By Kacie Dreller, CMCA®, AMS®, PCAM®, Hammersmith Management, Inc
There are many choice words spoken when discussing a Special Assessment in a community. And no, those words do not often include “fabulous,” “fantastic,” or “fun.” Let’s face it, the need for a Special Assessment suggests, whether right or wrong, that someone failed to responsibly manage community finances at one point or another. After all, Special Assessments are imposed when reserve funds are not adequate to cover the cost of long-term repairs and replacements. For example, the replacement of siding or when an unexpected expense occurs.
The first question asked by the Membership in the discussion of passing a Special Assessment is, “How did this happen?” The response to this question can vary. Perhaps the Association was managed by a Board of Directors that for many years took pride in announcing at every Annual Meeting that once again, there would be no increase in assessments next year. Owners cheer, the Board of Directors is showered with accolades, and everyone goes home happy knowing that they will not pay an additional $3.00 per month next year. How wonderful!
Unfortunately, the reality is that the Association’s costs increase at a minimum of 3% annually. Water, electricity, management and maintenance contracts, and insurance expenses increase anywhere from 3% to 50% annually. To afford those increases, budget allocations are decreased in other areas, like reserve contributions. Year after year the contributions decrease and then, when the siding of a building is rotten and needs to be replaced, reserve funds are not adequate to fund the project. Another possibility is that the association was “robbing Peter to pay Paul” by using reserves year after year to pay operating expense overages. Or perhaps the Association was paying for repairs and maintenance that was not association responsibility, but instead the responsibility of an owner.
Whatever the reason, the Board of Directors is now in a place where they need to “sell” a Special Assessment at a time when, oh right, there is a pandemic, and many homeowners are already struggling financially. <Insert choice word that is not “fantastic,” “fabulous” or “fun”>
To ease the pain of the Special Assessment Meeting, and increase chances of the Board of Directors and Management walking out of the meeting in one piece, please accept the following constructive recommendations on how to approach this lovely task:
- Anticipate Homeowner Questions: How did this happen? Did the Board of Directors request additional proposals for the work that needs to be done? Does insurance cover any of the work? Can we sue someone? And, of course, the most common question, “Why do I have to pay it if I’m not benefitting from the work? My siding is fine!”
Research the answers to these questions and provide details to the Membership. Become an expert on the matter and enlist the support of other industry experts to assist with answering the questions where necessary. Present a historical accounting of the reserve funds. Provide owners with information as to where reserves have been used in prior years. Reference paragraphs in the Governing Documents that define maintenance of common and limited elements. Quote the Declaration section that details the power of the Board to consider a Special Assessment and the requirements for approval of said Special Assessment. The more information you can provide to the owners, the more they will see that the Board of Directors and Management are educated on the matter and have exhausted all other options to solve the problem.
- Present the Membership the Alternatives: Owners need to understand what happens if the Special Assessment is not approved. Provide the details. Perhaps the roof needs to be replaced. Without the Special Assessment, it cannot be replaced, which means it’s uninsurable. If the roof is uninsured, lenders will not finance loans, so no one can sell their home. Perhaps not passing the Special Assessment means that monthly assessments will increase substantially, which also hinders the sale of homes in the Community. Lastly, not repairing the rotten siding could lead to pests entering units, helping themselves to food in your pantry and a warm spot on your couch.
- Be Sensitive to Homeowner Struggles: Special Assessments are hard to swallow in good times, let alone when we are experiencing higher unemployment rates and economic downturn. The Board of Directors should evaluate options for payment of the Special Assessment. How can the Board of Directors meet the needs of the Association, while being sensitive to the struggles that so many are facing? Is it an option for the Association to obtain a loan to partially finance the work and decrease the Special Assessment? Can the Board of Directors utilize reserve funds to frontload payment for services, thus allowing owners more time to pay the Special Assessment? What sort of payment plans can the Board offer homeowners? What do state statutes require in terms of payment plans? Is there a service provider that will finance the work to allow more time for the Special Assessment to be paid?
Angry homeowners are often the result of our failure to educate them on the matter at hand. Homeowners do not spend their free time reveling in the awe-inspiring document called the Declaration of Covenants, Conditions, and Restrictions. In their minds, Board Members and Management were put on this earth to do nothing more than harass them about their trashcans and deny their request to paint their home chartreuse. In my many years of management, I have learned this one very important lesson; There is nothing that will deescalate an angry homeowner more effectively than providing them with education and information. Anticipate the questions, educate on alternatives, and remember that we all have our struggles.
Kacie Dreller, CMCA®, AMS®, PCAM® is a Regional Director at Hammersmith. Kacie is recognized in the industry for her expertise in community management, professionalism, ability to lead, and her desire to serve. Kacie strives to be a positive role model of Hammersmith’s Core Values: Professionalism, Excellence, Integrity, Life Balance, Education, and Partnership.
