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

HOA lien procedure

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The following is a list of the steps our office does when assisting homeowner's associations in collecting on past due assessments. Usually, the matter is resolved after the lien is placed and seldom do we have to resort to a sale of the delinquent owner's property.

Our office obtains a list of delinquent payers from the Homeowners/Property owners Associations.  This list includes the name, property address, last known mailing address for each property owner, and amount owed to the HOA/POA.  Attorney confirms that Declarations provide for assessments.

The delinquent payer list is checked against the county’s Tax Administration website to confirm that the property has not been transferred to a new property owner.

Notification letters are written and mailed to each delinquent payer specifying the amount owed, that the delinquent payer will owe attorney’s fees and costs if assessments are not paid and, have thirty (30) days from the date of the letter to come current with the HOA/POA or a lien will be placed on the subject property.  Notification letters are mailed United States Postal Service via certified mail and regular mail to the property address and last known mailing address of the property owner if not the same.
 
Once thirty (30) days have elapsed and payment has not been received by the HOA/POA or by Hodges & Coxe, P.C. on behalf of the HOA/POA, a claim of lien is drafted for each property.  Deeds for each subject property are reviewed to confirm legal descriptions for the properties.
 
Claims of Lien are reviewed and filed with the clerk of court. Claims of  Lien are mailed United States Postal Service via certified mail and regular mail to the property address and last known mailing address of the property owner if not the same.
 
Attorney and paralegal time is reviewed; legal fees are calculated and divided among all the delinquent payers and is included in their total fees to eradicate the lien.
 
Within three (3) years from the date of the lien, after consultation with the HOA/POA, a suit is filed to enforce the lien.
 
After judgment, a judicial sale of the property is conducted to satisfy the lien, fees, costs and interest.

--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. 

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. 

Hoarders & Homeowner's Associations

One popular reality show today is A&E's "Hoarders. "The show details the problems of pathological hoarding or disposophobia. The individuals acquire possessions and fail to discard them even when the items are worthless, hazardous, or unsanitary and impair mobility and interfere with basic functions of life. The show scratches a morbid curiosity and probably makes "normal" people feel good about that stack of old TV Guides they haven't thrown out yet. It also illustrates a serious physiological condition.

A Homeowner's Association client of mine was faced with this issue. After receiving numerous complaints from neighbors regarding pests and odors from one townhouse unit, the manager investigated and found an out of control hoarding situation. Garbage and trash were piled up past window height. Poisonous spiders, insects, rats and feral cats roamed the unit. The owner refused to clean his unit and refused to allow the manager to clean it. Witnessing severe unsanitary conditions, the manager asked for help from the county's social services, the fire department, the police department and even animal control. They were unable to help him as the owner continued to refuse to allow anyone to enter and refused any psychological help. The manager then called me.

The hoarder was the owner (not a tenant) and had paid his assessments on time so initially there was no basis to force him to leave. I had to look deeper. Most sets of HOA restrictive covenants (also known as "declarations") contain language that requires a unit owner to keep their unit in good condition and repair, and prevents a unit owner from causing a nuisance to any other owner. If the unit owner fails in this duty, the HOA has the power to enter the property, fix the condition, and then assess the homeowner for the expenses. This was the procedure we had to follow.

First, we had to give written notice to the homeowner to correct the situation. By this time, the post office had refused to deliver mail to the unit, because the owner never cleaned out the mailbox, so I had to hand-deliver a notice. We gave the owner a number of days to correct the condition or the HOA would. The notice period was set forth in the restrictive covenants. When the time passed and the homeowner had taken no steps to correct the condition, we moved to the next step.

Although the covenants provided that the HOA had the right to enter the property without further notice or court action, because the homeowner refused entry, the police would not assist without a court order. Rather than have the HOA force their way in and defend a trespass suit, the better way was to go through the court. We therefore filed a court action and asked the judge for a preliminary injunction to allow the HOA entry to the unit for cleaning and for the police to provide assistance. The police wanted very specific instructions from the judge on the use of force and the time period of the cleaning. After notice to the homeowner, a hearing was held before the judge. I laid out the authority in the covenants and provided affidavits and photographs of the condition in the unit. The judge granted our motion (although I think the photographs ruined his lunch), and then I worked with the attorney for the police department in getting the specific detail they needed in the order to assist me.  

After the judge signed our order, the HOA retained a cleaning company who went to the unit along with three police officers in HAZMAT suits, an animal control officer, and a social worker. Thankfully, after discussions with the police, the homeowner allowed the cleaning crew into the unit without the use of force. Unfortunately, he still refused any psychological or other assistance and the social worker said she could not help.  The cleaning crew spent two days and filled up two dumpsters with trash and garbage. A pest control company treated for rats, spiders, ticks and other pests. By the end, the unit was clean and the HOA had racked up a substantial cleaning bill. The cleaning crew remarked that it would have been more sanitary for the homeowner to live in the dumpster as that would at least be emptied every month.

