HOANinjas logo

HOANinjas logo
The HOA Ninjas are here to save the day!

Thursday, June 21, 2018

The Wild West, Tamed a Bit


Although far from comprehensive, the South Carolina legislature has successfully taken its first steps to regulate homeowners’ associations.   The South Carolina Homeowners Association Act (“Act”) became official on May 17, 2018 when the governor signed it into law. Up to this point, South Carolina has never had a comprehensive law governing homeowners’ associations. Until now, there was only the South Carolina Horizontal Property Act, which governs condominiums, and the South Carolina Nonprofit Corporation Act, which deals with operational issues within nonprofit corporations and generally applies to homeowners’ associations since they are non-profits.


The Act places new requirements upon homeowners’ associations. It defines a homeowners’ association as any entity developed to manage and maintain a planned community or condominium in which there is a recorded declaration requiring a person to pay assessments.  This definition covers all mandatory homeowners’ and condominium associations.



The Act requires every homeowners’ association to have recorded its declaration and bylaws by January 10, 2019 in order for those documents to remain enforceable.  This does not present a new requirement for declarations; declarations already had to be recorded to be enforceable.  The requirement to record bylaws, however, is new.   Most HOAs do not typically record their bylaws, so those whose bylaws are not presently recorded will need to do so prior to January 10, 2019 (some declarations have the bylaws attached as an exhibit when they are recorded and in that case the bylaws will not need to be re-recorded independently, unless they have been modified since they were first recorded.) The unspoken requirement is that the bylaws must be formally adopted by the HOA, which is sometimes an overlooked corporate formality during the rush to incorporate an HOA. By way of comparison, North Carolina does not require HOA bylaws to be recorded.  

A note regarding what we mean by the term “recorded”. This term means filed with the county office which oversees land records.  Originally known as the “Register of Mesne Conveyances”, the name of the land records office in some counties is known as the Register of Deeds, or in some counties, the Clerk of Court’s office records land records (“mesne” is an Old English term referring to the office which records the documents making up the chain of title for a particular piece of real estate). Upon recordation, a recorded document serves as public notice of the contents of that document to all the world.

In an unprecedented move, the Act also requires HOA rules and regulations to be recorded by January 10, 2019 to be enforceable, and by January 10 of each successive year to remain enforceable. Somewhat confusingly, the Act states that rules and regulations are effective at the time they are properly adopted by the HOA, but to remain effective as of January 11 and thereafter, they must be recorded by January 10 of each year. So again, this provision does not affect the current enforceability of an HOA’s current rules and regulations, but HOAs must record them by January 10th of each year. And, given that they will now be a public record, HOAs may now wish to be more careful in the wording of their rules and regulations, and most likely, make sure they have been vetted by legal counsel to ensure, for example, that they do not contain provisions which could be deemed to be discriminatory. 

The rules and regulations must also be made accessible to members.  The Act allows such accessibility through a website maintained by an HOA, or by posting the rules and regulations in a conspicuous area within the common areas. This makes sense since arguably rules and regulations are not enforceable if there is no way for members to know of them.

Unincorporated homeowners’ associations, a rarity nowadays, must now provide members with notice at least 48 hours in advance of a meeting where the budget is to be increased in a given year. Incorporated HOAs are presently subject to lengthier notification requirements, and are therefore exempted from the 48-hour notification provision.

The Act authorizes Magistrates Courts (generally referred to as “small claims court”) to hear HOA disputes, provided the dispute does not exceed the jurisdictional limitation of small claims court, currently $7,500.00. This is new, as it was previously uncertain whether the very limited subject matter jurisdiction of small claims court allowed HOA disputes to be heard there.

The Act authorizes the South Carolina Department of Consumer Affairs to produce and disseminate educational information to the general public about homeowners’ associations and rights, responsibilities and the roles of homeowners’ associations, boards of directors and homeowners. The Department is directed to collect and publish data about homeowners’ complaints against homeowners’ associations, or homeowners’ associations’ complaints against homeowners, including the HOA name and any property management company. Notably, personal identifying information of the complaining party may not be published, allowing the complainant to remain anonymous while spotlighting the HOA and management company publicly, which we hope does not end up becoming a harassment tactic for disgruntled homeowners.

