Joan Ross

Oyster Harbour

John Stone, PresidentEd Bedford, Esq.

Senior Vice President

Community Associations

Services

Four Things I Wish All HOA Boards KnewJohn Stone, President*

CAS, Inc.

*John Stone is not an attorney, and nothing you hear from him today is legal advice.

1) NC Open Meeting Laws and Sunshine Laws Don’t Apply to

Home Owners Associations

2) Which Records Owners Are Entitled To Review

3) Amendments To Covenants Are Hard To Enforce

Why Do They Hate Us? – IIThe Courts’ War on Association Amendments

December 2, 2014CAS, Inc.

Henry W. Jones, Jr.hjones@jordanprice.com

1951 Clark AvenueRaleigh, N.C. 27605—0669Telephone: (919) 828-2501

In 1999 the Planned Community Act set 2 new standards:

A. § 47F-1-102.  Applicability.(d)       Notwithstanding the provisions of subsections (a) and (c) of this section, any planned community created prior to January 1, 1999, may elect to make the provisions of this Chapter applicable to it by amending its declaration to provide that this Chapter shall apply to that planned community. The amendment may be made by affirmative vote or written agreement signed by lot owners of lots to which at least sixty-seven percent (67%) of the votes in the association are allocated or any smaller majority the declaration specifies. To the extent the procedures and requirements for amendment in the declaration conflict with the provisions of this subsection, this subsection shall control with respect to any amendment to provide that this Chapter applies to that planned community.

B. § 47F-2-117.  Amendment of declaration.

(a) Except in cases of amendments that may be executed by a declarant under the terms of the declaration or by certain lot owners under G.S. 47F-2-118(b), the declaration may be amended only by affirmative vote or written agreement signed by lot owners of lots to which at least sixty-seven percent (67%) of the votes in the association are allocated, or any larger majority the declaration specifies or by the declarant if necessary for the exercise of any development right. The declaration may specify a smaller number only if all of the lots are restricted exclusively to nonresidential use.

new amendment provisions and restrictions must be “reasonable”

new financial obligations by amendment are per se unreasonable and invalid unless approved by 100%?

Armstrong v. The Ledges HOA, et al. (NC Supreme Court, August 16, 2006)

But, the Supreme Court also said:

“Lot owners take their property subject to the recorded declaration, as well as any additional covenants contained in their deeds.   Because covenants impose continuing obligations on the lot owners, the recorded declaration usually provides for the creation of a homeowners' association to enforce the declaration of covenants and manage land for the common benefit of all lot owners, thereby preserving the character of the community and neighborhood property values… In a community that is not subject to the North Carolina Planned Community Act, the powers of a homeowners' association are contractual and are limited to those powers granted to it by the declaration.  Citing Wise v. Harrington Grove…

Armstrong v. The Ledges HOA, et al.

(NC Supreme Court, August 16, 2006)

§ 47F-2-117.  Amendment of declaration.(b)        No action to challenge the validity of an amendment adopted pursuant to this section may be brought more than one year after the amendment is recorded.

§ 47F-2-117.  Amendment of declaration.(d)       Any amendment passed pursuant to the provisions of this section or the procedures provided for in the declaration are presumed valid and enforceable.

PCA provides 2 wonderful safety valves:

”Where the Assessment Amendment disregards the purpose of the Declaration's original provisions and completely eliminates the benefits to builders, we hold the amendment unreasonable, invalid, and unenforceable. Holding otherwise would permit homeowners' associations to amend similar provisions whenever they acquire the requisite number of votes for approval, regardless of the original intent. As our Supreme Court stated in Armstrong, “[t]his Court will not permit the Association to use the Declaration's amendment provision as a vehicle for imposing a new and different set of covenants, thereby substituting a new obligation for the original bargain of the covenanting parties.” citing Armstrong

Then, along comes Wallach, et al. v. Linville Owners Association (NC Court of Appeals, July 1, 2014):

Be careful

Be conservative

Achieve 100% consent, if possible

Conclusion

New financial obligations are scrutinized most closely

Other issues must be reasonable

Conclusion

PCA communities enjoy the 1 year safety valve

G. S. §47F-2-117(d) is effective for all associations, but has not been tested

Conclusion

4) Be Reasonable With Fines And Foreclosure

Judge orders HOA insurance company to pay family $20,000

Guidance For Association Fining ProceduresA. Determine if the Association’s Declaration contains a fining provision. If

a fining provision exists in the Declaration, follow that provision. If the Declaration does not contain such a provision, proceed with the steps below.

B. The Association, through its Board of Directors, should establish and follow a logical and coherent policy regarding covenant violations, i.e. warning letter to offending homeowner identifying violation and remedial action required, follow-up letter(s), etc. Once adopted, this procedure needs to be communicated to all homeowners.

C. The following steps assume that the adopted policy is followed and the violation remains has not been corrected.

1. Mail a letter to the homeowner identifying the nature of violation and referencing the specific provision of declaration, bylaws, or rules and regulations that has been violated. You may want to take a picture to illustrate a visual violation. We generally suggest that homeowners be given two weekends to correct a typical violation. Obviously something like bringing in a trash can does not require that much notice. The letter should contain a specific date, such as on or before October 29th. If the letter says within two weeks, you can wind up arguing about deadlines.

