd votes etc..

Question:
The word defraying is where I am hung up. If we have money in our reserve and the Board just made a list of things they want to "eventually" upgrade, no timeline attached, and they already said we need to put $110K in our reserve can they do this?

We currently have money in our reserve, but with the upgrades they eventually want to do, we will need more money, can they impose this special assessment?

Also, are special assessments only for emergency purposes? Example, if a car runs into our entrance monument and it is destroyed and we need xx amount of dollars to repair, a special assessment can be imposed with 2/3 vote

Thank you.

What, exactly, is the special assessment said to be for? Also, you put '...' between some items listed and then the 2/3 vote requirement. The 2/3 vote applies to repairs? That would surprise me, because then they association could be hamstrung on absolutely necessary repairs.

SheliaH (Indiana)
Posts: 6,964

Posted:

Has your community had a reserve study? These should be done at least every 5 years and will help the board prepare a budget where they'll know how much money they will need to improve the areas 'eventually." If not, that may be where you need to begin. You may find what you really need are a series of assessment increases over the next few years to fund the reserves properly, keep up with inflation as well as pay for the usual stuff.

Unfortunately, that's where people get cranky and then wind up with having to pay a special assessment down the road because they didn't plan properly - better to have a few increases over several years than to be hit with a special assessment people may not be able to afford. That said, I have heard of some communities that approved a special assessment to give reserves a jump start, but I think yours may want to do a little more research before going that route.

If it is not right do not do it; if it is not true do not say it. Marcus Aurelius

JanetB2 (Colorado)
Posts: 4,219

Posted:

Quote:

Potentially from what I have seen under AZ law is the assessment limitations for an HOA (could be different for Condo) are noted as:

http://www.azre.gov/hoa/documents/Planned_Communities_Act.pdf

33-1803. Assessment limitations; penalties; notice to member of violation
A. Unless limitations in the community documents would result in a lower limit for the assessment, the association shall not impose a regular assessment that is more than twenty percent greater than the immediately preceding fiscal year's assessment without the approval of the majority of the members of the association. ... et al...

Defraying ... Essentially means to offset the costs of something. For example a non-profit organization might hold a raffle and the proceeds received will defray or contribute towards the cost of what they are raising that money to achieve. It does not appear you have posted the “exact” text from your CCR’s to make a full determination of the potential content. When you place (...) that does not give us a full picture. When I stated (et al ...) I have at least provided a link for you to see the full statute.

Also, what do you mean by “upgrades”? Are those items noted in your CCR’s as upkeep of the property OR are they items which the BOD just on their own wants and desires? The reserve is supposed to be in place to fix potential future needed repairs based on what will be needed to be done within X time period and to reach that goal how much do we need to assess to meet that goal.

My personal opinion (State laws vary) is Special Assessments should potentially only be used for emergency repairs. Even if you potentially have a reserve account which could cover an emergency ... potentially if raided that money still needs to be there in the future for the estimated costs for which it was reserved to cover and if that would take a special assessment to cover the emergency then so be it.

Keep in mind that your CCR’s have to also abide by your State Statutes. My main question is what type HOA are you ... SIngle Family, Condo, Townhomes, etc.

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