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In general, homeowners’ associations for both planned communities with single family homes or town-homes and condominium developments have the right to collect assessments from owners. The amount collected and what the assessments are used for will depend on the governing documents of the association but they are typically used to maintain common elements. Due to the fact that condominium developments maintain a significant amount of property included in the common elements their dues will often be significantly higher than those in a planned community. Some planned communities will collect assessment only for the purpose of maintaining  storm water ponds while others have numerous amenities such as a clubhouse or swimming pool. The more the community offers, the higher the assessments will be.

There are several ways a homeowners association can collect assessments from owners. For most communities, the collection of assessments is governed by either the Planned Community Act (N.C. General Statute § 47F) or the Condominium Act (N.C. General Statute § 47C) in addition to the governing documents such as the recorded restrictive covenants and the bylaws. The association can collect the dues by either filing a claim of lien and then foreclosing on that claim of lien or filing a lawsuit against the owner personally. N.C. General Statute 47F/C-3-116 governs the specific requirements:

N.C. Gen. Stat. § 47C-3-116 (Condominiums)

N.C. Gen. Stat. § 47F-3-116 (Planned Communities)

A claim of lien is filed with the county clerk of court and is public record. It is technically an action against the property, not the owner personally. In the event the owner tries to sell the property, the lien will be found in a title  search and must be paid before the property can be sold. It may also affect the owner’s ability to refinance. Prior to filing the claim of lien, the association must send notice of the intent to file the lien and collect attorney fees, an account statement, and notice of the right to contact an association representative regarding a payment plan. The notice need only be sent by first class mail. The owner will be given a minimum of fifteen (15) days to pay the debt in full without incurring attorney fees. In addition the owner can contact the designated association representative to propose a payment plan but the  association has no obligation to accept.

In the event the owner does not pay the assessments owed, the association can file an action to foreclose on the claim of lien. This is the same process a bank uses to foreclose on a property when the owner does not pay  heir mortgage. In order for an association to foreclose on a claim of lien North Carolina statutes require the assessments owed be delinquent for at least ninety (90) days and the board of directors of the association vote to proceed with foreclosure.

The association can also file a civil action against the delinquent owner. This involves filing a lawsuit and suing the owner personally for the amount owed. The suit can be brought in small  claims court, district court, or superior court depending on the amount owed. Many counties, including New Hanover and Pender, have mandatory arbitration for lawsuits involving an amount less than $15,000. If the owner files an answer, the case will be heard initially in front of an arbitrator instead of a judge. The arbitration hearing is less formal than a trial in front of a judge. If the association is successful in winning the suit, whether through a judge or an arbitrator, a  judgment for money owed will be entered against the owner. The judgment is public record, can affect the owner’s credit rating, and can be transferred to other counties or states. The judgment is a lien against not only the property located in the neighborhood with the association but also the homeowner’s other property located wherever the judgment has been filed. Ultimately the judgment can be sent to the sheriff who will then search for property that can be seized and sold to satisfy the judgment.

Ultimately most matters do not result in the delinquent owner losing property to pay assessments. It is beneficial to both the association and the delinquent owner to work out payments in some manner. Most importantly, the  owner should respond early in the process. It is much more difficult to come to a mutually agreeable arrangement when the owner waits until the property is being sold on the courthouse steps to come forward.

This was an active year for community association law in North Carolina. House Bill 331 revised both N.C. Gen. Stat. § 47C-3-116 (North Carolina Condominium Act) and 47F-3-116 (North Carolina Planned Community Act), giving us significant clarification to the assessment collection process. The new laws take effect October 1, 2013. You can see the bill here: http://www.ncga.state.nc.us/Sessions/2013/Bills/House/PDF/H331v5.pdf

While the majority of the changes are technical, board members and managers should be aware of several important changes:

1. Clarifies the sums included in the lien to include future accruing assessments.

2. No longer requires the intent to lien letter and claim of lien to be sent to vacant

3. The foreclosure process has been clarified to be more aligned to N.C. Gen. Stat.

4. Requires the appointment of a trustee when a foreclosure is filed. The association’s property or one without a physical address. Chapter 45, which covers bank foreclosures. The associations attorney may act as trustee so long as the foreclosure is uncontested. In the event the owner does contest the foreclosure, a third party neutral trustee will be appointed and the association’s attorney may continue to represent the association.

5. Clarifies the right of the association to bid on the property at the foreclosure sale.

6. The attorney’s fees which the association may collect from the owner in an uncontested foreclosure are still limited to $1,200. However, House Bill 331 now permits the association to include attorney’s fees in an installment payment plan which will no longer be included in that $1,200 limit in the event foreclosure is later filed. This removes the disincentive to allow payment plans due to the fear the association would not be able to collect all the attorney fees incurred if the owner does not pay as agreed and foreclosure is filed.

7. Allows associations to collect assessments from an owner who purchased the property at a foreclosure sale from the date the rights of the parties are fixed after the foreclosure sale rather than the date the trustee’s deed is recorded. This is typically ten days after the sale or the last upset bid. This means the association will no longer be left waiting many months or even years for the new deed to be recorded.

If you have any specific questions about the new provisions please feel free to contact me.

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