The Importance of Assessment Collection
By Kim Sutter
Assessments and assessment collection are essential to the financial health of any community association. Every community, regardless of type, has expenses that range from maintenance, repair and replacement of common areas to insurance and operational costs. Assessments are the lifeblood of the association and allow the association to function properly.
The primary financial planning tool for any community association is the annual budget. A proper budget should cover all projected expenses of the association for the upcoming year, including maintenance of common areas, operation of recreational facilities, landscaping, insurance, management costs, legal costs, snow removal, and other necessary expenses that are vital to operation of the association and preservation of the community’s curb appeal. Depending on the community’s governing documents, the annual budget may be subject to approval by the owners. This will vary from community to community.
Once expenses are estimated, the board will determine the amount of the assessment to be paid by the homeowners. Depending upon the association and its governing documents, assessments can be imposed annually, semi-annually, quarterly, or monthly.
The association’s governing documents typically make payment of assessments the personal obligation of the homeowner. This obligation to pay assessments is independent from any obligations of the association. Meaning, the homeowner’s obligation to pay assessments is non-negotiable. Under Indiana law, a homeowner cannot withhold assessments due to an actual or perceived grievance with the association or based upon allegations of mismanagement. Placing assessments in escrow is not an option either. That option is common in landlord/tenant situations, but not in a community association setting.
Pursuing neighbors to collect unpaid assessments can be an awkward and uncomfortable task. However, it is a vital task nonetheless. Failure to systematically and consistently collect assessments can have a disastrous impact on the community. If assessments are not collected, it can result in a shortfall in the community’s budget. This translates to increased assessments for those members who ARE paying their assessments, just so the association can pay its budgeted expenses. Long term non-payment can also translate to shallow reserve funds and deferred maintenance. Roofs are not replaced, streets are not repaired, common area maintenance work is delayed, and, in some cases, special assessments become necessary to pay for important capital repairs and replacements. Deferred maintenance, low reserves, and frequent special assessments will ultimately cause property values to decline. Assessment collection has a ripple effect. It may seem like giving your neighbors a break is the “neighborly” thing to do. The downside, however, is that if assessment collection is not proactively pursued, the rest of the neighbors are the ones to suffer by way of increased assessments, deferred maintenance, declining community curb appeal, and lost property value.
Consistent and fair collection policies are essential to the financial health of the association. A set collections policy can remove the guess work and provide a systematic, unemotional way for the board to make decisions. If your homeowners or condominium association needs assistance in establishing reasonable collections policies that comply with your governing documents, or if you need assistance with collection of assessments generally, please contact our office.