Assuming no fining provision exists in the Declaration, follow the provision contained in North Carolina State Law (N.C. Gen. Stat. 47F-3-107.1), as follows:

2.Send a second warning letter (optional) which states it is the final warning. Once again, set a specific date for compliance.

3.If the violation is not corrected in response to the warning letter(s), send a final letter. State they were sent a warning letter(s) which has been ignored. Inform the homeowner that a show cause hearing will be held and that a fine may be imposed. Inform them of the time and place of the show cause hearing. Inform them that they have the right to bring an attorney to the meeting. Be reasonable and allow adequate time between the letter and the hearing date. I suggest a minimum of ten (10) days.

4.The hearing is to be held before an adjudicatory panel appointed by Board or in front of Board. Be sure you have arranged a suitable location. Someone’s home is not recommended.

5. At the hearing, the adjudicatory panel or Board must act impartially. Listen carefully to what the homeowner has to say. Remember that the homeowner may bring their attorney- if this happens it is a good idea to have an attorney to represent the association present.

6. After the homeowner has presented his or her case and explained either why they are not in violation or why they should not be fined, the homeowner may be excused from the hearing. After the homeowner leaves, the Board should determine if a fine should be levied and the appropriate amount of the fine, up to $100.00 per day per violation. The fine should be in line with the nature of the offending activity (for example, $100 per day for an unauthorized above-ground swimming pool; $50.00 for a junk car, $25 for an improperly parked car or garbage can violation). There are no rules other than commons sense and those adopted by the Board.

7. The homeowner should then be notified (in writing) of the Board’s decision and the date upon which a daily fine will commence. The Board must wait at least 5 days after the hearing (and after providing written notice) before levying a fine. The homeowner may still remedy the violation and avoid the fine until that deadline is reached. If the hearing was held before an adjudicatory board and the Board is imposing a fine, the letter should include the right to appeal the decision within fifteen days to the Board of Directors.

8. If the hearing was held before and adjudicatory board, and the homeowner files an appeal repeat the above steps, beginning with establishing an appeal date.

9. If the violation is not remedied, start fining. Be sure that the fine is accounted for on the homeowner’s ledger. Send the homeowner a monthly invoice for the fine.

10. At this point, the Association should hire an attorney if they have not already done so. Under North Carolina law, the fine is an assessment. An attorney can file a lien against the homeowners property to secure payment of the fine if payment of the fine becomes past due. The lien may be ultimately foreclosed. Note that the foreclosure must occur pursuant to judicial foreclosure, not power of sale foreclosure as in the case with the collection of assessments.

11. The Association should consider waiving all or part of the fine, but generally not attorney fees, if the homeowner ultimately complies. The purpose of fining is to get the homeowner to comply with the covenants, not to generate revenue for the HOA.

The content of this presentation is for general information only. Associations should consult with their attorney in establishing fining policies and procedures.

Payment is due on the 1st day (day 1) and late after the 15th. Late fees are applied on the 16th. (check your coupon book for exact dates, the due and late dates may not be the 1st and 16th, it can vary by association).

The first late notice is sent after late fees are applied.

After day 60, the final late notice is sent. After day 90, a 15-Day Demand Letter is sent. If

no response to the demand letter within the 15 days, the account is sent to the attorney.

General Policy For Delinquencies

The attorney sends their demand letter, which includes a 10 day grace period. Attorney fees are paid by the homeowner.

If no response to the attorney demand letter, a lien is placed on the property. A letter demanding payment including attorney fees is sent to the homeowner with a copy of the lien. The grace period for payment is 30 days.

After this 30 day time period, the foreclosure process is begun. Foreclosure authorization from the BOD is obtained prior to the foreclosure hearing.

At any time before the 90 days, the owner can work with CAS to put a payment plan in place. Homeowners are expected to fulfill any commitments made in a payment plan. This is generally a one-time opportunity.

After an account is turned over to the attorney, the manager, CAS staff, or the Board should not enter into dialogue with the owner regarding the account. The attorney will be the only contact for the owner regarding this situation.

Until the account is current, all checks must be sent to the attorney, not to CAS or to a Board member. Any check sent to CAS instead of the attorney will be forwarded to the attorney and considered received when it is in the attorney’s office.

Until the account is current and all fees are paid, late fees will be generated and the lien will be kept in place; eventually the process may begin again.

Remember…

Four Things All Boards Should Know About House Bill 882

1) HB882 would put all management companies in NC out of business on 10/1/15 as “The Commission shall not issue a license to provide community association property management to a partnership, association, corporation, limited liability company, or other business entity.”

2) Community managers would have to become Licensed Real Estate Brokers and only individual brokers could contract to provide management services.

3) All associations would have to register with the Commission, pay a $100 annual fee, and provide the names and address of all Board members.

4) Board members would be required to take a four hour class provided by the Real Estate Commission within 60 days of taking office. The course would be taught by the Commission and will cost $75. Any board member who refuses to take this class would be subject to daily fines.