One reason owners may oppose special assessments is that HOA boards can sometimes be "uncreative" in providing financing options. If you can go beyond the "pay it in full—now!" method by offering alternative financing, you're likely to get less resistance when you propose a special assessment.

Here, we hear how condominium and homeowner association boards crafted creative financing that helped them pass a special assessments and offer tips for funding your own special assessment.

Special Assessment Payment Options

No matter how big or small your special assessment, it may not easy for all your owners to pay up. That's why many associations have offered a range of payment options.

"All kinds of payment options are being evaluated by associations," says Lisa A. Magill, a shareholder and association attorney at Becker & Poliakoff PA in Fort Lauderdale, Fla. "I've seen associations divide special assessments into 12-month, 3-year, or 5-year payments, or half now, half later. They understand that owners may not have sufficient cash flow to pay a large special all at once."

James R. McCormick Jr., a partner at Peters & Freedman LLP in Encinitas, Calif., who represents associations, has also seen clients offer staggered payment terms. "They might say, 'The special assessment is due on this date. However, we'll permit owners top pay over 12 months, interest-free, in this manner,'" explains McCormick.

"Another option is to break up the payments, with each due on a certain date. That changes who's responsible for payments if the unit is sold while payments are being made, which would normally be whoever owns the unit on the date the payment is imposed."

For example, if you allow owners to make payments once every three months over nine months, consider the ramifications. "Do you want to have the due date be a single date or three separate due dates?" asks McCormick. "Are a lot of units likely to be transferred or involved in foreclosure or bankruptcy? If properties are likely to be transferred, have a single date but an option to pay over time so you'll be paid a lump sum when they eventually transfer.

"If there's potential for foreclosures, consider having three separate due dates so you don't lose the entire amount due, only the amounts imposed before the foreclosure," McCormick adds. "Subsequent payments would be the responsibility of the bank or whoever the property is transferred to. Determine what makes sense for your association, and what makes sense might not make sense across the board for all owners."

Before you offer payment terms over several years, check your governing documents. "In Arizona, some documents drafted years ago might state the assessment can't be extended for more than a year," says Kristen L. Rosenbeck, a partner at the Mulcahy Law Firm PC in Phoenix, which represents associations. "An association may be limited in collecting a special assessment only during the year it was assessed."

Offer Discounts for Early Payments

Another way to make owners feel more comfortable with a special assessment is to give them time to pay while offering a discount for paying in full. That may also allow your association to collect interest without running afoul of your state's usury laws, which dictate the maximum amount of interest that can be charged on a loan.

"It's possible to pass an assessment and say, 'Here's the amount due. If you pay it right away, you pay $100. If you instead take the time the board allows, you'll pay $115,'" explains Matthew A. Drewes, a partner at Thomsen & Nybeck PA in Edina, Minn., who represents associations. "Or you might want to set milestones: It's $100 if you pay today, $105 if you pay within six months, and $115 if you pay a year from now.

"In Minnesota, if the payment is structured in that way, it allows the association to avoid the application of Minnesota's usury laws, which say you can't charge more than 8 percent interest based on a written agreement," explains Drewes. "If there's no written agreement, the maximum interest is 6 percent. That provides greater flexibility because you can allow owners to pay over time but incentivize them to pay on time."

Because lending laws may be implicated in that type of program, consult your lawyer. "It's possible to structure the assessment so that people who pay right away pay less, but you have to structure it so you're not violating usury laws and truth-in-lending disclosures," says Drewes. "It's not something people should try to do without a lawyer's help."

Leave Yourself Special Assessment Flexibility

If you're not sure how big a special assessment you'll need to pass or when you'll need the funds, consider passing a special assessment and requiring it be paid in amounts or increments to be determined.

"We've had associations pass special assessments in which a full assessment of, say, $1,000 is approved but only $250 is due at the time the assessment is passed, with certain triggering events and later amounts to be called due at the appropriate time," explains Drewes. "That way, boards don't need to pass a special assessment every time they need an additional $250 per unit. That makes it easier if you a have a capital improvement project planned and you generally know what you're going to need. Technically that's what HOA reserves are for, but it may be helpful if a project is unexpectedly expensive or reserves haven't gotten the attention they need and project payments are due. Then you can call the special assessments in. It can also be helpful in litigation because it's hard to know how long litigation will go on and what it will cost."

If you choose the open-ended special assessment, you can set no limit on when the payments can be called in, or you could promise that payments would be collected, say, only at certain times. "You're more likely to get support from owners if payments are no more frequent than, say, once a quarter," says Drewes. "But it could be set up at the board's discretion if it's approved in a way that complies with the association's governing documents."

Ease the Way for Owners to Get Loans

Another option is to work with local lenders to lay the groundwork for owners to get personal loans. "An association we represent imposed a special assessment of $80,000 per unit," recalls McCormick. "That's a chunk of change to be writing a check for."

McCormick's client consulted with local banks. "The board went to the banks and said, 'We might have owners who need to borrow. Can we set up a deal for those who want to come in?'" he explains. "Then the association told owners, 'We've greased the wheels, and these lenders are aware of our situation. But we can't guarantee your credit will qualify you for a loan.'"

Get an Association Loan

Another option is for your association to get its own loan. "Many financial institutions offer favorable loans to the association, giving the association immediate funds to complete a project and allowing members to pay for the project over 5-10 years or more," says Magill. "I've seen terms as long as 15 years on several-million-dollar loans. Owners might not have $7,000, but they probably can pay that amount over several years as part of their monthly assessment payments."

There are benefits to owners with association loans. "Members have the benefit and enjoyment of a completed project," says Magill, "and aren't paying for something that may never happen or advance funding for something they may not benefit from if they relocate."

The catch is that if your association doesn't have sound collection practices, its ability to borrow may be weak. "People need to appreciate that the nature of financing is really about the cash flow of the association, and the pledge of the income stream of its assessments is going to be the most important collateral the association has," says Drewes. "You need to show some level of stability in the collection of assessments, which is just another reason to stay on top of your collection issues."

Ask Your Vendor for Financing

In a slow economy, vendors may also be willing to let your association make payments over time. "I've seen that start to happen more frequently now because of the economy and venders needing the work," says Rosenbeck. "They might permit payments to be made over time, but if several owners go into foreclosure, the association is still on the hook for the full payments."