Next, again following the procedure in the restrictive covenants, the HOA (again with the mandated written notice) levied a special assessment on the homeowner for the costs of cleaning, court and attorney fees. The homeowner refused to pay. Therefore, at this time, the HOA had grounds for a lien against the property for the assessment. The lien was filed and foreclosure proceedings began. At this point, the procedure was the same if the hoarder had simply failed to pay his annual dues, a much more common problem with Homeowner's Associations. 

Foreclosures for HOA liens follow the same format as a more typical bank foreclosure. The clerk of court sits for the initial foreclosure hearing. Essentially, she makes sure that the documents are correct and verifies the amount owed. If the foreclosure is contested, a judge may hold a hearing and delay or deny the foreclosure. In this case, the documents were in order and the clerk entered the foreclosure order.

It was now up to my office to conduct a sale of the property to recover the lien amount (again growing with interest and attorney fees). After notice in the newspaper of the sale date, in an archaic procedure, an attorney in our office read aloud from the top of the courthouse steps that the property was up for sale and was open for bids. No bids for the property were received, so how would the HOA receive compensation for the lien?

The solution was to have the HOA bid on the property precisely the amount they were owed plus the attorney fees for the sale. After a bid, anyone (including the homeowner) can submit an upset bid of at least 10% greater than the prior bid. That process continues until the time for upset bids have passed. In this case, no upset bids were submitted. The HOA, because it had bid the exact amount they were due, took ownership without having to pay any additional money. After the clerk entered the final report of the foreclosure sale, the last step was the preparation of a foreclosure deed that was filed with the register of deeds

One wrinkle with the HOA's ownership was that they were actually the 2nd lienholder on the property. Like most homeowners, the hoarder had a mortgage. Had he failed to pay that mortgage and the bank foreclosed, the HOA's lien would have been extinguished and the HOA could only have recovered if the foreclosure sale was more than what was owed the bank. Because the HOA, who was 2nd in line, or subordinate, was the entity foreclosing on the property, they took the property (as would any third party who had bid) subject to the first loan. The hoarder, even though he no longer owned the property, still owed the debt on the mortgage, but if he stopped paying on his loan, the bank could enforce their lien against the property through their own foreclosure action even though the property was now owned by the HOA.

Regardless, because the HOA now owns the property, they can now clean the unit, sell the unit, and recover in cash their expenses after the bank loan is satisfied. They could also begin proceedings for a summary ejectment of the hoarder. Thankfully, by the time of the sale, the estranged family of the homeowner and social services got involved and found the homeowner a assisted living home where he could live in safe and sanitary conditions.

While this was an unusual experience, the same procedures would be followed where a unit owner fails to pay more ordinary annual assessments or special assessments. However, in the vast majority of the cases, the owners eventually pay the amounts due. Nevertheless, an HOA Board must be aware of the full procedure before making a decision to start down that path. In this case, it took almost a year and half from the time of the first notice that the homeowner must clean, to the HOA taking final possession, with at least a dozen various notices and copies of filings hand-delivered to the homeowner.  While the HOA was frequently frustrated at the length of time of the process, all the steps had to be taken to protect the homeowner's rights in his property. Keep in mind that while the homeowner refused to cooperate or pay, he also did not contest any of the authority or facts that I argued before the court and the foreclosure clerks. Any argument may have caused the process to resolve even slower.

--Bradley A. Coxe is a practicing attorney in Wilmington, NC 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. 

It Was My Understanding There Would Be No Math...

A few weeks ago, on a lovely Saturday at Wrightsville Beach, NC, I was in a small banquet room, assisting a Homeowner's Association with a special meeting calling for the removal of directors. There were two large factions in the Association and on the Board. One faction had collected a sufficent number of petitions to call for the removal of the majority of the sitting Board members. I was asked to take a fairly active role in the running of the meeting to ensure that the law was properly followed by both factions and there would be no procedural problems.

With only that one item on the agenda, whether or not to remove Directors 1-4, how hard could it be? Well, I found out. To understand the removal, you first have to understand the election. You see, these directors had been voted on to the Board by cumulative voting. The North Carolina condominium Act and the North Carolina Model Non-profit Business Act both allow cumulative voting for the election of Directors. Cumulative voting is designed to allow a minority faction to gain some representation on a Board. For example, suppose you have 3 seats up for election. Under straight voting, each member would have one vote for each seat. That allows 51% majority faction to elect all three members (and have 100% of the Board). Under cumulative voting, each member gets three votes, but can vote all three of them for one seat. This way, a minority can pool their votes and get at least one member on the Board.

This meeting however, was to remove a Director. This is allowed in North Carolina under the Condominium Act by a 67%  vote, with or without cause. Fairly straightforward math. However, under the Nonprofit Act, if the Directors are elected with cumulative voting, there is another calculation. Under the Non-profit Corporations Act, §55A-7-25, if the director is elected by cumulative voting, they can be removed “unless the votes cast against removal would be sufficient to elect such director if voted cumulatively at an election at which the same total number of votes were cast and the entire number of directors elected at the time of the director’s most recent election were then being elected.” The more you read that quote, the more confusing it gets.