BOTTOM LINE: As with most new laws, time will tell how effective this new legislation is at enabling homeowners to educate themselves about their subdivision’s governing documents. In general, we are big believers in transparency and are in favor of HOAs’ governing documents, including rules and regulations, being publicly available and easily accessible. We are glad that the South Carolina General Assembly did not seek to regulate the content of declarations, bylaws or rules and regulations, but only seeks to ensure that they are publicly available. We hope this legislation may silence some of the dubious complaints that we sometimes hear that a member did not know about the homeowners’ association or what was required for compliance. It should also result in more accountability for board members. We query whether the reporting of conflicts between owners and their associations will have a positive effect. At least in our experience, a single or small group of vocal complainers may give the appearance of systemic disagreements; however, in reality, most interactions between homeowners’ associations and their members are positive.

Please stay tuned as this new law is implemented, and of course feel free to contact us to discuss any of these issues and steps needed for compliance, or any other issues affecting your South Carolina or North Carolina HOA. 

The full legislation is available here.

Saturday, March 3, 2018

Caselaw Update: Supreme Court Reverses Willowmere Decision re HOA's Lack of Standing

Caselaw Update! 

The North Carolina Supreme Court, in a decision filed on March 2, 2018, REVERSED the Court of Appeals' decision discussed below. You can read the Supreme Court's decision here. As we discussed in our blog post below, which we posted on December 14, 2016, we disagreed with the Court of Appeals' reasoning, and thankfully the Supreme Court did also. The Supreme Court confirmed the longstanding rule that only members of an association can contest whether the board properly followed its own internal procedures in making the decision to bring a lawsuit - failure to follow the bylaws or other requirements cannot be used by the third-party, non-member defendants to claim that the association did not have standing to bring the lawsuit. In this case, two Charlotte-area homeowners associations can now proceed with their lawsuit against the City of Charlotte for approving a rezoning which would allow lower-income housing next door to the two associations.

However, our bottom line below still stands -  while it may sometimes be a pain to follow board meeting and voting procedures, a cavalier attitude can come back to bite you.  In this case, years of litigation and many tens of thousands of dollars in legal fees were wasted due to the failure to follow simple procedural steps. Don’t let that happen to your HOA.


Thursday, February 22, 2018

NC Community Association Mediation Program (CAMP) Now Available

For homeowner in North Carolina homeowners associations, access to a mediation process, for their HOA-related grievances, recently became much more accessible.



Background
In 2013, the North Carolina legislature passed a law encouraging homeowners associations and aggrieved members to agree to voluntary, non-binding mediation to resolve HOA-related disputes (see our 2013 blog discussing the law here).  The law has mostly gathered proverbial dust, and we have not actually seen any owners or HOAs avail themselves of it.

Recently, the North Carolina Chapter of the Community Associations Institute, a group which gathers no dust and is deeply involved with educating homeowners and property managers throughout the state, began offering mediation services through its new CAMP program (CAMP stands for Community Association Mediation Program).  In full disclosure, we as a firm are members of CAI-NC, and we strongly believe in its mission, education and advocacy. We are excited that this new program may provide a cost-effective means for working out HOA disputes without the necessity of court proceedings.

CAMP Program Details
The program offers to locate an experienced mediator with significant HOA experience, who is either a professional community manager or an attorney, to preside over an owner-versus-HOA dispute. 

The cost for this process is $500.00, which is evenly split between both sides. The fee ensures a minimum, 2-hour mediation, although the parties may engage the mediator for longer time periods, paid by the hour.  


Neither party is required to hire an attorney for representation during the mediation, although the parties may be represented by counsel if they wish. 




How Parties Enter the CAMP Program
Since mediation is voluntary, both parties must agree to mediation by filling out an online application on the CAMP webpage. Each party must pay its half of the mediation fee at this time.  

Upon submitting the required forms and paperwork, a mediator will contact the parties within thirty days. The mediator is permitted to speak with the parties before the mediation commences, and to hold separate meetings or discussions with the parties prior to or during the mediation. 

The mediator may also request the parties to provide a written statement summarizing the dispute and to request the parties to submit all documents supporting their claims and the dispute.

