By Frederick Blum, Broker/Owner of Blum Realty Group
A condo you like has a special assessment. The seller offers to pay it. Problem solved?
Sometimes that takes care of the main money problem. Other times it answers only one of several questions. You still need to know what the assessment pays for, whether the work is done, whether more money may be needed, and whether the building qualifies for your loan.
For a San Diego condo buyer, I break the assessment into three separate questions: the money you would owe, the condition of the building you would own a piece of, and what it does to your loan. That makes it easier to size up a Downtown high-rise or a Mission Valley complex without writing off every assessment, or treating the seller’s payment as the end of the questions.
Start with the reason for the assessment
The dollar amount gets your attention. The reason tells you what to investigate.
A planned roof replacement with a set scope, a signed contract and the money in place is a different thing from a water-intrusion problem the association is still trying to understand. An assessment to cover an insurance bill raises different questions from one paying for structural repairs. Start by working out which of these you are looking at.
Ask for the assessment notice, the record of its approval, the share assigned to the specific unit, the payment schedule and the description of the project behind it. Then ask:
- Is the work proposed, under contract, underway or completed?
- Is the amount based on an estimate or a signed contract?
- Does the budget include a contingency for additional work?
- What is still unfunded, and what happens if the project runs over?
- Who can provide the engineering, inspection or completion records?
The dollar figure should lead you to the records behind it. A verbal rundown from the manager helps you get oriented, but get the documents before you decide to buy.
Find out the unit’s share, not just the association’s total
A $1 million association project does not tell you your share. The governing documents may split the cost unevenly instead of dividing it equally among the homes. Confirm the amount assigned to the unit you are buying.
California’s disclosure rules for a condo sale require information about current assessments, unpaid amounts and approved changes that are not yet due. You can also ask for the approved minutes of the board’s meetings over the past 12 months, not counting closed executive sessions. California Civil Code section 4525
Ask for information recent enough to include the latest decisions. If the board is meeting about the project during your escrow, find out how you will hear what was decided.
The numbers you want are the original assessment, what has already been paid on the unit, the remaining balance, any installment charges, and whether paying it off early costs a different amount than the sum of the future payments. Give the written figures to escrow and the lender so each can handle its own requirements.
A seller payoff and completed repairs solve different problems
Before you negotiate, keep this distinction in mind: paying an assessment changes who pays for the work. It does not do the work.
If the seller offers to pay the assessment, ask two separate questions. Will the HOA show a zero balance for this unit at closing? What does the lender still need to see to confirm the repairs are finished? Fannie Mae treats a project with an unresolved critical repair as ineligible, even if the related assessment has been paid.
Under Fannie Mae’s project standards, the lender looks at current and planned special assessments to see whether they are tied to critical repairs. If an assessment is tied to a critical repair and the problem itself has not been fixed, the building is ineligible under those standards. The lender needs acceptable proof that the repair was completed, not just proof that one owner paid. Fannie Mae critical-repair and special-assessment requirements
That rule does not mean every assessment blocks a loan. Have your lender spell out what your particular loan requires for the specific issue, if there is one. If the lender needs an engineer’s completion report, find out whether that report exists and when you can get it.
Do this before you count on a seller credit or payoff to make the deal work. Our condo mortgage project-approval guide explains the rest of the building review.
Compare the cash options in real dollars
Take a made-up example: a unit with a $24,000 remaining assessment, payable in 48 monthly installments of $500, with no interest or extra charges. Say the regular dues are $650 a month.
For those four years, dues plus the assessment come to $1,150 a month, before the mortgage, property taxes, your own insurance and everything else. If the seller pays the whole remaining balance at closing and that payment clears it completely, you no longer owe that assessment. Confirm that in the association’s records.
A $24,000 price reduction works differently. It lowers the price you pay, but it does not pay the assessment. Depending on your financing, much of a price cut may go toward a smaller loan instead of cash in your hand for the installments. A closing-cost credit is different again, and it has to fit the lender’s rules.
Have escrow show you how the arrangement you negotiate would be handled, and have the lender work out what it does to your cash to close and your monthly payment. For the bigger picture, see our guide to seller credits and price reductions.
These are invented figures to show how the choices differ. What you would really owe, the payoff terms and how the cost is split between buyer and seller depend on the records and the contract.
Trace how the project gets paid for and what stays with the unit
Once you know the unit’s remaining assessment, follow the money from the owner to the association and on to the contractor. The schedule for collecting from owners, the schedule for paying the contractor and what happens at closing all have to fit together.
Check the approval and notice behind the charge
Lay the board’s resolution, any required member vote and the notice sent to the owner next to the current statement for the unit. Make sure the purpose, the split, the amount and the due dates all match. If the project changed after it was approved, ask whether the scope, the funding or the payment schedule changed with it.
Under the general rule in Civil Code section 5605, special assessments that add up to more than 5% of the association’s budgeted gross expenses for the fiscal year need approval by a majority of a quorum of the members. Section 5610 sets out specific emergency exceptions. If the board cites an emergency, ask which exception it relied on; a reserve shortfall by itself does not tell you which one applies.
California’s notice rule generally requires that each owner get notice 30 to 60 days before an increased assessment is due. Those dates help you tell an approved charge from a proposal the board is still talking about. Have the association clear up any mismatch before escrow relies on a payoff figure.
