House Select Committee on Homeowners’ Associations Issues Final Report
Today (Wednesday, February 28) was the fourth and final meeting of the NC House Select Committee on Homeowners’ Associations. As a reminder, this Committee was created by House Bill 311 (see NC Community Association Legislative Update – May 9, 2023) and tasked with examining planned communities and condominium associations, including:
- Current laws applicable to HOAs.
- Existing remedies for HOA violations of their obligations under the law and recommended additional remedies for such violations.
- Executive agencies that are best positioned to assist homeowners in resolving complaints against HOAs for violations of law.
- Any other relevant issue the Select Committee deemed appropriate.
The Committee was instructed to provide a final report to the General Assembly on its study, including any proposed legislation, on or before March 1, 2024, which it did through a 27-page report with eight main legislative recommendations. Law Firm Carolinas partner Harmony Taylor, who is Chair of the North Carolina Legislative Action Committee for HOA/condos (and previously testified before the Committee), and I were present for the hearing. FYI, the Committee’s work is separate from other HOA/condo bills moving through the General Assembly, including HB 542 (see Legislative Update September 25, 2023 – House Bill 542 Adopted by Senate, Now in Conference Committee).
As a start, members of the Committee deserve thanks. Serving in the General Assembly is an enormous commitment of time even without adding additional committee responsibilities. And likely no one dreamed of public office with the hope that one day they could examine North Carolina’s homeowner and condominium association laws.
The final report is broken into a summary of the Committee’s public hearings on January 11 (when nine speakers addressed the Committee), January 24 (16 additional speakers), and February 13 (when the Committee received a draft of proposals). Today, the Committee adopted the entire report with findings as well as recommendations to present to the General Assembly later this session as legislation.
The Committee’s recommendations generally fall into five categories. Because three of the proposals would be added to both the NC Planned Community Act in Chapter 47F (for HOAs) and the NC Condominium Act in Chapter 47C (for condos), there are six existing law changes and then proposals to mandate pre-litigation mediation and to create new HOA reporting requirement to the NC Department of Justice.
Here is a summary:
ASSOCIATION RECORDS
Laws for both HOAs and condos would be changed to provide that unless the bylaws require a shorter time, associations would have to make records obtainable under existing law reasonably available for examination within 30 days of an owner’s written request. However, an association would not be required to produce financial records created more than three years prior to the owner’s request.
ASSESSMENT INCREASES
Laws for both HOAs and condos would be changed to provide that if a proposed budget would increase the previous year’s assessments/dues by more than ten percent (10%), a majority vote of all owners in the association–or any larger vote specified in the declaration–would be required unless the amount of the increase is expressly authorized in the declaration. In addition, after ratification of a budget, no action could be taken by the board that would increase budgeted common expense liabilities by more than five percent (5%) without a majority vote of all owners in the association, or any larger vote specified in the declaration.
COLLECTION OF UNPAID ASSESSMENTS
Laws for both HOAs and condos would be changed to provide that a lien for nonpayment of owner assessments/dues could not be foreclosed unless the following additional conditions are met:
- The amount of the lien is equal to or greater than six months of assessments or equal to or greater than two thousand five hundred dollars ($2,500.00), whichever is less.
- The association offered the unit owner a reasonable opportunity to cure the default by making payments under an installment schedule, and the unit owner either did not accept the offer or defaulted on payments under the agreed installment schedule.
PRE-LITIGATION MEDIATION
The NC General Assembly created voluntary pre-litigation mediation for certain HOA/condo disputes in 2013. (See New Voluntary Mediation Law for HOAs and Condos and New Mediation Program to Help Resolve North Carolina HOA/Condo Disputes.)
The Committee recommends that mediation for those disputes be changed from voluntary to mandatory, unless the requirement is waived by all parties. The consequence would be that prior to filing a civil lawsuit under the Planned Community Act, Condominium Act, or an association’s declaration, bylaws, or rules and regulations, the parties would have to attempt mediation or have the lawsuit dismissed.
REPORTING ON OWNERS’ ASSOCIATION COMPLAINTS
The Committee also recommends that the NC Department of Justice receive and record data from all complaints concerning disputes between associations and their members. The DOJ would be required to publish a complaint form on its website for electronic submission of complaints and whether a complaint was received by phone, mail, or online. The Department would also collect information from the homeowner so that it can compile statistical information on the number and types of homeowner complaints. Each year the DOJ would report such statistics to the House Standing Committee on Commerce, the Senate Standing Committee on Commerce and Insurance, the Fiscal Research Division, and publish the report on its website. The proposal makes clear that the intent of such filings is to collect information and that the Department “shall not serve as an arbiter in disputes between an association … and its members.”
THOUGHTS
Most of these proposals seem like common-sense approaches to resolve certain owners’ complaints. However, as with all legislation, the devil is in the details. The actual final wording of any proposed bill could make the difference between something that works versus language that causes confusion or unintended negative consequences. For instance, while a six-month requirement before foreclosure for nonpayment of assessments might seem reasonable, the initial draft wording would allow all owners of an association to be up to five months in arrears FOREVER and never be subject to foreclosure. Since an association has no money other than what is collected in assessments, such language would almost certainly require more money be paid by the other owners who are fulfilling their association obligations.
Another recommendation proposes that assessments/dues never be increased more than a percentage without a majority vote of every owner in the association. The initial recommendation confuses budgets with assessments, which are separate processes, but can be confusing if you don’t regularly work with HOAs/condos. More importantly, such owner approval will be almost impossible to obtain, and for most associations would require many months of effort. About the only reason assessments go up significantly year-to-year is for required nondiscretionary expenses, such as for insurance. Due to natural disasters, inflation, and increased building costs, property insurance premiums went up an average of 11% this past year alone. (Some coastal communities have seen increases of 200%!) Other associations have mechanical or structural issues that if not addressed could lead to something like the horrific 2021 Florida condominium collapse that took 98 lives. To make it time-consuming, difficult, or impossible to increase assessments in all circumstances for all associations could lead to dire results.
As a result, the specific wording of any final proposals will matter. It is very difficult to craft one-size-fits-all solutions that work for both a two-member mountain condo or a 2,500-member coastal HOA. In North Carolina our firm represents associations from Murphy to Manteo and is also familiar with what other states have done. We’ve seen how even small changes can impact associations, their members, and property values. Our attorneys are happy to help provide that perspective or to talk anytime with legislators.
The entire Committee’s report can be found under House Select Committee on Homeowners’ Associations.