The goal here is to close a loophole in cumulative voting. See if 20% of a membership pooled their votes together sufficently to elect a Director to a Board, under the removal process, the larger faction could just vote them back out again. Hence the above language. I really had to know what this meant and how it was applied because I needed to explain to both sides why I was calculating the votes the way I was. I did a lot of reseach and am convinced that a lot of lawyers across the country (the NC rules are based almost entirely on a Model Act that has been adopted in several States) don't really understand it either. They just dump the whole quote into their memo or brief, present it as obvious, and hope nobody asks them about it.

I finally had to go back to a 1950 Law Review article that drafted an equation (its actually an inequality for the math geeks out there) that could be used by a minority faction to determine the maximum number of Directors they could vote onto a Board. Other articles then took that formula and used it to to determine the number of votes that would block the removal of a Director. The formula is as follows:

X is the number of votes needed to defeat the recall measure. S represents the total number of votes being cast at the recall meeting, not the total number of members in the association. In the removal situation, N is always equal to 1, even if the meeting is being called to remove two directors. For each director to be removed, there should be separate votes, one for removal of each individual director. In each instance, N, in the formula, would be 1.(In the use of the equation in an election, N would be the number of Directors the minority was trying to elect). D  is the total number of directors elected at the most recent election at which the director to be recalled was elected. One question I had was why the +1 at the end of the equation? According to the official comment to the Model rule, the computation should consider that “all votes cast for removal of the director had been cast cumulatively in an efficient pattern for the election of a sufficient number of candidates so as to deprive the director whose removal is being sought of his office.” The “+1” makes it so that, for example, in a race to elect three seats, the winning threshold would be one vote more than 25% of the vote—a total that would be mathematically impossible for four candidates to reach.

The next question I got was why is N equal to 1.  The statute provides for “a” director and “such” director, and therefore contemplates a vote to remove a single director. The vote is independent of how many other directors are being voted out. Otherwise, the petitioners for removal could manipulate the amount of votes needed by petitioning the removal of more directors. For N to be more than one, the vote would have to be to remove that number of directors in a block. The statutes and the petition itself, calls for individual removal voting. 

The odd thing in this election was that it was actually a majority of the Board members where were being voted off, but under the statute they were each voted on as if they were a sole minority. One suggestion was that the votes for removal be voted cumulatively as well, but under the statutes, cumulative voting is only allowed for elections, not any other actions, including removal.

After all that brainpower and math, none of the Directors had 67% for removal, so the formula didn't even come into play. But the next question from the Board and the membership was "how can we amend the By-laws so we don't have to have cumulative voting anymore..."

-Bradley A. Coxe is a practicing attorney in Wilmington, NC who specializes in Personal Injury, Car Accidents, Medical Malpractice, Contract and Real Estate disputes, and all forms of Civil Litigation.  Please contact him at (910) 772-1678.

Sign, Sign, Everywhere a Sign...

'Tis the season when those political candidate signs spring up like mushrooms around neighborhoods and commercial districts throughout the land.  Although signs and posters are considered "speech" under the 1st Amendment and therefore cannot be banned by the government, some permissible restrictions have been allowed.  Check your city or county ordinances here to see if there are any restrictions on your posting your support for the Republican, Democrat, or Boston Tea Party before the upcoming elections.

Wilmington N.C., my hometown, allows non-illuminated political signs to be placed on private property with the owner's permission, not to individually exceed twelve (12) square feet in sign area. They also have to be removed thirty days following the applicable election or referendum, and they don't even make you get a permit! 

However, if you live in a planned community with a Homeowner's Association, they usually have the power to regulate all signage on their homeowners' property.  If you live in a planned community, you need to check for restrictions,the Declarations of the Association.  You should have gotten a copy of these when you bought your house or get a set from the management company.  They are also usually recorded at the Register of Deeds office.  Since HOAs are not governmental entities, the 1st amendment doesn't apply to them or their sign restrictions, and can ban them totally if they wish.  However, for any restriction North Carolina does require that they specifically use the term"political sign" in the restriction.  Just banning "signs" won't do it. In addition, for Declarations filed after October 1, 2005, the restriction must be on the first page of Declarations and state in bold capital letters "THIS DOCUMENT REGULATES OR PROHIBITS THE DISPLAY OF POLITICAL SIGNS."  Even when political signs are allowed, the HOA can prohibit their display earlier than 45 days before the election and later than seven days after.   They can also limit the size if the local ordinances don't say otherwise.

So if you have a burning desire to support McCain or Obama, or their sign colors happen to match your house decor, unless you have a real detail-oriented homeowners association, you should be able to show your allegiance if you follow the rules.