All information received by the mediator will remain confidential.  The mediator’s role is that of a settlement facilitator; the mediator does not render a decision about which side has the better argument or would win the case if a lawsuit were filed, but assists the parties in reaching a mutual settlement.

It remains to be seen whether the CAMP program will breathe new life into the statutory mediation program, although hopefully it will result in more disputing parties finding “common elements” to resolve their disputes. If you have any questions as to how your association could use the CAMP program, or any other HOA-related questions, please contact us.

Monday, February 12, 2018

8 Homeowners Association Collection Laws

It's HOA collection season, so our HOA Ninjas want to remind you of the 8 laws of HOA collections to help your homeowners association help its members pay their assessments on time. 

Following these laws will collect more dues more quickly, and keep your HOA in compliance, so you'll have the best chance to win any potential court cases that may arise.

HOA Collection Laws

  1. Collect early and often
    • Don’t delay collections in your HOA. You don’t do the HOA or the homeowner any favors if their balance mushrooms to an amount they can’t pay all at once – then payment plan costs, interest, late fees and attorneys’ fees can start to stack up, and they all hurt your association’s cash flow.
  2. Follow your policies
    • Have a written collections policy and follow it with each and every homeowner. Not only does this allow your board members to avoid pleas from their neighbors to cut them a break, but it also insulates your HOA from accusations of discrimination, which can arise when everyone isn’t treated the same.
  3. Prioritize collections
    • Someone on your board needs to be responsible for making sure collections is a regular monthly habit, and they need to be honest and accountable to the board for the numbers at every meeting. If you don’t have such a person, get professional help.
  4. Make payment easy
    • Does your HOA accept credit cards, ACH payments, personal checks, even cash? Why not? The first rule of business is to make it easy for the customer to pay.
  5. Keep contact info current
    • If your homeowners association doesn’t have current email addresses and telephone numbers for its members when they are current with their dues, take our word, members probably aren’t going to share that information when you’re in “bill collector” mode. Have a system to update contact info based on checks, emails and phone calls your HOA receives.
  6. Stay alert to clues
    • The broken window theory suggests that failing to police small crimes sends a signal of decay and lawlessness which can lead to bigger problems. Keep an eye out for homes that suddenly seem to be less-well maintained or have an increase in violations. These could signal changes in the home that could impact your association economically.
  7. Show respect and expect respect
    • Every HOA member is a neighbor and deserves respect from the board, property managers and attorneys. Showing respect and understanding can be one of the best ways to get a sum collected and turn a potential adversary into an advocate – we’ve even gotten thank-you notes from homeowners we’ve collected on.
  8. Never give your opponent ammunition
    • Violating fair debt laws or failing to treat all homeowners equally can land your homeowners association in hot water that will cost you thousands in attorneys’ fees to escape. Always follow all laws and your covenants, bylaws and policies to a T – you’ll be glad you did in the off chance the case does wind up in court. Just remember everything you learned in kindergarten and you’ll stay clear of most regulatory violations.
Following the above laws won't guarantee collection, but they will make the process stronger, more accountable, and more successful. If you have any questions, give us a call at (704) 721-3500, or fill out the form on our website. 

Friday, January 19, 2018

Case Alert: A Very Un-Jolly Christmas for One North Carolina Homeowners Association

The North Carolina Court of Appeals delivered a lump of coal to one homeowners association this winter.  In McVicker vs. Bogue Sound Yacht Club, Inc., available here, which came out on December 20th, the Court of Appeals ruled that a homeowners association had exceeded its authority when it attempted to collect a construction bond from an owner, and again when it fined that same owner for failing to timely deposit the impermissible construction bond. 

The facts appear to be relatively straightforward.  The homeowners, not realizing that they had to obtain prior approval, hired a contractor to clear their lot of brush and other debris.  As the clearing was underway, the association notified the owners that the clearing required prior approval from the architectural review committee. 

CASE DETAILS

At issue was one of the policies enacted by the board of directors which required any owner, as a condition to the architectural review committee’s consideration of any architectural plan, to submit a $250 construction bond.  The construction bond was intended to offset the costs of any damage to the community’s common areas. The bond was not provided for in the association’s restrictive covenants, but was apparently adopted by the board as a part of its architectural approval process. Such bonds or deposits are not necessarily unusual; we know of some high-end associations which charge as much as $10,000 as a deposit to ensure compliance during the construction process.

