The risks and responsibilities that result from membership in the HOA can be significant; which is why we say that when you purchase a home in an HOA “You Are Buying More Than a Home.” The obligation to contribute to the financial support of the HOA is manifested in the form of assessments or dues that are typically paid on a monthly basis in the case of condominiums and most attached housing schemes or on an annual basis in the case of most traditional HOAs.
These assessments are levied to pay for the operational expenses of the HOA which includes the maintenance, repair and replacement costs associated with maintaining the common areas within the HOA. Depending on factors unique to each situation these expenses may be considerable or they may be minimal, but in either event they represent the same type of burden on the owners as do property taxes, due to the HOA having been granted the authority, through the CC&Rs, to lien the property of owners who do not pay their assessments. As with any type of lien against real property, a lien imposed by the HOA for non-payment of assessments could result in the property being foreclosed on by the HOA if the owner of the property does not cure the default by paying the delinquent assessments.
The amount of the assessment paid to the HOA is established by the Board of Directors each year through the process of preparing an operating budget. In some cases the members must vote to approve the new budget each year, but in some instances the Board may unilaterally impose the budget on the membership and there is very little the owners can do to prevent the Board from setting the dues at whatever level they feel is appropriate.
In addition to the regularly scheduled HOA assessments the owners may also be subject to special assessments if or when the HOA requires funds that are not provided for in the annual operating budget. Typically special assessments or special levies will occur when there is a sudden need for a large amount of money, either because the Board of Directors has failed to adequately plan for future expenses or because of an event that could not be predicted in advance. When an HOA initiates a lawsuit is is often the case that the Board will levy a special assessment to finance the litigation. Since the lawsuit may or may not have been something that could have been predicted in advance it is rarely the case that the association will have sufficient extra money available to pay for litigation expenses.
Other than lawsuits, which are generally very costly and more common among condominiums, the primary reason for the levying of special assessments is because the HOA has failed to set aside sufficient funds to pay for major repair and replacement expenses associated with the common area improvements. When this situation occurs the association is faced with two choices:
Either raise the money to pay for the repair and replacement expenses or;
Defer the spending of money and hence the repair and replacement of common area improvements.
Because the deferral of major maintenance work can have an adverse impact on property values within the HOA it is generally considered to be a breach of the fiduciary duty of the Board of Directors to the HOA. As a result it is often the case that the Board will elect to levy a special assessment rather than to defer repair and replacement work. If the governing documents do not require the approval of the HOA membership to levy the special assessment there is again, very little the individual members can do other than to pay the special assessment or sell their home and move out of the HOA.