Homeowners’ associations face a delicate balancing act when it comes to funding reserves, and sometimes the financial burden can feel overwhelming—especially for those on fixed incomes. A recent question from a homeowner highlights a common dilemma many HOA residents face when boards must play financial catch-up.
The Situation: A Dramatic Jump in HOA Dues
A couple in their 70s are facing a significant financial challenge. Their HOA board is proposing a $2,100 annual increase in dues per unit over the next six years to build up reserve funds. For a couple on fixed incomes, this represents a substantial burden, especially considering their monthly dues have already jumped from $170 to $740 over the last several years.
The homeowner’s preference for an emergency special assessment over gradual increases reflects a common misconception about HOA financial management. While the immediate impact of higher monthly dues can feel daunting, the alternative approach often proves more problematic.
Why Gradual Increases Beat Emergency Assessments
The financial reality is that underfunded reserves create a domino effect of problems that can devastate property values and force residents out of their homes. When boards defer maintenance and fail to adequately fund reserves, they create a financial time bomb that eventually explodes into much larger problems.
Emergency assessments, while appearing to offer short-term relief, often prove more disruptive than gradual increases. Large, sudden assessments can force homeowners—particularly those on fixed incomes—to sell their units or face financial hardship. This can lead to increased litigation as residents struggle to meet unexpected financial obligations.
The Bigger Picture: Property Values and Lending
The consequences of underfunded reserves extend far beyond individual financial strain. When condominium associations fail to maintain adequate reserves, they risk being blacklisted by Fannie Mae, the government-sponsored enterprise that backs many home loans. This blacklisting means lenders stop funding loans to potential buyers, creating a cascade of problems:
- Reduced buyer pool for units in the association
- Declining property values
- Difficulty for current owners to sell or refinance
- Increased financial strain on the entire community
Legal Obligations and Board Responsibilities
California Civil Code Section 5600(a) requires boards to impose regular and special assessments sufficient to perform their obligations under governing documents, including proper reserve funding. This isn’t merely a suggestion—it’s a legal requirement that boards must fulfill regardless of the financial impact on individual homeowners.
The law recognizes that proper reserve funding protects the long-term financial health of the entire community, even when it creates short-term hardship for individual residents.
Strategies for Managing Financial Hardship
For homeowners facing significant increases while on fixed incomes, several strategies might help:
Review Association Finances: Request detailed financial reports and reserve studies to understand exactly where funds are going and whether the increases are truly necessary.
Explore Payment Plans: Some associations offer payment plan options for residents facing financial hardship, allowing them to spread costs over longer periods.
Consider Refinancing: If you have equity in your unit, refinancing might provide cash flow relief, though this requires careful consideration of long-term costs.
Advocate for Transparency: Push for clear communication about why reserves were underfunded and what specific improvements or maintenance the funds will address.
The Uncomfortable Truth About HOA Financial Management
The situation illustrates a harsh reality: when previous boards fail to adequately fund reserves, future residents pay the price. The dramatic increase in dues from the board suggests that difficult financial decisions were deferred during years past, creating the current crisis.
While it’s natural to resist significant fee increases, the alternative—continued underfunding—typically leads to even more severe financial consequences down the road. Emergency assessments, deferred maintenance, and declining property values often cost residents far more than proactive reserve funding.
Moving Forward: Planning and Preparation
For HOA boards and residents, this situation offers important lessons about financial planning and community governance. Regular reserve studies, transparent financial reporting, and gradual funding increases help prevent the kind of financial crisis Michelle’s community now faces.
Residents should stay engaged with their HOA’s financial health, even when not serving on the board. Understanding reserve funding requirements and supporting adequate funding—even when it means higher dues—protects everyone’s investment in the community.
Conclusion
This situation reflects the difficult reality many HOA residents face when years of underfunding come due. While the proposed increases create genuine hardship for residents on fixed incomes, the alternative of continued underfunding typically proves more costly and disruptive.
The key is finding ways to manage the transition while building sustainable funding practices for the future. Communities that address these challenges proactively—through gradual increases, transparent communication, and proper financial planning—ultimately protect both their residents’ financial interests and their property values.
For homeowners facing similar situations, the focus should be on understanding the necessity of adequate reserves while advocating for the most manageable implementation possible. The goal is building a financially healthy community that supports all residents, including those on fixed incomes who deserve to age in place without facing impossible financial burdens.
