What's an assessment?
An assessment, sometimes called an association fee or dues, is a dollar amount paid each month by the unit owner to cover a proportional share of the common expenses of the property. These expenses can typically include, but are not limited to: gas, sewer; water, electricity for common areas, lawn cutting, snow removal, insurance for common areas, professional management, parking lot maintenance; legal and audit fees; as well as short- and long-term replacement reserve. Be sure to consult the budget to learn what is covered for your particular property.
How is the assessment calculated?
Assessments are based on the annual estimated expenses for the property. The assessments are calculated based upon your documents for the property. They can be the same fee paid by each owner or calculated by using what is known as the Percentage of Ownership of Common Elements. The Percentage of Ownership of Common Elements is based on the square footage of the individual units in relation to the total square footage value of the property as a whole. That ratio is then used to calculate the monthly assessment. Assessments are always subject to increase or decrease based on changes in budgeted expenses.
What's the reserve?
As time passes, the necessity arises for repair and/or replacement of long term capital items such as the roof, balconies, paving and the like. Should the association wait to fund these items until these issues actually arise, a large amount of money would have to be collected in a short amount of time from the owners, in the form of a "special assessment." Rather than wait until that time, it is typically more sensible for the association to save a bit of money from each owner's monthly assessment and put it toward the reserve, where it can grow and earn interest until such time when it is needed.
Do I have to obtain my own insurance?
This is based upon the documents for your Association. Some Association's insure the common areas, clubhouse, amenities and units as Declarant installed. Others require that the owners insure their own unit and/or lots. It is recommended that a owner review with their insurance agent, the insurance section of the Association documents and obtain insurance to cover any loss of personal items in the case of fire, theft or other unforeseen circumstance. Insurance for the common elements and general liability around the property is covered in the monthly assessment fee. In addition, a third type of insurance is often discussed when buying a home. Called PMI, or Private Mortgage Insurance, this insurance is required of buyers who put down less than 20% of the total purchase price. PMI is usually made part of your monthly payment to your mortgage lender, although you may purchase it yourself. Be sure to monitor this from time to time so you can stop paying this insurance when you no longer need it.
Please define "common elements."
Areas of the property that are to be used by all residents are called common elements. These can include, but are not limited to, clubhouse, pool, laundry rooms, walkways, lawns, parking lots, streets, etc. Each owner shares an undivided ownership interest in the common elements.
Who takes care of things around the property?
Owners elect a board of directors among themselves to handle the future decision-making and operations. The elected board of directors then elects officers among themselves each year. Typically a professional management firm runs the day-to-day operations in and around the property. Arrangements with management firms vary, but services typically do not include maintenance and repair within the individual homes of the owners.
How does the association work?
Membership is mandatory, it is mutually binding to all its' members and it has lien based assessments. The association's main purpose is to preserve, maintain and enhance the homes and property. Through the bylaws, the association's board of directors is authorized to regulate and administer the affairs of the association, including the maintenance and repair of the common elements. The association has the authority to assess and collect sufficient money to maintain and ensure the financial stability of the property.
What do the directors and officers do?
Simply stated, the association directors set the policies, standards, procedures, programs, and budgets for the community association. The association officers implement those decisions. In addition to the president, other officers' positions typically are: vice president, who assists the president; treasurer, who handles the financials; and secretary, who keeps records of the meetings.
What if I don't want to be involved to that extent?
The reality is that most owners do not serve in a director's or officer's capacity. The owners vote in community elections and on other issues that may be brought to the community from time to time for a vote. Each owner has a responsibility to maintain their property according to established standards, to pay assessments on time and request consideration of material decisions that personally affect them.
What are association special assessments?
A one-time assessment often voted on by owners, to cover a major expense that is not included in the annual budget.
What is a Declaration of Restrictive Covenants or Declaration of Condominium?
Ownership is subject to certain restrictive covenants (deed restrictions). These are usually embodied in a recorded legal document called a "Declaration of Condominium" or "Declaration of Restrictive Covenants" which is recorded at the county Register of Deeds office. The declaration defines the rights and obligations of both the community association and its owners.
What is a homeowners' association?
The primary purpose of a community association is to provide for the governance, business, and communal aspects of the association. This is achieved by administering, maintaining, and enhancing a residential real estate development, and through the establishment of a system of property rights, binding covenants and restrictions, and rules and regulations. The "common areas" of the property (open spaces, recreation areas, tennis courts, etc.) must be managed and maintained for the benefit of owners. The association will have an elected executive board which will manage the association affairs and perform such tasks as enforcing the rules and regulations and collecting the owners' dues. The developer, however, usually remains in control of the association until the developer no longer has the majority of the votes in the association, or until a predetermined deadline has passed.
Can my homeowners' dues be increased?
Yes. The common expenses of your development may include grounds' upkeep, building maintenance, insurance premiums, property taxes and management fees. When these expenses go up, it increases the dues and assessments. The legal authority to increase dues and to assess is set forth in the documents which govern the community. You should find out who has the authority to establish fees and assessments and whether there are any limits to the amount which can be charged. You are less likely to be shocked by fee increases if you have read this information prior to signing a purchase agreement.
Can an owner avoid paying assessments for the common expense of the property?
No. All owners must pay their share of common expenses.
Can the association tell me what I can and cannot do on my own property?
Maybe. The law allows you great freedom to tailor the use of your property to your particular lifestyle. However, this freedom is not unlimited and is subject to certain rules and restraints. An association (or the developer) may be authorized by the declaration to adopt bylaws or other rules and regulations which may govern your conduct. This can substantially affect your ability to use your property. It could even restrict your ability to rent your unit to others. So before you purchase, you should carefully read the rules governing the community and consult your attorney if you have any questions.
What should I do if I disagree with the association's rules?
If a dispute arises between you and the association you have a right to be heard on the alleged violation. The decision then rests with the board of directors. If still not satisfied, you have the right to utilize other legal options such as appeal or mediation. Any change in the bylaws or rules and regulations of the association requires approval by the members of the association or its executive board.
How do I find out who holds the master insurance policy for my community?
Contact the management company who will give you the name and telephone number of the association's agent.
How do I find the owner occupancy ratio for my community?
Contact the management company who maintains this information.