The Conference Room--Answers to Questions on N.C. Law

Who is in a Homeowner's Association (and who is not)

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I recently had a complaint from any owner who was being assessed by a homeowner’s association for annual dues. He explained that he never agreed to be in a homeowner’s association and didn’t consider his property to be within the area governed by the homeowner’s association. Therefore, the HOA had no power to assess him or his property.

In investigating his case, I had to look at several issues. First, does he own the property and what does the deed say? The first part seems to be common sense, but I have had people who were assessed who were renters. (In that case, all they needed to do is send the bill to the landlord). Assuming he is the owner, the typical deed is a general warranty deed. This type of deed gives the property to the person buying (the “grantee”) all the rights in the property and “warrants” that the property is the seller’s (the “grantor”) to sell or give. Usually, there is a small clause in the deed that says that the deed gives all rights except for other rights and reservations of record. “Of record” means if there is a filing with the county register of deeds office that gives some other right to another person or entity. This will include easements to allow utility companies to put wires over your property or possibly the driveway your neighbor behind you uses to get to the street. It also includes the declarations or covenants of a planned community. So looking at a general warranty deed wouldn’t tell you if your property is in a planned community with a homeowner’s association governing it, but that exception means that even if you didn’t know it, you are still bound.

Therefore, the next step is to find the recorded declarations or covenants for the planned community and check when they were filed. If they were filed after the owner got his deed, then he would not be subject to the declarations but if they were filed before, he may still be on the hook. The declarations usually refer to the plat or map of the community and the deed or deeds that gave the property to the developer. The map as well as those prior deeds are also filed with the register of deeds. Unless you are a surveyor, or have an intimate knowledge of the history of the property, it is difficult to follow the written descriptions in a deed, but the map or plat is usually easier to read. If the property is listed on that map and in the deeds it is subject to the declarations. In this particular case, my owner was correct. While all the property around him was within a planned community, his house and lot was left off the plat and off the developer deeds. It appeared the historical use of the property was a large tobacco farm. The farmland was bought, subdivided and sold as lots in the subdivision, but he had the original farmhouse that was never sold to the developer.

Had my client’s lot appeared on the recorded plat, then he would be within the planned community and governed by the declarations. Usually those declarations provide for a homeowner’s association who has the authority and power to manage the planned community after the developer has moved on. So once it is established that you are in a planned community, you look at the declarations and the North Carolina statutes to determine what assessments and other powers are allowed.

--Bradley A. Coxe is a practicing attorney in Wilmington, NC with Hodges & Coxe PC who specializes in Personal Injury, Medical Malpractice, Homeowner's Associations, Contract and Real Estate disputes and all forms of Civil Litigation.  Please contact him at (910) 772-1678. 

The Kardashian Effect—Legal Separation, Divorce “Papers” and Whether to Seek Annulment or Absolute Divorce?

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By now even the non-entertainment savvy amongst us has heard about reality television “star” Kim Kardashian’s made-for-television, multi-million dollar marriage to NBA player Kris Humphries, and their equally publicized break-up a mere 72 days later. Reports have circulated that Kim K. initially asked Humphries for an annulment, however his refusal to “agree” to one left her forced to go the more traditional route of filing for a divorce, citing “irreconcilable differences.”

One of the more frequent questions I receive in my domestic practice surrounds the question of exactly what “papers” a potential client must obtain in order to “legally separate” from his or her spouse. In fact, in North Carolina there are no such “papers” that are needed in order to effectuate a valid, legal separation. North Carolina is what is called a “no-fault” divorce state, meaning that the only requirement for legal separation is a decision by one of the spouses to end marital co-habitation, followed by the action of actually physically separating and no longer living together as husband and wife. It is not even required that the decision to separate be a mutual decision. So long as one spouse has communicated his or her desire to separate from the other spouse, and acted on it—meaning physically ceased cohabitation—a legal separation has occurred. Terms like “irreconcilable differences” are irrelevant in this state, as North Carolina does not require a petitioner to cite a reason for the separation in order to later file for an absolute divorce.

