That dreaded phrase: We need to impose a Special Assessment. Not only do you dread that phrase as a homeowner, but you dread it even more as a board member. After all, not only do you have to pay it, along with everyone else, but you will also get all of the complaints when the other owners receive the bill (even if they voted to waive the reserve requirement).
Whether the assessment is relatively large or just a few hundred dollars, there are inevitably homeowners on a tight budget who are unable to meet the payment deadlines. For this reason, many Board choose to implement their assessments in phases so that the homeowner is not hit with a large bill all at once. While the intention is good, you may do your Association a disservice by phasing in assessments. Ultimately, there is an issue of whether phasing in these assessments allows delinquent owners to take advantage of the system or circumvent payment. For example, consider the case of a special assessment of $4,000. The Association needs $4,000.00 per Owner by the end of the year to make certain repairs that are desperately needed to ensure the viability of the units. The Association has a few options:
Impose four separate $1,000.00 assessments quarterly, and bill to the accounts quarterly.
Obviously, there are many other combinations the Board can choose. But are there problems with any of these options? YES. The primary issue concerns delinquent owners.
Consider this example. Owner receives bill, and does not make any payments in January. Owner files for bankruptcy on March 15. What does the bankruptcy do to your assessment? Look at each scenario.
In example 1, since the owner did not pay on time, ideally a lien would have been put on the property for $4,000.00. The lien stays with the property, so the owner will eventually have to pay when the property transfers.
In example 2, the Board chose to bill the assessment quarterly to help out the owners although it was imposed in its entirety on January 1. The effect is that only $1,000.00 was delinquent. So $1,000.00 was the amount of the lien, and the owners will not have to pay $3,000.00 due to filing bankruptcy. The other owners bear the burden of the shortfall.
In example 3, the Board chose to impose the assessment at 4 different times. The first assessment was imposed on January 1, and not paid on time. Lien amount is $1,000.00. Other assessments are imposed separately, at different times later on, so they are not discharged through the bankruptcy, and owner is liable for $1,000.00 lien plus $3,000.00 in post-petition assessments.
A property that goes into foreclosure may face a similar scenario. What is the issue? Looking at our examples, 1 and 2 allow the owner to cheat the system. Option 3 does not. Are there any other options? Yes, give the owner an option. Impose and bill the entire $4,000.00 on January 1. If they want to go on installments, they can do so as long as they pay according to a schedule. If not, they can pay the assessment in full by the January 30 due date. Implement a policy that so long as they make their first installment on time, they can pay quarterly with no penalties. If they do not make the first payment on time, then impose penalties, and start collection efforts for the full amount due. This ensures the paying owners are not making up for a delinquent owner’s shortfall.