Friends, Family, and Clients,
Do you live in an attached home with an HOA, such as a condo, townhome, duplex, etc.? Do you have coverage to protect you from a special assessment?
What is a special assessment? Suppose an HOA has insufficient funds in its reserve account to cover the cost of unforeseen repairs, updating/replacing amenities, creating new community amenities, or the inability to cover a large insurance deductible. In that case, the association may impose a special assessment fee.
Special assessment fees can vary greatly in cost, and there isn't much a homeowner can do to get out of paying them. Many times an HOA can charge late fees, take a homeowner to small claims court and even put a lien on the property.
We suggest you talk with your homeowner's insurance provider about protection from special assessments. It is called Loss Assessment Coverage, and it can be added as a rider to almost any homeowner's insurance policy. Some condo or HO6 insurance policies might already include coverage, but you will want to speak with your insurance agent to make sure you have adequate coverage.
The good news is: It is very inexpensive!
Here are a couple of extra tips:
It might not cover routine maintenance. Ask your insurance provider if you'll be covered if the special assessment is for a regular maintenance or age-related type of repair or if it has to be from an "event" such as a hail storm. For example, special assessments for road maintenance or parking lot resurfacing might not be covered.
Consider the date of loss when making offers. If you are going under contract on a townhome or condo that you know has roof damage and the HOA has not sent out a special assessment YET but likely will, you will want to negotiate that in your offer/contract since §16.2. of the Colorado Contract to Buyer and Sell states: "Any special assessment assessed prior to Closing Date by the Association will be the obligation of ☐ Buyer ☐ Seller." What if the HOA is still in the midst of getting bids from contractors, but it hasn't been assessed yet? Does the buyer get stuck with the bill for damage that happened when the seller owned the property?
More important now than in years past. Because the NOCO Front Range is so prone to hail storms, many insurance companies have adjusted how they handle the deductible for hail/wind-related damage. Instead of your typical $1,000 deductible, many companies have a percentage hail/wind deductible. This may show as 1% or 2%. For example, the hail deductible for a home insured at $500,000 is $5,000 or $10,000. For the home at $1.5 million, you're looking at $15,000 or $30,000! The issue for homeowners in a large Condo/Townhome HOA is if the HOA has not made adjustments for this and they don't have adequate reserves to cover the deductible. As you can imagine, for a large multiplex at 1% or 2%, it is a substantial deductible… so there comes the special assessment!
If you found this information helpful, give us a reply, and feel free to add a suggestion for more great content on questions you may have!
Brett & Brittany Sall
The Sall Team with C3 Real Estate Solutions