After a violation hearing, the board of directors in this case required the homeowners to submit an architectural plan describing what they intended to do with the property and to deposit the construction bond, or face a fine of $100.00 per day.  The homeowners submitted their plans late, which the board retroactively approved.  The owners did deposit the construction bond, albeit late and “under protest”, at the time they submitted the plans.  The board levied fines for fourteen days, totaling $1,400.00 for the failure to submit the construction bond within the required time period, although the board later reduced the fine to $1,050.00.  The owners argued that the board had neither the authority to require a bond nor the authority to impose a fine for a failure to deposit the bond, since the bond requirement was only a policy adopted by the board, not a requirement explicitly set forth in the restrictive covenants.

OUTCOMES

Although the amounts of money at stake are fairly trivial, it appears that neither the board of directors nor the owners were willing to back off of their respective positions.  The homeowners lost in the trial court, however they appealed.  

On appeal, the appellate court noted that the association was without proper corporate authority to impose a construction bond in the first place.  The court reviewed the association’s declaration of covenants, conditions and restrictions, and noted that there was no explicit provision which would authorize the collection of a construction bond.    

The court cited the long-standing North Carolina law which states that a restrictive covenant is to be narrowly construed, and a homeowners association cannot expand that authority beyond the limits set forth in the restrictive covenant.  The association also argued that since it had blanket authority to govern the upkeep of the common areas, that its authority could be extended to require a construction bond since the purpose of the bond was ostensibly to protect the common areas.  

The court disagreed on this point as well:  restrictive covenants that are “clearly expressed may not be enlarged by implication or extended . . .”.   Similarly, since the association could not charge the construction bond in the first place, it could not fine the owners because they failed to timely deposit the construction bond.

Notably, there was a dissenting opinion which argued that the appellate court exceeded its scope of review, because the bond was ultimately refunded, rendering the question moot, and also that the homeowners had asked only whether the association followed proper procedures to impose the fine, not whether the association had the authority to demand the bond.  The presence of a dissent means that the case may be further heard by the North Carolina Supreme Court, if it believes the case warrants further review. 

The Bottom Line

a homeowners association is bound by the explicit authority granted to it in the governing documents, and that authority may not be expanded without amending the declaration. The proper remedy in this situation was to amend the governing documents to grant the authority to charge the construction bond. Boards of directors may, and should, adopt policies and procedures to flesh out their restrictive covenants and ensure that decisions are made in fair, uniform and even-handed ways, but in doing so they must take care not to add substantive requirements for which there is no authority in the document itself.


If you have questions about the scope of authority in your community’s governing documents, please contact us to discuss in further detail.

Thursday, September 28, 2017

Case Alert: Emailed Notices of Foreclosure Under In Re Ackah

This was our response when we first read
the N.C. Court of Appeals' opinion in
the new case of In re Ackah

In re Ackah: Must Planned Communities Now Serve Notices of Foreclosure Hearing Via Email?


The North Carolina Court of Appeals issued an opinion on September 5, 2017, that appears to add an additional requirement for foreclosure trustees regarding the due diligence necessary to properly serve the homeowner in an HOA foreclosure proceeding.  The case, "In re: Ackah," is a Wake County case where he HOA foreclosed on Ms. Ackah’s home and a third-party bidder bought the home at the foreclosure sale.  The lower court held that the foreclosure was invalid because the trustee should have emailed the debtor, and also that the deed to the third-party bidder could be invalidated, returning ownership to Ms. Ackah.

The relevant facts are that Ms. Ackah, the owner of the property, rented the property out when she moved to Africa in 2012.  She provided no notice to the HOA that she had moved or rented the property, although she presented evidence that in the past the property management company had emailed her at various times when it sent out community-wide notices.  There was no evidence that Ms. Ackah ever used the email address to respond to any of the notices.  

