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The vast majority of homeowners use financing to purchase their home. In North Carolina, when a homeowner finances the purchase of their property a deed of trust is recorded with the county register of deeds. The deed of trust grants the lender an interest in the property as collateral for the loan and gives the lender the right to foreclose if the owner does not pay the loan.

North Carolina Homeowners's Association Rights

North Carolina also gives homeowners’ associations the right to file a claim of lien against the property when an owner does not pay the assessments owed pursuant to the association’s governing documents. The association also has the right to foreclose the claim of lien, just like a bank. By law, the association’s lien is subordinate to most bank liens. Simply put, if the bank forecloses, the association’s lien in extinguished and the property passes free and clear of the association’s lien. When this happens, the association no longer has a remedy in the property itself.  

Who is Responsible for Assessments Before, During, & After Foreclosure

It is common for a bank foreclosure to take many months or sometimes even years. The new owner is responsible for the assessments that accumulate after the foreclosure, but not the earlier delinquency.  Under the 2013 changes to N.C. Gen. Stat. § 47C/F-3-116(j), the new owner’s responsibility for the assessments begins when the upset bid period expires which is generally 10 days after the foreclosure sale. The association’s only remedy for the assessments owed before that is to seek recovery from the previous owner by filing a lawsuit against him or her. In neighborhoods with a high percentage of second homes and investment properties, the kind more likely to be foreclosed, this can result in a significant burden on the remaining owners.

Real Property is often owned by more than one person. Joint ownership can occur as a result of a joint purchase of real property or as a result of inheritance. In both cases, the joint owner has an undivided interest which means that although the joint owner owns a one- half interest in the property, they cannot point to the specific portion of the property that they own.

Often, issues arise between joint owners of property over how to use the property, who pays the taxes, who pays for repairs or a new roof on the property, or whether to sell the property. When the property owners cannot agree, a joint owner has the right to initiate a Partition proceeding.

A Partition proceeding is a lawsuit filed by a joint tenant or tenant in common owner of property to force the division or sale of real property. Partition actions start with a petition and are Special Proceedings brought before the Clerk of Court. A Partition action must be instituted in the County where the land lies. There are two types of Partition proceedings, Partition in kind and Partition by sale.

Partition action in kind is possible only when the property can be physically divided in a manner that each joint owner receives their share. For example, one hundred acres could be physically divided to allow for two joint tenants each owning a fifty percent interest to receive fifty acres. Of course, who has road frontage, access and the condition of the land must be considered as well. In Partition in kind proceedings, the Clerk of Court appoints three  commissioners to oversee the division of the property. The law says Courts favor Partition in kind rather than Partition by sale.

Partition by sale occurs when the property is unable to be physically divided or cannot be divided equally. For example, a single one-half acre lot with a house constructed in the middle of the lot cannot be divided in a manner that would allow each joint owner to receive their interest. In Partition by sale proceedings, the Clerk of Court appoints a Commissioner to oversee the sale of the property. The proceeds of the sale are deposited with the Clerk of  Court. A hearing is held before the Clerk of Court to divide the proceeds.

Partition proceedings are the law’s answer when joint property owners cannot agree. Disagreements regarding the sale, use, or costs of property may be resolved by retaining an attorney to initiate a Partition proceeding or to work out an agreement between joint owners.

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.

Collaborative Divorce is a reasonably-priced dispute resolution process established by North Carolina law for settling divorce and family law disputes outside of court. Ashley is a trained Collaborative Law  practitioner and a member of the only Collaborative Law practice group in and around the Cape Fear Area. Learn more about Collaborative Divorce and find out if it could be right for you at:

http://coastalcollab.squarespace.com/collaborative-divorce

 

North Carolina General Statutes-Juvenile Code

North Carolina General Statutes-Domestic /Family

North Carolina General Statutes-Adoptions

North Carolina General Statutes-Incompetency and Guardianships

North Carolina Child Support Collections  (you can estimate child support and run a child support worksheet-but check with an attorney for its accuracy)

Coastall Collaborative Colleagues - Doing Divorce Differently - Family Law Attorney Ashley Michael is a part of this group

International Academy of Collaborative Professionals:


Adoption services in/around Cape Fear Area:

      Children's Home Society of North Carolina

      This email address is being protected from spambots. You need JavaScript enabled to view it. (email address)

North Carolina Office of the Court: Cumberland County

Pro Se packet for filing Absolute Divorce.  Please note these documents would need to be tailored to your specific facts and filed in the county where you currently reside.

North Carolina Office of the Court: Wake County

Pro Se packets and information for domestic matters in our family courts.  Please note these documents would need to be tailored to your specific facts and the county where you are filing your lawsuit.



 

In working with an attorney you must choose one that meets your needs, you can trust, is cost-effective and which works with your personality and posture towards your legal matter. Clients in Family and/or Juvenile Law cases must engage in a lot of decision-making continually throughout their legal matter(s). It is possible at times that the attorney may give you “homework” in order to save money on legal costs, if the client so prefers. During your case the attorney and client can communicate in methods that are conducive to the client’s persona and preference. Usually the attorney will utilize email, mail, fax, phone calls and office appointments to communicate with the client. It is not always necessary to have face to face appointments. Ashley believes that while Family and/or Juvenile Law matters can be quite emotional and devastating they can also be handled with respect and integrity. She believes that an attorney and client must work together as a team to reach the client’s common goal(s).

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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Craige & Fox, PLLC
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Wilmington, NC 28401
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