By Jason Stephenson, Founder of Indygo Community Association Management

Homeowners associations work hard to keep communities running smoothly, plan for future costs, and protect property values. Even with the best intentions and solid annual budgets, unexpected expenses can pop up - whether it’s emergency roof repairs, major infrastructure work, or insurance premium increases. When savings aren’t enough, HOAs might need to consider special assessments, loans, or revising the budget to stay on track. Each option has its own benefits and considerations, and understanding these tools can help board members make decisions that are clear, fair, and financially sound.

 

Special Assessments:

A special assessment is a one-time fee that homeowners might be asked to pay to handle unexpected expenses. It’s often the fastest way to raise funds when reserves are low. In Colorado, HOAs need to follow specific procedures, as outlined in their governing documents and the Colorado Common Interest Ownership Act (CCIOA). These procedures might include giving notices, voting by the board, and sometimes getting approval from members.

 

Pros:

- Immediate Funding: Helps address urgent needs quickly.

- No Long-Term Debt: Unlike a loan, it doesn’t add interest or future obligations.

- Direct Responsibility: The current owners share the cost and also benefit from the improvement.

Cons:

- Owner Pushback: Homeowners might be surprised or upset, especially if the fee is large.

- Financial Hardship: Not everyone can handle sudden costs, which could lead to missed payments or resentment.

- Community Tension: Poor communication might erode trust in the board.

 

Association Loans: Sharing the Cost

If a special assessment feels stressful or daunting, considering a loan could be a helpful alternative. HOA loans can support significant projects and allow for manageable payments spread out over several years, often resulting in smaller increases in dues gradually.

 

Pros:

- Lower Immediate Impact: Monthly payments are easier for homeowners.

- Preserves Reserves: Keeps emergency funds available for future needs.

- Faster Project Completion: Work can start without delay, as payments are spread out.

Cons:

- Interest and Fees: Loans come with extra costs, increasing the total expense.

- Long-Term Commitment: Repayments may limit future budgets.

- Board Authority Limits: Depending on rules, loans might need owner approval.

 

Proactive Budgeting and Reserve Planning

The best way to avoid last-minute financial stress is through careful planning and strong budgeting. HOAs should regularly conduct reserve studies, ideally every 3–5 years, to assess future needs for common areas and set savings goals. While Colorado law encourages building enough reserves, it doesn’t specify exact amounts, making these studies essential.

 

Budgeting Tips:

- Review Annually: Keep budgets up-to-date with rising costs like insurance, utilities, and labor.

- Build Buffers: Include contingencies for unexpected expenses.

- Be Transparent: Clearly share budget goals and challenges with homeowners.

 

Choosing the Best Approach

There’s no one-size-fits-all answer. For urgent issues like a sewer main break, a special assessment or emergency loan might be necessary. For long-term projects like roof replacements, using reserves is usually best. Boards should consider community makeup, legal rules, and how much homeowners are comfortable with when making decisions.

 

Recommendations:

- Stay Prepared: Regular reserve studies and planning help you get ready for big expenses.

- Communicate Clearly: Keep homeowners informed about dues, assessments, or borrowing.

- Seek Expert Advice: Financial advisors, legal experts, and management companies can provide valuable guidance.

 

In the end, how an HOA handles surprises can build or break trust, stability, and community health. By understanding options like special assessments, loans, and good budgeting, Colorado HOAs can face unexpected costs with confidence and integrity.

Jason Stephenson is the CEO and Founder of Indygo Community Association Management, a forward-thinking company dedicated to modernizing HOA operations across Colorado. With a passion for innovation and community, Jason leads Indygo with a commitment to transparency, efficiency, and exceptional service.