A Busy Week for HOA and Condo Proposals!
Yesterday, House Bill 444 (the “Homeowners Association Reform Bill”) was introduced. (For details, see What House Bill 444 Would Mean for North Carolina Condominium & Homeowners Associations). Today, the trend continued with the filing of Senate Bill 378 (“HOA Revisions”).
The structure and tone of SB 378 closely resemble last session’s HB 542, though it introduces several new provisions. Some of these proposals have appeared in previous legislative sessions. (For background, see Legislative Update – NC House Select Committee on HOAs Files New Bill and NC Community Association Legislative Update – February 28, 2024)
The bill spans 18 pages, but the key provisions are summarized below. To help navigate the many proposed changes, they are presented in the order they appear in the bill.
- Management Contracts: Contracts between associations and management companies cannot exceed two years. Additionally, they cannot include an automatic renewal provision requiring more than 60 days’ notice for termination. If a contract does automatically renew, the association retains the right to terminate it for any reason with 90 days’ notice.
- Prohibited Management Fees: Management companies cannot be compensated based on the amount of fines collected from an association or unit owner. (For context, our firm’s attorneys are not aware of any such business model currently operating in North Carolina.)
- Parking Restrictions: Without explicit authorization in the declaration, an association may not enforce restrictions on parking personal vehicles on public streets—unless the authority to regulate parking has been expressly delegated by the Department of Transportation (DOT) or local government. (Currently, no such delegation process exists.) The term “personal vehicle” excludes motor homes, self-propelled RVs, and vehicles primarily used for commercial purposes.
- Restrictions on Home-Based Lessons: Associations cannot impose fines for violations related to tutoring, educational lessons, academic lessons, or music lessons conducted on an owner’s property—provided the group consists of no more than five people at a time. This applies regardless of noise levels or time of day and extends to townhomes and condominiums with shared walls.
- Lender Questionnaires and Statements of Unpaid Assessments: Fees for preparing a lender’s questionnaire or a statement of unpaid assessments cannot exceed $200 per item. An additional $100 may be charged for expedited requests requiring completion within 10 days. Beyond these charges, neither the association nor its managing agent may impose fees on a unit owner or prospective purchaser in connection with a unit’s conveyance unless the fee is expressly authorized in the declaration and not otherwise prohibited by law. A violation of this provision automatically constitutes an unfair and deceptive trade practice.
- Copying Costs for Association Records: Costs for providing copies of association records cannot exceed the actual cost of photocopying.
- Architectural Review Procedures: Architectural review procedures must be established and followed as outlined in the association’s governing documents, which must specify a maximum timeframe for issuing a decision or reconsideration request. A decision must be made within 90 days of submission, and all decisions must be in writing, made in good faith, and not unreasonable, arbitrary, or capricious. If a proposal is disapproved, the decision must include an explanation for the disapproval and, if the determination was not issued by the executive board, a description of the process for reconsideration by the executive board.
- Violation Hearings and Fines: For violations of governing documents, written notice of a hearing must be sent to the owner at least 10 days in advance and must include a general description of each alleged violation and the required corrective action. Following the hearing, written notice of the decision must be sent, specifying each violation found and the required corrective action. Fines may be imposed at a rate of up to $100 per day but cannot exceed a total of $2,500 per violation, regardless of its duration. Liens related to fines must be filed with the court within 90 days of imposition.
- Collection of Delinquent Assessments: For the collection of delinquent assessments, notice must be sent to owners via both physical mail and email, if the owner has designated an email address. A copy of any claim of lien or certificate of service must also be sent by email if applicable. A lien related to fines is extinguished unless enforcement proceedings are initiated within one year of filing the claim of lien. Foreclosure for assessment delinquencies cannot be initiated until the delinquency has persisted for 180 days or more. The bill imposes additional notice requirements on foreclosure proceedings, including new rules regarding continuances of hearings. Judicial foreclosure is eliminated as an option for liens related to fines and violations; instead, associations must pursue a civil action to obtain a judgment.
- Attorney’s Fees in Assessment Collections: The bill modifies the rule on attorney’s fees in assessment collection matters, shifting them from the delinquent homeowner to the association at the court’s discretion.
- Contract Transparency: Upon proper notice, an owner or their agent may inspect and copy any contract between the association and a management company.
- Automatic License Plate Readers: Associations must maintain written records of any policy related to automatic license plate reader systems. The bill also amends NCGS 20-183.33 to govern the use of such systems by associations.
- Mandatory Mediation for Disputes: Mediation would become mandatory before filing lawsuits, except for assessment collection matters, unless both parties agree to waive it. Since North Carolina established voluntary pre-litigation mediation for HOA/condo disputes in 2013, this change may slow the resolution process, particularly for urgent matters. (See New Voluntary Mediation Law for HOAs and Condos and New Mediation Program to Help Resolve North Carolina HOA/Condo Disputes.)
- DOJ Oversight of Homeowner Complaints: The North Carolina Department of Justice would be tasked with collecting and publishing data on homeowner complaints against associations. While the DOJ would not mediate or arbitrate disputes, it would track complaint trends and report findings to the General Assembly.
FINAL THOUGHTS
While these proposals aim to address homeowner concerns, the bill’s details could lead to unintended consequences. Poorly drafted legislation may create confusion or financial strain for both associations and homeowners. For instance, the six-month foreclosure requirement could allow homeowners to fall significantly behind on dues, forcing others to absorb the financial burden. The shifting of attorneys’ fees from a nonpaying owner to the association will increase costs on paying owners and could lead to inconsistent outcomes even within the same association.
No single solution fits all homeowner and condominium associations, as communities vary widely in size and structure. North Carolina is home to both small, two-home associations and large-scale developments with thousands of members. A one-size-fits-all approach to community association law may have unintended repercussions. Our firm, which represents associations across the state, understands the complexities these communities face and is available to provide guidance and insights to legislators as they evaluate this bill.
The full bill can be found at SB 378.