The General Assembly has made some important, and some not-so-important, changes to HOA law in its 2013 session. With the session now nearing its end, let’s review the changes that have been enacted into law. It does not appear that any other changes to HOA laws will be enacted this year.
Be aware that if you use the N.C. General Assembly's website to look up the North Carolina statutes, they always run one legislative session behind. So, the current statutes on the website do not reflect all the changes discussed here. It will most likely be next year before the statutes on the General Assembly website are updated.
Changes to the Foreclosure Process
House Bill 331, which was enacted as Session Law 2013-202 on June 26, is the most important bill affecting HOAs this year. It makes a few significant changes to HOA foreclosure procedure by re-writing section 3-116 of both the Planned Community Act and the Condominium Act. The changes take effect on October 1. This bill was primarily drafted and supported by the community associations subcommittee of the Real Property Section of the North Carolina Bar Association, of which I am a member, so while I was not a great supporter of the bill because I had not encountered the issues it seeks to remedy, I did have some input into the drafting of the bill, and the changes it makes are in general positive.
The changes are primarily designed to conform the HOA foreclosure process to the standard power-of-sale foreclosure process used for deeds of trust. Some clerks of court and title companies had raised concerns with the legality of the process HOAs had been using since it seemed to skip some steps required in typical non-HOA foreclosures.
The most important change is that a trustee must now be appointed to handle the foreclosure process, just as in typical non-HOA foreclosures. But don’t panic! The trustee can be the HOA attorney as long as the homeowner does not “contest” the foreclosure proceeding. If the homeowner does contest the proceeding, then an independent trustee (i.e., a separate attorney) must be appointed – but the homeowner is responsible for all the fees and expenses of the trustee.
While the $1200 cap on attorneys’ fees for an “uncontested’ foreclosure remains in place, the bill does clarify that this cap does not apply to any other legal proceedings to collect amounts due from a homeowner, or to processing payment plans and the like. We have run into this issue recently with the Mecklenburg Co. clerk of court.
Voluntary Pre-Litigation Mediation
On June 19, the General Assembly passed the dumbest of its 2013 HOA legislation, House Bill 278, enacted as Session Law 2013-127. It went into effect on July 1 and provides for a completely voluntary process by which HOAs and homeowners can agree to mediate legal disputes – which they could have done anyway without this pointless bill. The bill is codified in new statute 7A-38.3F. Chapter 7A is the chapter of our laws dealing with judicial matters – so be aware that while this is an HOA law, it is found in Chapter 7A and not in Chapter 47F (the Planned Community Act) or 47C (the Condominium Act).
The bill provides that HOAs and homeowners can agree to mediate a dispute, although neither is required to and either can decline to do so. If they do agree to do so, then the mediation is handled in the same way as any other mediation, which can result in a legally-binding settlement – again, if both parties agree.
Validity of Amendments and Access Through Common Areas
Senate Bill 228, enacted as Session Law 2013-34, was passed on April 24 and takes effect on October 1. It makes some fairly technical adjustments to sections 3-107 of the Planned Community Act and the Condominium Act, and to sections 1-102, 1-104, 2-103 and 2-117 of the Planned Community Act. The changes 1) confirm HOA authority as found in their articles of incorporation, bylaws and CCRs; 2) confirm that amendments to CCRs made in accordance with the articles of incorporation, bylaws and CCRs (which had been placed into some doubt by some recent appeals court decisions) are presumed valid; and 3) require lot and unit owners to provide access through their lot/unit to the HOA and other owners if needed for repairs or maintenance to common areas or other units. This bill was supported by our HOA subcommittee. It should not affect the day-to-day operations of HOAs but does help clarify some legal issues.
Please give me a call or drop me an email if our HOA law team can assist your HOA or management company in understanding or implementing these changes, or if we can be of assistance in any other way. We appreciate your reading our HOA law blog and encourage you to share it with others who may be interested. Thank you!