June 18, 2010

Are owners in your homeowners association resisting a proposed special assessment? Maybe it's because your HOA isn't offering attractive financing.

In this week's tip, we offer alternatives to the "pay it in full—now!" method of funding special assessments.

"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 to 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."

Need more creative ways to finance your homeowner association's next special assessment? See our new article.

Best regards,
Matt Humphrey
President