Separate owner installments from project financing
Say owners get two years to pay, but the contractor wants large payments over the next six months. The association has to cover that gap somehow. Ask whether it will dip into reserves, collect part of the money up front or borrow, and where the repayment shows up in the budget.
An owner can pay off the unit’s stated assessment while the association still owes on a loan. Ask whether the loan payments continue inside the regular dues or as a separate charge, and exactly what the payoff releases you from. The association’s loan terms, governing documents and unit records need to line up with the purchase contract and the escrow instructions.
Compare the choices with every assumption out in the open
Take a second made-up example: a $240,000 funding gap for a project, split equally among 60 homes. Paid all at once, that is $4,000 per home. If owners were offered a 24-month schedule with no interest and no fees, the payments would be about $166.67 a month, with the last payment adjusted for rounding. The association would still need the cash to pay the contractor’s earlier bills.
Or say the association borrows the full $240,000 at a fixed 7% for five years, with level monthly payments starting one month after the loan is funded, no fees and no balloon payment. The association’s payment would be about $4,752.29 a month, or $79.20 per home if split equally. Total interest over the five years would be about $45,137.
That 7% is an invented number, not a loan quote. Real rates, fees, how the cost is split and prepayment terms need their own comparison. A smaller monthly payment runs longer and costs more in interest. The regular dues, including the reserve contribution already built into them, and any separately approved increase come on top, so compare your full monthly cost and the cash you would have left after closing, not the assessment payment by itself. If the loan payments or the increase are already inside the regular dues, count them once, not twice.
Ask the insurer about what happened and what the policy covers
The California Department of Insurance’s condominium guidance describes loss-assessment coverage, which applies to certain assessments that result from a loss. Start with what happened and when, what the master policy is paying, and what the unit’s own policy says.
Give your insurance agent the assessment notice and the claim information. Ask whether the cause of the loss is covered, what is excluded, how much the limit is, and whether there is any restriction when the assessment is for the association’s deductible. If an earthquake is involved, ask about that coverage specifically. Get the answer in writing before you count on an insurance payment in your budget. An ordinary charge for a worn-out component or for topping up reserves still needs a funding plan, even if the policy has something called loss-assessment coverage.
Settle who provides what before closing
The seller provides the required HOA disclosures and what they know about the assessment. The association or its manager provides the unit’s current status and payoff figures, through the owner or someone authorized to receive them. The lender decides on project and loan eligibility; the insurer answers the coverage questions; the contract and escrow instructions set out the payment arrangement you negotiated.
I keep those questions moving against the contract deadlines. Before you settle on terms, I put the cash due now, the later installments or loan payments, the regular dues and any separately approved increase into one comparison. If two records disagree, pin down the amount or date in question and the person who can sort it out. That gives the buyer and seller something concrete to settle.
Read the reserve plan for what comes next
An assessment can pay for one needed project and still leave other big expenses coming. That is why I read it alongside the reserve study, the budget and the meeting minutes.
For the new reserve-funding rules that start in 2032, read my AB 2050 reserve-law guide, including what it says about assessments and homeowner votes.
California’s rules for the association’s annual budget report cover reserves, major repairs that have been put off, special assessments the board expects, and certain association borrowing. That is where to look for the next charge instead of stopping at the one already disclosed. California Civil Code section 5300
Ask what is still coming after this project: another section of roof, the elevators, exterior work, the insurance renewal or paying back an association loan. Low monthly dues are less reassuring when the records show big expenses ahead with no clear plan to pay for them.
Check that the documents agree with each other. Do the minutes, the budget and the reserve plan describe the same work on the same timeline? If not, ask management to explain the difference. It may be that one document is older, that the plan changed, or that a cost is still unsettled. You need to know which.
Consider what the work will be like to live through
Even a fully funded project can disrupt daily life. Ask about construction hours, parking, elevator shutdowns, balcony restrictions, scaffolding and any expected interruptions to utilities or to your use of the unit.
If you work from home, several months of exterior work matter more than they would to someone who plans to renovate before moving in. If you have a firm move-in date, questions about access and whether the unit will be livable belong near the top of your list.
Get the current project schedule and ask who will tell you when it changes. Weigh the inconvenience against the long-term benefit of the work. A well-kept building and a predictable project can be worth paying for. An open-ended obligation is a different conversation.
Questions about buying with a special assessment
Does a special assessment automatically make a condo a bad purchase?
No. Look at what it pays for, what the unit still owes, how far along the work is, the association’s finances and what your loan requires. A clearly defined project with the money in place is a different thing from an unresolved problem with no firm cost.
If the seller pays the assessment, will the lender approve the building?
Not on its own. Paying the assessment does not make the building eligible. The lender still has to review the underlying problem under the standards for your loan, including whether any required repairs have been finished and documented.
Is a price reduction the same as having the assessment paid?
No. A price reduction lowers the purchase price. It does not pay off the assessment. Compare the real cash to close, the loan payment, the remaining assessment and who the contract says is responsible for it.
Get the records before settling on the deal
A special assessment is something to understand and price with care. Get the unit’s share, the status of the work and the lender’s answer in hand before you decide what terms make sense.
For the rest of the association review, use our San Diego condo HOA checklist.
General real estate education, not legal, engineering or insurance advice. Association obligations, contract terms and loan eligibility require review of the specific property and documents.