What’s Special about Special Assessments?

Jim Slaughter

The term for owner payments to a homeowner or condominium association in North Carolina is “assessments.“ That’s because the term “dues” doesn’t appear in any statute. Instead, “assessment“ is used to describe the payment that owners of an HOA lot or a condominium unit make to the association to pay for common costs of the community, such as real property taxes, insurance premiums, or other expenses to maintain, improve, or benefit the common property.

General assessments are the topic of other blogs—this article is specific to special assessments. However, the phrase “special assessment“ also doesn’t appear in any statute. As a result, associations can only charge a special assessment as permitted by the association’s governing documents. Because special assessments are different than regular assessments paid by owners, here are some considerations:

  • Special assessments must be authorized by the filed declaration.
  • Most often a declaration will state for what purposes a special assessment can be authorized. For instance, some documents provide that special assessments can be imposed to make up for budget deficits; while others only permit special assessments for specific items, such as capital improvements on the common elements. A special assessment can only be for what the documents permit it to be.
  • The association’s documents will describe the process by which a special assessment can be enacted. In older condominiums, the board was occasionally given authority to impose a special assessment in the event of damage to the condominium or for certain unexpected expenses. Usually, however, special assessments can only be imposed by the members through a vote. And the vote can sometimes be complex. For instance, it’s not unusual to require that a meeting be held with a certain higher-than-usual quorum attending and then a supermajority vote, such as 2/3’s of those present and voting. Other associations require a certain percentage of all owners to approve. Because a special assessment is almost always the consequence of some emergency or unexpected need, it should not be made impossible to get the vote.
  • Some documents provide a maximum dollar amount for any special assessment or over what period of time the special assessment must be paid. Follow the language of the documents.
  • North Carolina case law makes fairly clear that a special assessment is fully due immediately upon adoption, regardless of how the special assessment is to be paid. That is, the owner owes the money upon the vote approving the special assessment, even if there is a deferment of payments or a payment plan. Because of this, it may be worth considering whether the full amount of the special assessment should go on the owner‘s ledger immediately.
  • Special assessments that are paid over long periods of time can lead to complications. First, if a property is sold while special assessment installments are still owed, there can be confusion as to what amounts are owed by the buyer versus the seller. Such a problem can be helped by making clear in the association records that the money is owed. (Also, see the note on the Offer to Purchase and Contract below.) Secondly, if a bank forecloses on the property, any future amounts owed on the special assessment will be lost, which means there will be a deficit that must be made up by other owners. As a result, the longer the payments for a special assessment are extended, the more likely there will be funds lost.

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Several years ago the standard Offer to Purchase and Contract was amended to add language on special assessments. Standard Form 2-T (jointly approved by the NC Bar Association and the NC Association of REALTORS®) both defines and provides for payment of special assessments. “Special Assessments” are defined as charges by a government OR amounts owed to an owners’ association “in addition to any regular assessment (dues).” Such assessments are then separated into “Proposed Special Assessments“ and “Confirmed Special Assessments.“ A “Proposed Special Assessment” is a special assessment “under formal consideration but which has not been approved prior to Settlement.”  A “Confirmed Special Assessment” is a special assessment that “has been approved prior to Settlement whether payable in a lump sum or future installments.” The Standard Form requires that Proposed or Confirmed Special Assessments be identified by the seller and then makes provisions for responsibilities between the buyer and seller. Of course, the standard Offer to Purchase and Contract is only relevant if that document in its current version is used for the sale.

Special assessments are quite technical and minor wording changes can make the difference between whether the assessment is collectible or not. Extra care should be taken in drafting and adopting any special assessment, and an attorney familiar with community association law should always be involved in the process.