Townhouse Special Assessment

[Nortoons]

Hi everybody. I'm in the process of buying a townhouse, and currently, there's only one major thing I'm concerned about. The townhomes are nearly 30 years old, and the homeowner's association is talking about moving forward on a project to replace the roofing, siding, and paint on all the units. The estimated cost of this project is about $1.7 million. I was only given the homeowner's association's financial documents this afternoon, and they only have around $340,000 in their savings fund.

The paperwork says there are 56 homeowners. Now, should it fall on the shoulders of the 56 homeowners to pay roughly $1.4 million for the part of the project that cannot be covered by the association's savings fund, we're looking at a cost of around $24,000 per homeowner. Is this sound logic? It seems unfathomable to me that the association would see fit to levy such a tremendous special assessment on the homeowners, and that a majority of homeowners would ever approve something like this. Therefore, I find it hard to believe each individual homeowner is going to have to pony up $24,000 for this project. However, that's what the math says. With your typical homeowner's association, can anyone tell me how a project like this is typically funded, and what portion of the expense falls on the homeowners? If I have to pay an extra, say, couple thousand dollars, I can swallow that. But if someone told me this special assessment was going to cost me $24,000, I wouldn't buy the townhouse.

I've posed this question to my real estate agent and the property manager. My agent says she's looking into it with the listing agent, and the property manager said it's still too early in the process to give me a number that each individual homeowner may have to pay. I'm trying to get as much information as I possibly can right now, before I have fully dedicated myself to buying this townhouse. For what it's worth, these townhouses are not in bad condition, but they are far from being ritzy townhouses inhabited by wealthy owners. They're full of working-class stiffs and retirees, and any special assessments must be approved by a majority of homeowners. Based on all of this information, can anyone more experienced than me lend me any kind of advice or information?

[safari]

Usually a special assessment is levied on the owners based on the square footage of their property, so the people with larger townhouses would pay more, compared to the ones with smaller townhouses. The cost of the project seems really high. Special assessments are used when an urgent repair is needed and it cannot wait. I doubt that all 56 townhouses have problems with the roof, since they probably don't all share the same roof, unlike a condo building. It would make more sense to take a gradual approach and repair the roof on as needed basis, especially since the association doesn't have enough savings. Also, a special assessment would have to be approved by the owners. Having said that, this is definitely something that you should take into account when considering buying that townhouse. You can also use it as a bargaining chip to lower the purchase price.

[frugalgirl]

I would read the HOA documents very carefully to figure out how the system works. Does each homeowner get one vote or does the HOA board decide?

The HOA may spread the special assessment out over time so the entire amount is not due at one time. This could be done over a period of months or years. I would not want to be part of an HOA that either a) neglected the property, or b) overpaid for repairs. I'd try to contact some members of the HOA board to find out what the situation is. From personal experience, you want to make sure that you are not getting involved with a bunch of "knuckleheads".

After 30 years, it certainly seems reasonable that these repairs could be needed. These repairs also directly impact the value of your property. At some point in time, won't these repairs need to be done? Will the homeowners ever vote to agree to the fixes or will you end up with a property that deteriorates over time?

[markusk]

I agree with the other posts.

This is either a potential "red flag" and you should be prepared to walk away OR an opportunity to use it as a bargaining chip to lower the purchase price.

It all depends on how much you love the property, and how much the special assessment will cost you (over how long a time you have to pay).

You should also check out the HOA board. Since the property is about 30 years old, the HOA board should have known about it and should have seen this coming many years ago -- and planned accordingly in advance to beef up the reserve fund. If they didn't, this means the HOA is: in poor financial footing in general, poor planners, the motion was voted down by everyone in the past (kind of like "kicking the can down the road") or the renovations are due to unexpected events (and there was no way to plan ahead).

If you really love the property and HOA is generally in healthy financial shape, ask for a lower purchase price.

[wincrasher]

You are lucky to have found out this information. Unfortunately, that's the downside of living in these types of communities.

To add insult to injury, costs can end up not being spread evenly. If some units don't pay, the costs can be shifted to the others until the money is recovered.

I'd pass on this one, or get an enormous concession from the seller.

[kristenintheislands]

When I bought my 30 year old condo 5.5 years ago they were just starting a special assessment. It was to last 4 years at a cost of $500 per month. It had to be approved by 66 2/3 of the owners (the approve percentage was actually 80%). The kicker they only were going to redo 3 of the 4 sides.. (WTF??)

I still bought the condo because the price reflected the fact it was a 30 year old condo in need upgrading (not unlike buying a 30 year old house that needs a new roof). The condo is 50 feet from a marina so the salt water causes a lot of corrosion.

Anyway, a 2 years after it started the price of oil skyrocketed along with the price of steel ( I live on an island so everything gets shipped in, so shipping costs are a major expense). In addition to that there were new owners like myself who just wanted the whole thing done, not just 3 sides. So our rates went up to $709 per month and added a year. It was approved by the required 66 2/3 (actually is was more like 90%). Ouch...

Well here I am 5.5 years out and I'm still paying the damn thing. We have had so many defaults that we have to pay for another 8 months to cover those who are not paying. (actual owners refusing to pay, not anyone having to foreclosure due to the market. Actually we do not have a single foreclosure). Yes there are liens and lawsuits for those in default, but they take time and it does not change the fact the HOA still owns money.

Overall it as been a real PITA, but worth it. The condo is worth more than $100k over what I paid for it including the assessment costs. Plus there has been a turnover in owners and we are more committed in keeping up with this stuff and not let get to the point it was when I bought. It's also a nicer community.

[kristenintheislands]

I agree with the other posts.



You should also check out the HOA board. Since the property is about 30 years old, the HOA board should have known about it and should have seen this coming many years ago -- and planned accordingly in advance to beef up the reserve fund. If they didn't, this means the HOA is: in poor financial footing in general, poor planners, the motion was voted down by everyone in the past (kind of like "kicking the can down the road") or the renovations are due to unexpected events (and there was no way to plan ahead).

If you really love the property and HOA is generally in healthy financial shape, ask for a lower purchase price.

that is what happen to with my condo. It's was mostly owned by snowbirds who paid $30k for the condo 30 years ago... They did not want to pay more for their temporary winter home. Eventually the older owners started dying off or sold their place and new people more committed to the community moved in and wanted to get the place in shape.

[Snodog]

I'd pass on this one, or get an enormous concession from the seller.

I agree.

Sounds like the homeowner's association is not run very well. I would run away as fast as I could.

[snafu]

You need more facts. It sounds like the HOA had not taken replacement costs into account; did not raise condo fees sufficiently year-by-year to keep up. 30 y/o roofs are likely due for replacement. What other maintenance has been done? What will need to be done after roofs? Ask to read the HOA minutes. Talk to the HOA president.

Might be a good buy if you can get the current owner to pay a major part of the special assessment/lower the asking price. Persoally, I wouldn't buy because the HOA is not reliable. If something seriously went wrong in your unit, I doubt they would have funds to cover the problem.