JUST SAY “NO” TO SPECIAL ASSESSMENTS!
Despite our collective efforts over the years, clients continue to make special assessments which could spell trouble if owners don’t pay them.
If there has been one common refrain from this office over the years, it’s that a board should never call an assessment a special assessment. Why you ask? Because under the Massachusetts Condominium Statute (M.G.L. c. 183A, s. 6(c)), special assessments—along with late fees, interest and fines—are expressly not part of the priority lien that a condo can obtain. Therefore, our ability to collect an unpaid special assessment is greatly limited as compared to collecting regular monthly fees or supplemental fees.
However, we continue to see clients making special assessments and unfortunately, have collection issues when an owner, or owners, are unable to pay it. Unfortunately, recategorizing a special assessment after it has been assessed is often too late.
What’s in a name? Supplemental fees are different than Special Assessments, but the math is the same:
A supplemental fee is an extra common expense assessed to the owners in addition to regular monthly fees. To create a supplemental fee, a board must amend their budget to include the new fee and then assess the new supplemental fee to the ownership just as it would for regular monthly fees. Again, turning back to the condominium statute, the priority lien includes up to six months of budgeted monthly fees plus the reasonable legal fees and costs incurred to enforce the condo’s lien. Since a supplemental fee is part of an amended budget, it is a budgeted fee and should be part of the condo’s priority lien.
The power of the lien enforcement process in Massachusetts is based upon the priority nature of the condominium’s lien and also the ability to foreclose upon that lien if not paid.
Having a priority lien means a lien that jumps ahead of all prior liens, even the first mortgage. Priority liens defy the normal rule of “first in time, first in right”. Since mortgage lenders want to be in first lien position to protect their financial interests, they are not happy when the condominium association jumps ahead in line. Therefore, the mortgagee is incentivized to pay off the lien in order to regain first lien status. When you combine the priority lien with the ability to foreclose the lien—which would wipe out the lender’s mortgage altogether—you have a situation where lenders are going to readily pay condos for the fees their borrowers cannot pay in order to avoid having their own lien (the mortgage) wiped out. But this is not the case with special assessments which do not have priority over a first mortgage lien.
When your board is contemplating a new assessment—perhaps for a new roof, perhaps for a siding project or even a snow removal overrun—you want to do so in a way that maximizes your chances of collecting any unpaid portion. The way to do that is simple:
Call a board meeting to approve the project;
Approve the amount necessary to fund the project;
Amend the annual budget to include the new supplemental fee which will fund the project;
Assess the ownership over a series of months.
Sometimes you can’t wait months for the money you need today for the project at hand. In those circumstances a board may have no choice but to do a one-time supplemental fee. In such situations it’s critical to still amend the budget to include the new fee. But whenever possible, the supplemental fee should be done over a series of months to distinguish it from a special assessment. As always, planning ahead and knowing when larger projects are coming up, is critical.
If you or your board has any questions or concerns regarding supplemental fees, feel free to reach out and discuss with Dean Lennon or email any of our MEEB attorneys at law@meeb.com.