Back to the Kardashians, reports that KK’s beloved Mr. Humphries thwarted her attempts at an annulment might make for good checkout magazine fodder, but legally speaking this is not possible. This is because in California, as in this state, parties cannot merely “agree” to an annulment but rather they must qualify for one under some very strict criteria. Interestingly, the length of Kim Kardashian’s marriage would be irrelevant to a determination of whether or not she could have the union annulled. To “annul” a marriage is to ask that it be declared invalid, that it never legally existed. An action for divorce ends an otherwise valid marriage, whereas an action for an annulment seeks a declaration that the marriage never existed. Annulments are rare, largely because a person must prove grounds to qualify for an annulment before one may be granted by the Court.

Faced with not wanting to wait the mandatory twelve months it takes to obtain an absolute divorce, many newly separated clients ask whether they are able to seek an annulment of the marriage as a faster alternative. Unfortunately, the length of the marriage is not a consideration in whether or not annulment is available and seeking an annulment is not always a faster option for ending the legal bond of husband and wife. In some circumstances, a marriage may be declared “void” and in others, it may be “voidable” based upon a particular set of circumstances. Chapter 51 of the North Carolina General Statutes provides that a marriage may be declared void only if:

1) the marriage was between any two persons nearer of kin than first cousins, or between double first cousins;

2) either of the parties is under the age of 16 (with a limited exception) at the time of marriage;

3) one of both of the parties to the marriage was already married to another living person at the time of marriage;

4) one or both of the parties to the marriage was physically impotent at the time of the marriage; or

5) at the time of the marriage, one or both of the parties was “incapable of contracting from want of will or understanding;” OR

6) the marriage was contracted under the representation that the female is pregnant, the parties separate within 45 days of marriage, and no child is born to the female within ten months of the date of separation.

It is important to note that none of the above-stated grounds for annulment have to do with fraud other than fraud regarding impotency or regarding a pregnancy. Fraud regarding other issues, for example the desire to have children, is not a ground for annulment.  Furthermore, only a bigamous marriage cannot be ratified by the parties. Meaning that even if one of the other “voidable” criteria is met, if the parties were aware of the defect at the time of marriage and married anyway, this is not a basis for annulment later.

As a practical matter, annulment is a rare and specialized cause of action. In most instances, parties will not qualify and will instead need to wait the requisite 12 months before they may petition the Court for a divorce. If you are contemplating separation or would like to speak with an experienced attorney, Hodges & Coxe can help. I offer free consultations and am always happy to sit down with you to discuss your specific case and to determine what path is best for you.

--Jennifer Bennett joined Hodges & Coxe PC as an associate attorney in 2010 and currently practices in the areas of general civil litigation and matrimonial law, focusing on divorce, child custody disputes, establishment and defense of child and spousal support obligations, equitable distribution and marital tort claims. You can reach her at (910) 772-1678 or at jbennett@hc-lawfirm.com

Power of Attorney

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Protecting our financial interests is especially important in this day and age of social security and economic uncertainty. I say “our” to point out that this type of knowledge is certainly helpful to us all, myself included! And it’s never too soon or too late to get started.  That said, I’d like to take this opportunity to share a few of the estate planning lessons that I took away from a recent seminar.

IT IS ALWAYS A GOOD IDEA TO HAVE A POWER OF ATTORNEY. If you become incapacitated, such as through an accident, sudden illness, unplanned or scheduled absence, a general power of attorney allows you to name someone to act on your behalf with regard to any and all financial, business and contractual matters. This includes the opening and closing of bank accounts, paying of bills, transferring property and contracting attorneys and accountants. This allows YOU, not the court, to decide who is best able to handle your financial matters. If you become unable to handle your financial, business and contractual affairs and haven't appointed an attorney-in-fact, then court intervention will most likely be required before anyone may pay bills, sign a deed to transfer property, sign contracts, or decide other important matters. Moreover, a power of attorney may be required to get access to joint accounts and conduct other business. As a result, failure to appoint a financial power of attorney could ultimately cause excess stress to your family, unnecessary and additional legal fees and delays. Bottom line, it is always a good idea to appoint a power of attorney in the event that you may become unable to handle your financial affairs. Although it is certainly preferable to hire an attorney to draft your power of attorney, Chapter 32A of the North Carolina General Statutes explains the laws in NC with regard to powers of attorney. More specifically, NC Gen. Stat. §32A-1 provides a statutory short form power of attorney.

