A homeowners association faces a common financial situation: a special assessment was set up to cover monthly payments on a construction loan with roughly 8.5 years remaining, but the assessment brings in about 14% more than the actual loan payment each month. This raises a practical question for the board: what should be done with the surplus funds?
The excess could theoretically be redirected toward reserves or other association needs, but doing so requires careful attention to how the special assessment was originally authorized and what governing documents allow. Many associations establish special assessments through member vote or board resolution with specific purposes stated, which may limit flexibility in using any surplus.
Before deciding where excess funds go, the board should review its bylaws, declaration of covenants, and the resolution or member approval that created the special assessment. Some governing documents restrict special assessment funds strictly to their stated purpose, while others may permit reallocation by board decision or member vote. State law may also impose requirements about how reserve funds are managed and reported.
If the governing documents allow it, directing excess funds to reserves could benefit the community long-term by strengthening financial health. However, if the documents require the assessment to match the actual loan payment, the board may need to reduce the assessment going forward or seek member approval to redirect the funds. Consulting with the association's legal counsel and accountant can help clarify what options are available under local law and the community's specific documents.
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