HOAs and condo boards often look to special assessments and loans to address pressing capital expenses. RISE Association Management Group urges one thing above all: proceed with caution. Both tools solve a short-term problem, and both carry real costs for owners and for the community’s future marketability.
What a special assessment is
A special assessment is a one-time charge levied on owners in addition to their regular dues, used to cover an expense the operating budget and reserves can’t absorb. It’s tied to a specific need — a roof, a structural repair, an insurance shortfall, an emergency — rather than the recurring cost of running the community.
Communities most often face this challenge because of underfunding. While regular maintenance fees are meant to cover most expenses, unforeseen circumstances or cost underestimation can lead to budget shortfalls that only a special assessment or a loan can close.
Why they happen
Condo associations are often unclear about how much money they need in reserves — partly because reserves are mistaken for a “rainy-day fund” when they’re really more like an earmarked, special-purpose savings account. Two failures drive most special assessments:
- Insufficient visibility: buildings require regular maintenance, and not all needs are obvious. Without a long-range plan or reserve study, boards may believe they’re adequately funded right up until they aren’t.
- Insufficient reserves: every building and community is different, and there’s no one-size-fits-all formula. Underfunding can compound — it deters buyers, which pressures values, which makes it even harder to catch up.
For Texas communities, the funding level is often set by reverting to the old rule of thumb of contributing 10% of operating assessments each year. That rule is outdated and doesn’t anticipate the complexity of modern infrastructure needs. The 2021 Champlain Towers collapse in Surfside, Florida sharpened national attention on the risk of deferred, underfunded infrastructure.
Special assessment vs. loan
When a shortfall occurs, special assessments and loans are the two common ways to bridge the gap. Each has trade-offs:
Pro: a direct, interest-free solution. Con: it can cause immediate financial strain and discord among owners, all at once.
Pro: spreads the cost over time. Cons: a long-term financial commitment that may not align with the board’s future plans, and it can trigger red flags for mortgage underwriters — including for Fannie Mae or Freddie Mac conforming loans — leading to scrutiny or denials that shrink the pool of eligible buyers.
The decision to use a special assessment or a loan is complex and context-dependent. A balanced approach — careful planning, transparent communication, and professional financial guidance — can mitigate the drawbacks of both. Regular reserve studies and long-range funding plans should be integral to the process so associations can anticipate needs and choose the most appropriate strategy.
Who can levy one
The authority to levy a special assessment — and the notice, caps, and owner-approval process that go with it — comes from your community’s governing documents, not from a single statewide rule. Many declarations allow the board to levy up to a set amount, but require an owner vote above a threshold or for new capital improvements.
Before any special assessment, confirm what your CC&Rs and bylaws require: approval thresholds, notice periods, and how the charge is allocated among owners. Getting the process right protects the board and the assessment’s enforceability.
How boards avoid them
The most reliable way to avoid a special assessment is to make one unnecessary. That means funding reserves as you go, guided by a current reserve study, so major repairs are already paid for by the time they arrive. Reserve contributions should be the first line of the budget — not whatever is left over.
Reserve studies and long-range planning let associations answer the real question — “how much should we have set aside, and when will we need it?” — before a shortfall forces the issue. Ideally you fund reserves steadily and never find yourself short. Read our companion reserve study guide for how to build that plan.
What owners should know
For homeowners, a pending or recent special assessment is material information. It can affect financing, resale, and the community’s appeal to buyers. If your community is weighing one, ask to see the reserve study, the funding plan, and the specific need driving the assessment. Transparency from the board — clear numbers and a clear rationale — is the difference between owners who understand a hard decision and owners who resent a surprise.
How RISE helps
RISE has the experience condo associations and HOAs rely on for reserve planning and ongoing management. We help boards fund reserves correctly, model the true cost of a shortfall, and weigh assessments against loans with clear-eyed financial guidance — so the community stays ahead of the budgeting curve and prepared when issues arise.
Special-assessment strategy is part of RISE’s financial management practice. Contact RISE to review your reserve position before a shortfall makes the decision for you.
Frequently asked questions
A special assessment is a one-time charge levied on owners, on top of regular dues, to cover a cost the operating budget and reserves can’t absorb — often a major repair, an insurance shortfall, or an unforeseen capital expense. Unlike routine assessments, it’s tied to a specific need rather than the recurring cost of running the community.
It depends on your governing documents. Many declarations let the board levy special assessments up to a certain amount or percentage, but require an owner vote above a threshold or for assessments tied to new capital improvements. Always read your CC&Rs and bylaws — they, not a general rule, control the process, notice, and approval your community must follow.
Neither is automatically better; it’s context-dependent. A special assessment is a direct, interest-free solution but can cause immediate financial strain and discord among owners. A loan spreads the cost over time but is a long-term financial commitment and can trigger red flags for mortgage underwriters — including for Fannie Mae and Freddie Mac conforming loans — which may shrink the pool of buyers. A balanced approach with transparent communication and professional financial guidance is essential.
The most reliable path is a current reserve study paired with a disciplined, long-range funding plan — funding reserves as you go so major repairs are already paid for when they arrive. As the saying goes, people don’t plan to fail; they fail to plan. Consistent reserve contributions are far less painful than an emergency assessment.