HOA Bonds, Fees, and Assessments

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Many communities have HOAs that help maintain, repair and regulate the dwellings in their association. Homeowners are responsible for paying HOA fees in order to fund the HOA. They may also be responsible for paying additional fees throughout the year as expenses add up.

Structure of HOAs

An HOA is a private government that has the ability to regulate, control and tax its members. HOAs are comprised of elected board members. These members have the right to collect taxes and save HOA fees in a public fund to be allocated to serve the interests of its members collectively. Its central purpose is to manage the common interest of its members who live in the community.

When the community is first developed, a declaration of covenants and restrictions is recorded, usually with an assessment lien that gives the HOA the right to tax its members. Once someone buys the property in the community, they are responsible for paying the HOA fees. A continuous lien exists on the property. If the member does not pay the HOA fees, the HOA can foreclose the property.

There are a number of documents that dictate the rights, duties and responsibility of the members, including articles of incorporation, HOA agreements and Covenants, Conditions and Restrictions. The covenants set up the HOA organization, explain the members’ obligations, dictate what type of insurance is necessary, declare who is responsible for various expenses and other important details. The conditions state that the owner agrees to abide by the covenants. The restrictions declare what the member is or is not able to do with the property, such as what materials he or she can add. Within these documents, the member likely agrees to pay HOA fees, bond fees and other expenses as they are incurred.

HOA Fees

The main source of revenue for HOAs is HOA fees. These fees often cover such expenses as services like trash and landscaping, maintenance, insurance for common areas and other costs that the HOA incurs. HOAs calculate fees based on the projected budget for the year as well as a certain rate to go in reserve. The HOA may have a replacement reserve in which savings are put in an account to replace structural items and other items as they wear out.


Bonds are a type of debt that an HOA may issue. The HOA member dues may be used as collateral to secure the bond and to repay the debt. The investors who buy the bonds are the actual lenders rather than a bank or finance company. HOAs may prefer to use bonds for a number of reasons. They often offer longer repayment terms and lower interest rates than the HOA would be able to secure through bank financing. The lower interest rates and longer repayment terms help to reduce the annual cost of the loan repayment for the HOA.

Uses of Bonds

Bonds may be used for a variety of reasons. They are often used to finance long-term capital improvements, such as making structural repairs, replacing a portion of the property, making road improvements, improving infrastructure, upgrading utilities, upgrading electrical systems and adding recreational or community facilities.

A speical type of bond called a fidelity bond protects HOAs if an employee embezzles and removes needed funds from the treasury, conducts computer fund, transfers funds or takes other negative action that adversely affects the HOA. This type of insurance protects the HOA’s daily and reserve funds by reimbursing the association if someone illegally takes the money. Many states do not require this type of insurance by law, but HOAs may include the need for such bonds in their governing documents.

Special Assessments

In addition to charging HOA fees and bond fees, HOAs may also impose a special assessment on HOA members. This is an additional fee that is levied against homeowners when an unexpected expense arise, such as the need to pay for a new roof. The HOA does not have its own funds, so the owners are ultimately responsible for any expenses that come up, including current bills, capital repairs and replacement. When the original budget did not account for a necessary repair, a special assessment may be imposed without any additional warning to HOA members.

Legal Assistance

Members of an HOA who believe that they have wrongly been assessed fees may wish to contact a real estate lawyer who can review all relevant documents to explain their rights and duties. If the member did not explicitly agree to certain terms, the real estate lawyer may be able to defend him or her against the assessment or explain other legal options based on the particular circumstances involved in the case.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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