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Now that the hurricane has passed and the cleanup efforts are well underway, many condo owners, especially those with waterfront properties, are faced with exhorbitant special assessment fees that can be as financially catastrophic as the hurricane itself. Some HOA’s have requested as much as $30,000 or more. Often, home and condo owners just don’t have large sums of cash at their fingertips for these surprise assessments. In some instances, the HOA will allow owners to pay an assessment over time, but honestly, who wants to have an amount like that hanging over their head for years to come? Some owners can borrow the money for an assessment but are then stuck paying interest in addition to the assessment fee. It is a horrible financial situation that comes on the heels of trying to recover from devastating storm damage. Owners evacuate and often come home to overwhelming damage, and then get hit yet again by the news of a heavy assessment- it's heartbreaking. The good news is, there ARE ways around an assessment.
In most cases, if you sell your condo or property, you can pass these fees on to the next owner or pay for them within your profits. For example, if your property is an investment property, a 1031 tax exchange can allow you to purchase another similar (or upgraded) property without paying Capital Gains taxes. If you’re facing a hefty assessment – talk to us about how you can sell your current condo, possibly enjoy some tax advantages, and maybe even upgrade to a better condo in the process.
What is an assessment?
A special assessment for a condominium complex is a charge for an improvement or a repair that is not covered by the association’s normal budget and typically, more than what they have saved in their reserve account. For example, if a storm destroyed the roof of the complex, and the condominium association’s insurance policy was insufficient to cover all the repair costs, the condominium owners each pay an equal portion of the additional amount to cover the expense. Assessments can be highly controversial and financially painful for some property owners suddenly hit with a huge, unexpected bill. And to make matters worse, if the property owner fails to pay the special assessment, it becomes a lien against the condominium, which gives the lien holder or lender the power to force the sale of the property to collect and treat an assessment as unpaid debt. So assessments can be very serious.
Of course, all condo owners are aware that assessments can occur – assessments are no different from the normal expenses and repairs common with any kind of property ownership. But sometimes they hit at an inopportune time, and that’s when a buyer can benefit.
There is a way to avoid hefty assessments
It may sound extreme at first glance, but selling your property can be a smart way to avoid a devastating assessment and perhaps even help you move on to a like-kind or better property without a financially crippling assessment weighing on your financial future.
Often, the timing of the work to be completed can help in negotiating who will pay for an assessment. If the project paid for by the assessment is not going to take place until after the close of escrow, it may be more appropriate for the buyer to pay the assessment. If only a portion of the work has been completed at the time of the sale, the assessment can be shared and both buyer and seller pay a portion. Some assessments such as the kind required by a hurricane, can be tax deductible if they involve repairs.
This can sometimes be a benefit for an investment buyer. Real Estate Agent, Joy Sullivan of Joy Sullivan Realty says, “Asking a buyer to pay an assessment may or may not affect your sale price, especially in a hot market where inventory is low. In real estate transactions, everything is negotiable so assessments can be split between the buyer and seller. Sometimes the assessment can be taken from the profits of the sale, or completely passed on to the buyer who may find it an advantageous expense for tax purposes.” This may help struggling homeowners move forward to a similar or better property while avoiding huge assessments. It can make your financial future much more secure.
If you are a home or condo owner who is facing special assessments that are putting a strain on your financial future, please contact a realtor and research your options. No one should have to be penalized for the damage caused by a natural disaster, and a good realtor can help protect you and get your finances back on track.
Sources: www.pocketsense.com/responsibility-special-assessments-selling-condo-8610611.html