Ms. Ackah became delinquent in her HOA assessments in 2014 and a lien was filed.  At various times, the HOA or the trustee mailed letters to the addresses it had for Ms. Ackah’s mother and uncle in South Carolina, where she had had her mail forwarded.  Ms. Ackah’s uncle received the letters, but apparently never informed Ms. Ackah.  When the HOA decided to commence foreclosure proceedings to recover the delinquent assessments, it mailed notice to the property and to Ms. Ackah at her mother’s address and her uncle's address.  Notices were mailed both certified and regular mail, and the evidence was that the uncle, at least, received the mail, but failed to realize its importance or forward it on to Ms. Ackah.

Importantly, the notice of hearing was also posted on the front door of the property by the sheriff’s office, although the tenant failed to inform Ms. Ackah of this.  The law allows a foreclosure notice to be served by posting on the front door if the homeowner does not respond to mailed notices.  No foreclosure notice was ever emailed to Ms. Ackah.  

A foreclosure hearing was held and the property was subsequently sold to a third party bidder, the Joneses.  Ms. Ackah sued to invalidate the foreclosure, arguing that she first learned of the proceeding when her tenants received a notice to vacate the property following the foreclosure sale.  At issue was whether the foreclosure trustee had exercised due diligence when attempting to serve Ms. Ackah with the hearing notice since the HOA had her email address but failed to use it to notify her of the impending foreclosure.

All lawsuits, including foreclosures, must be “served” on the adverse party for the court system to have jurisdiction over the parties and to render a binding judgment.  Without proper service, no lawsuit can move forward, and no judgment rendered is effective upon any party not properly served.  Service is generally effectuated by the sheriff, or by certified or overnight mail with a signature receipt.  Foreclosures can also be served by posting on the property itself if the homeowner does not sign for service via mail or overnight delivery. 

The Court of Appeals reviewed the notice requirements set forth in Section 3-116 of the North Carolina Planned Community Act, and in Rule 4 of the North Carolina Rules of the Civil Procedure, which is the service rule.  The Court stated, without citing any real authority, that Rule 4 requires the exercise of "due diligence" when serving a homeowner with a foreclosure notice, and that since the HOA had Ms. Ackah’s emails address but failed to use it to notify her of the impending foreclosure, the HOA had failed to exercise due diligence before resorting to posting the notice on the property.  Therefore, the posting was ineffective to constitute proper service of the lawsuit, and the foreclosure was deemed to be invalid, at least as it pertained to Ms. Ackah.  

Specifically, the Court stated, “[w]hen the notice letters came back ‘unclaimed,’ Rule 4 due diligence required that the HOA at least attempt to notify Ms. Ackah directly through the email address it had for her rather than simply resorting to posting a notice on the Property.” 

The second part of the opinion dealt with an analysis of what to do about the Joneses, the third party bidder who purchased the home at the foreclosure sale and who had no way of knowing that Ms. Ackah was not properly notified.  There is a state statute which says that a bona fide purchaser (i.e. an innocent buyer without reason to know of any procedural or legal defects) is protected against an invalidation of its purchase at a foreclosure sale. Therefore, the Court ruled that the Joneses could keep the property, and that Ms. Ackah could get financial restitution from the HOA, but could not get the home back.

The takeaway from Ackah is that HOAs, their management companies and their attorneys now (at least until the Supreme Court considers and hopefully overrules this case) have an additional inquiry to make when conducting a foreclosure when attempts to serve a defendant (other than by posting) prove ineffective.  Our advice is that if an HOA or a management company knows of an email address used by an owner, then it needs to be provided to the foreclosing trustee prior to commencement of the foreclosure.  The trustee is obligated to determine whether the notice of hearing must also be sent to the email address.  This necessarily requires that email addresses with owners be kept up-to-date, but this is something that most management companies and HOAs do already. If they don’t, they need to start.  

Some attorneys have stated that the Ackah case appears to require that all communications preceding the foreclosure must also be sent via email, which is creating a lot of angst among management companies and HOAs alike.  Although a court or the legislature may one day require all pre-foreclosure communications to be sent by email, Ackah does not specifically require this and we do not recommend it at this time.  We are of the opinion that Ackah addresses only the trustee’s efforts at the foreclosure stage when mailed or personal service is ineffective, and that its ruling should be limited to that situation only.  

