Special assessment payment terms?

Started by PaulM30 • 9 replies • 925 views

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PaulM30 (B)
Posts: 41

Posted:

We are a small 15 unit condo building. We usually aim to have about 70k in reserves. Last year we had an incredible run of bad luck, which knocked us down to 20k. We then recently found out that 2 balconies at the rear of the building are failing, and they're an HOA responsibility, which is going to cost us another 30-40k. To get us back to even a reasonable reserve amount, we need to raise about 60k. Obviously this is pro-rated by sq ft, but it's going to range from 2.5k to 5k per unit.

We want to be sensitive to the fact that we're going into uncertain times, and given the absolute 100% lack of engagement or interest from our ownership (1/3rd of which are absentee owners who rent their units) this will most likely come as a surprise to people.

If we offer 1 year payment terms, this will almost double the HOA dues for some owners, but I'm concerned that the longer we let people have to pay, the more chance we have of some other unexpected problem cropping up. Is there any kind of rule of thumb that associations use to determine what reasonable payment terms should be offered? I have no doubt that if we go to some owners and say we need 3-4k, they simply won't have it, so we need to be reasonable but also balancing the needs of the association.

And yes, we had a reserve study done a couple of years back and we didn't have any obvious flags, but last year we had the industrial grade garage door need a complete replacement, a sump pump faliure which flooded the elevator shaft, and we uncovered a building design flaw which meant both water heaters had to be replaced the room that houses them be completely rebuilt!

GenoS (Florida)
Posts: 4,276

Posted:

Reserve studies are meant to prevent "bad luck". Did you follow the reserve funding requirements put forth by that study? Did it conclude that "about 70k" was enough to cover all anticipated expenses over the next few years? Did it miss the fact that you had balconies that were likely to need replacement soon?

While I appreciate your desire to avoid hitting the owners with large special assessments all at once, I would suggest, at minimum, to start preparing yourselves for the eventuality of needing that special assessment in the near future. I'll also go out on a limb and say you need a better reserve study done.

JohnT38 (South Carolina)
Posts: 1,631

Posted:

Quote:

Posted By PaulM30 on 03/18/2020 3:45 PM
We are a small 15 unit condo building. We usually aim to have about 70k in reserves. Last year we had an incredible run of bad luck, which knocked us down to 20k. We then recently found out that 2 balconies at the rear of the building are failing, and they're an HOA responsibility, which is going to cost us another 30-40k. To get us back to even a reasonable reserve amount, we need to raise about 60k. Obviously this is pro-rated by sq ft, but it's going to range from 2.5k to 5k per unit.

We want to be sensitive to the fact that we're going into uncertain times, and given the absolute 100% lack of engagement or interest from our ownership (1/3rd of which are absentee owners who rent their units) this will most likely come as a surprise to people.

If we offer 1 year payment terms, this will almost double the HOA dues for some owners, but I'm concerned that the longer we let people have to pay, the more chance we have of some other unexpected problem cropping up. Is there any kind of rule of thumb that associations use to determine what reasonable payment terms should be offered? I have no doubt that if we go to some owners and say we need 3-4k, they simply won't have it, so we need to be reasonable but also balancing the needs of the association.

And yes, we had a reserve study done a couple of years back and we didn't have any obvious flags, but last year we had the industrial grade garage door need a complete replacement, a sump pump faliure which flooded the elevator shaft, and we uncovered a building design flaw which meant both water heaters had to be replaced the room that houses them be completely rebuilt!

If the 2 balconies are a serious safety issue you don't have the luxury of collecting monthly payments and waiting until you have enough money to fix them. It needs to be addressed now.

PaulM30 (B)
Posts: 41

Posted:

Quote:

Posted By GenoS on 03/18/2020 4:01 PM
Reserve studies are meant to prevent "bad luck". Did you follow the reserve funding requirements put forth by that study? Did it conclude that "about 70k" was enough to cover all anticipated expenses over the next few years? Did it miss the fact that you had balconies that were likely to need replacement soon?

While I appreciate your desire to avoid hitting the owners with large special assessments all at once, I would suggest, at minimum, to start preparing yourselves for the eventuality of needing that special assessment in the near future. I'll also go out on a limb and say you need a better reserve study done.

It was done just before my time on the board, but I thought the idea of a reserve assessment was looking at depreciation, useful life etc with some buffer built in, not taking into account 3 pretty major and very unexpected events. The sump pump failed about halfway through it’s expected life, and the bulk of the cost came from needing an elevator tech out for nearly 2 days and the shaft needing to be drained with pumps, the garage door was caused by someone crashing into it, and the water heaters were down to a design flaw in the building that was discovered. I think reserve studies are supposed to account for reasonable expected costs based on projections and then some buffer, not a ridiculous run of luck. Otherwise you’d basically have to have building replacement costs in reserve. At the time, 70k was deemed sufficient considering the rate we were transferring to reserves.

Both balconies are failing and the building is only 8 years old, and the developer has subsequently gone out of business. I believe balconies were projected for 15 years.

MichaelS56 (Minnesota)
Posts: 858

Posted:

Some cities have a Housing Rehabilitation Authority which has the power to loan an association the money needed at a certain percentage. In our state that cost is put on the unit over a ten year period of time.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

While an old post. I know of an HOA that got a major Special Assessment passed. Without a lot of details it was $25K per unit and over 90% of owners voted for it. They arranged financing with a local bank. The payment terms went from pay within 90 days with no interest out to 5 years, and several plans in between with interest. The interest rate was about what a 2nd mortgage would have been.

PatriciaR9 (California)
Posts: 3

Posted:

I have always recommended that when you have a special assessment, offer the payment in full or a monthly payment over 1 to 2 years if required by your documents. You want to be able to express that you want to work with ALL owners in regards to this expense.

MarkM19 (Texas)
Posts: 1,459

Posted:

Patricia,
The exact reason for a Special Assessment is because there is an immediate need for these funds. If you offer 1 or 2 year payment options the funds may not be available for whatever the emergency repair that is needed. Many members would usually agree to take the 2 year plan and that would not be getting the job done. What would happen if the owner had plans to sell in the next 3 months and commits to a 2 year payment plan? Would the debt go to the new owner?

JohnC46 (South Carolina)
Posts: 14,265

Posted:

In the case I cited, the HOA got the lump sum form the bank. Owners paid the bank back and the debt was in reality a 2nd mortgage though not stated as such. The debt followed the unit. As a matter of fact, the debt became a negotiating point in a sale.

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