A HEALTH CARE POWER OF ATTORNEY IS A SEPARATE AND DISTINCT TYPE OF POWER OF ATTORNEY DIFFERENT FROM A GENERAL POWER OF ATTORNEY. The North Carolina General Assembly has acknowledged the fundamental right of an individual to control the decisions relating to his or her medical care, and that this right may be exercised on behalf of the individual by an agent chosen by the individual. As a result, North Carolina has established an additional, nonexclusive method for an individual to exercise his or her right to give, withhold, or withdraw consent to medical treatment, including mental health treatment, when the individual lacks sufficient understanding or capacity to make or communicate health care decisions by and through the designation of a health care power of attorney. Basically, a health care power of attorney allows you to name someone else to make medical decisions for you if you should become unable or unwilling to make these decisions for yourself. You can have both a living will and a health care power of attorney and both can be in the same document. Please note that someone providing health care to you for compensation cannot be named as your health care agent. If you do not name someone as your “health care agent” in a health care power of attorney, then your spouse or next of kin will make all medical decisions for you if you become incapacitated. Chapter 32A of the North Carolina General Statutes explains the laws in NC with regard to health care powers of attorney and NC Gen. Stat. §32-25.1 provides a statutory form health care power of attorney.

--Sarah Reamer currently practices with Hodges & Coxe PC and specializes in general civil litigation, focusing on real estate litigation and foreclosure protection. Please contact her at sreamer@hc-lawfirm.com or (910) 772-1678.

Related articles

• Sign A Healthcare Proxy, Living Will And Power Of Attorney (forbes.com)
• How to Make a Durable Power of Attorney (socyberty.com)

Corporation Games

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Businesses can be organized in several different ways. One of the newer forms of business is a Limited Liability Company or LLC. The best way to understand an LLC is to compare it to a traditional corporation.

Limited Liability Company

A LLC is a legal entity that exists separate and apart from its owners. The owners of the LLC are called "members" (as compared to a corporation, where the owners are referred to as "shareholders"). An LLC is formed by filing articles of organization Secretary of State (filing fees are paid with the articles of organization).

There are three primary areas of an LLC that are attractive business owners:

The LLC, like a partnership, is given a pass through tax treatment, which means that profits and losses are reported on each member's individual tax return;

The LLC, like a corporation, provides liability protection for the members (assuming that potential debts and obligations are incurred in the name of the LLC and not the members individually), which means that creditors can assert their claims only against LLC and not directly against the members (again, assuming that the LLC is properly operated and the members do not personally guarantee any obligation of the LLC); and

The LLC provides flexibility in management and other issues while preserving the 2 advantages listed above.

Corporations

A for-profit corporation is a business structure formed by filing articles or incorporation with the secretary of state. A corporation is recognized as being separate and apart from its owners. (The owners are called "shareholders".) As a separate entity, it has its own rights, privileges, and liabilities apart from the individuals who form it.

The shareholders of a corporation are generally not personally liable or responsible for the debts or obligations of the corporation. A stockholder's personal liability is usually limited to the amount of his, her or its investment in the corporation and no more. A corporation continues to exist after the death of or transfer of shares by one or more of the shareholders. A corporation pays taxes on its profits, and its shareholders pay taxes on dividends, unless "S" tax status is elected - then the profits and losses of the corporation "pass through" to the shareholders.

The shareholders of a corporation have only the money that they have invested into the company at risk - shareholders are generally not required to pay their own money to satisfy any debt of or judgment against the company.

A corporation's existence may continue on regardless of what may happen to its individual officers, directors or shareholders. Also, ownership of the business may be transferred, without disrupting operations, through the sale of stock.

Capital can be more easily raised with a corporation. This may be accomplished through the sale of stock or other equity interests.

Corporations can offer anonymity to its owners. The corporate name is used in the operation of the business, generally not that of the shareholders.

--Matthew Adams joined Hodges & Coxe in 2010 as an associate attorney and currently practices in the areas of estate planning, estate administration, business formation and organization, business transactions, corporate law and taxation. Please contact him for advice on these issues at (910) 772-1678.