The bottom line:  Many HOA attorneys are distressed at this holding by the Court of Appeals.  In fact, Rule 4 of the North Carolina Rules of the Civil Procedure says nothing about due diligence, except for in one particular subsection, not applicable here, which addresses the rare instance of serving someone by publishing a notice in the newspaper rather than personally or by mail.  The Court completely invents this requirement.  It does cite an earlier 2015 case in which a plaintiff failed to use due diligence in notifying his ex-wife, whom he knew to be in New York City, before “serving” her via publication in Charlotte with a divorce lawsuit.  The case said nothing about email except in passing in a footnote.  Therefore, our opinion is that the case is poorly reasoned and should be strictly limited in its application.  We hope the N.C. Supreme Court will take up the case, which we understand has been further appealed, and will reverse the Court of Appeals’ unfortunate decision.

Unfortunately, Ackah is North Carolina law at this time unless overturned by the Supreme Court or the General Assembly. If an HOA or management company has any sort of email addresses for an owner, it should provide them to the attorney handling the foreclosure.  As foreclosure trustee, if other attempts to serve the owner with the foreclosure fail, the Ackah case requires that notification via email must also be attempted before service by posting can be effective.  Thus, this adds an extra step for the notification process for a trustee when foreclosing on an HOA claim of lien.  This case does not require emails to be used in any other scenario. 

Here's a link to the opinion itself: https://appellate.nccourts.org/opinions/?c=2&pdf=35255

Here's a link to Rule 4 of the North Carolina Rules of Civil Procedure: http://www.ncga.state.nc.us/EnactedLegislation/Statutes/HTML/BySection/Chapter_1A/GS_1A-1,_Rule_4.html

As always, if you have questions regarding this case or other areas of HOA law, please contact us.

Wednesday, August 16, 2017

Unhappy Property (Manager) Loses in South Carolina

“If you think hiring a professional is expensive, try hiring an amateur.” - Anonymous
In South Carolina, as in most states, there exist various consumer protection and licensing laws, intended to protect the public from the unauthorized practice of law (or “UPL”, as it is often referred).  Of course, only lawyers licensed in the state in question can practice law in that state, but the question sometimes arises as to what actually constitutes “practicing law”. Community Management Group, which manages HOAs in the coastal, lowcountry part of South Carolina in and around Charleston County, was the subject of a recent South Carolina Supreme Court case. CMG was found to be in violation of the UPL laws in the recent case of Rogers Townsend & Thomas v. Peck, et al.
CMG represented its HOA clients in magistrate’s court where it prepared the lawsuit and went to court on behalf of its HOA clients to collect outstanding assessments.  When it obtained a judgment, CMG would then file the judgment with the circuit court, thereby making the judgment a circuit court judgment against the debtor.
Additionally, CMG would prepare and record liens against debtors, and in its own words, intended the lien to “put a cloud on the title”, rendering the property unsaleable until the lien was paid.
Finally, CMG advertised itself as capable of “hand[ling] collections, lien filing and Small Claims Court actions in house.”
The South Carolina Supreme Court determined that all of the foregoing acts by CMG were, in fact, the unauthorized practice of law which required representation by an attorney.  Underlying the court’s ruling is longstanding law that defines the practice of law to include the preparation of court documents, the management of proceedings on behalf of clients before courts, and the preparation and recording of legal instruments.
The court was requested to hold that CMG’s practice of interpreting declarations of restrictive covenants, “addressing disputes” (we are not exactly sure what this phrase means) between HOAs and owners, and advising HOAs on remedies to collect unpaid assessments, also constituted the unauthorized practice of law.  The court declined to opine as to whether these acts were UPL because it had no specific evidence in front of it.
The case is not groundbreaking, but it is a stark reminder that the courts in South Carolina, and in most other states, strictly regulate what is, and is not, the practice law within the state and those who exceed the bounds are asking for trouble.  When in doubt, it’s best to leave court filings and, always, court appearances, to licensed attorneys. To read the case, click here.

Please give us a call or drop us an email if our HOA law team can assist your HOA or management company with manager loses, or if we can be of assistance in any other way regarding legal issues facing your community. Please be aware that we represent HOAs only – we do not represent homeowners in disputes against their HOAs. We appreciate your reading our HOA law blog and encourage you to share it with others who may be interested. Thank you!