N.C. Legislature Adopts Changes to HOA Statutes

As many of you know, the House Select Committee on Homeowners Associations introduced a far-reaching 14-page bill in the 2011 legislative session which would have made sweeping changes for all condominium and planned community associations in North Carolina, affecting a wide variety of areas from assessment collection to record keeping. Through active lobbying efforts and significant opposition to this proposed legislation, House Bill 165 was dramatically scaled back from its original proposal, and the amended bill was enacted by the legislature and signed into law by Governor Perdue on June 27, 2011.

As amended, House Bill 165 makes the following changes to existing law:

I. Collection procedures

Effective October 1, 2011, an association may not begin foreclosure until the assessment has remained unpaid for at least 90 days. We do not anticipate this to change our current practice, as most associations do not refer collections to the attorney’s office until after the 90-day delinquency date.
Also effective October 1, 2011, an association may not begin a particular foreclosure action unless the executive board has voted to commence the foreclosure against a specific lot or unit. The intent is that boards will give serious consideration to the weighty matter of foreclosing on a home. This will be a change of procedure  for  associations which have followed a “blind” policy, authorizing foreclosure when an account reaches a certain dollar threshold. Under the new law, the board must vote specifically to commence foreclosure against a particular named property, and such vote should be reflected in the minutes of that meeting (or otherwise in writing if unanimously agreed outside of a meeting).  We will be working on a process to ensure compliance with all of our communities over the next few months.

II. Real Property Disclosures

Effective January 1, 2012, a purchaser of real property has the right to insist a seller provide the “Owners Association and Mandatory Covenants Disclosure Statement” to be developed by the NC Real Estate Commission. Buyer and Seller may opt out of the disclosure statement if both parties agree.
Seller also has the option on the form to check the box for “no disclosure” if the Seller does not want to provide the requested information. If the Seller does choose to provide the disclosure information, the form will require the following:
a. The name, address, telephone or email address for the president or manager of the association to which the lot is subject.
b. The amount of any regular assessments or dues to which the lot is subject.
c. Any services that are paid for by regular assessments or dues to which the lot is subject.
d. Whether, as of the date the disclosure is signed, there are any dues, fees, or special assessments, confirmed or proposed, payable to an association to which the lot is subject.
e. Whether, as of the date the disclosure is signed, there are any unsatisfied judgments against or pending lawsuits involving the lot, the planned community, or the association to which the lot is subject.
f. Any fees charged by an association or management company to which the lot is subject in connection with the conveyance or transfer of the lot to a new owner.

We anticipate you will start getting these questions so that sellers and realtors can complete the disclosure forms beginning in late 2011. Additionally, the Real Estate Commission is required to publish a brochure for homebuyers that “shall include an explanation that unpaid assessment, fines, fees, or charges may result in foreclosure of the owner’s property.”

We do not believe these new changes will necessitate much change in current procedure for associations who are already following best practices in the industry. We spent many hours this summer educating legislators about the vast majority of associations who operate fairly and efficiently. We stressed the need for efficiency in HOA operations and effective collection methods for delinquent assessments. Thanks to all of you who wrote letters, made phone calls and came to speak directly with members of the general assembly – together we were able to narrow the focus of the legislation and thwart proposed changes which threatened to go as far as elimination of the association’s right to foreclose.
We hope these changes will not be too much of a burden on your current procedures. We are actually quite pleased with the outcome of our negotiations because the original bill would have been far worse. As always, we will be happy to help guide you through the new processes that the law now requires.
All HOAs and management companies are encouraged to review their current practices to determine how the statutory changes will affect their association operations and make the necessary changes in procedure. Please do not hesitate to contact us with any questions.

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