Can A Homeowner’s Association foreclose on a house for failure to pay HOA dues?
With bank foreclosures still on the rise in the midst of the slow economic recovery, we have seen a rise of financial distress and turmoil among home owner’s associations. We have particularly seen these actions on the rise in luxury communities where dues range in the tens of thousands of dollars. In our area, the most attention has been given to the 2012 Chapter 11 bankruptcy filing of ClubCo., The Cliffs Club and Hospitality Group, Inc. Founder, Jim Anthony, filed for bankruptcy protection in South Carolina in February 2012. In the initial press releases, it was reported that ClubCo was about $50 million in debt. See this article from WYFF4.com. However, when the final petitions were filed, it appeared that ClubCo had estimated liabilities between $100 million and $500 million. Source: Cliffs Club Falls Into Rough, The Wall Street Journal, by Dawn Wotapka, Feb. 29, 2012. Part of the resolution was The Carlile Group out of Texas providing funding to take over control of the association for the Western North Carolina luxury golf communities. The Carlile Group was in discussion with professional golfers Tiger Woods and Gary Player to try to find a workable solution for continuing development of their properties The Cliffs at High Carolina and Mountain Park. And, according to a news story from August, it appears “The Cliffs” has finally come out of bankruptcy. The Cliffs situation is not unlike countless other golf-course and country club projects, that used lot and home sales to fund further expansion of community amenities. When those sales slowed – and stopped in 2008, and bank foreclosures began running rampant across these communities, the focus shifted from lavish club houses and facilities to just trying to stay afloat. What most North Carolina property owners don’t know is that a Home Onwer’s Association has the right to foreclose for past due assessments much in the same manner as a bank. This action is commonly referred to as an “HOA Foreclosure”.
WHAT IS AN HOA FORECLOSURE?
Once dues and assessments become delinquent, North Carolina home owner’s associations (HOA’s) have the right to foreclose under N.C.G.S. §47F-3-116, Lien for assessments. This statute allows the association to file a claim of lien with the Clerk of Court in the county where the property is situated. Prior to filing the claim of lien, the association must make “reasonable and diligent efforts to ensure that its records contain the lot owner’s current mailing address”. The association must notify the lot owner, in writing, at least 15 days prior to the filing of the lien that they are ready to move forward with collection efforts, and must provide to the lot owner with a statement of the account. Then, if the assessment remains unpaid for 90 days or more, the association, acting through the executive board, may foreclose the claim of lien under power of sale or under Article 2A of Chapter 45 of the North Carolina General Statutes.
If the claim of lien includes only fines, interest on unpaid fines, or attorney’s fees, the association cannot foreclose under Article 2A, but must enforce the lien by proceeding with a judicial foreclosure as provided in Article 29A Chapter 1 of the General Statues. A lien under this statutes gains priority over all other liens against the property except (1) prior liens (including deeds of trust) that were docketed before the docketing of the claim of lien with the clerk of superior court, and (2) liens for real estate taxes and other governmental assessments. A claim of lien for HOA fees is extinguished unless an action to enforce the lien is brought in superior court within three (3) years after the docketing of the lien. In order for the association to collect attorneys’ fees, they must notify the lot owner in writing of the association’s intent to seek payment of attorneys’ fees and costs. If the lot owner does not contest the debt within 15 days following the notice, then reasonable attorneys fees shall not exceed one thousand two hundred dollars ($1,200.00). If contacted by the lot owner, the association, through its executive board may agree to allow payment of amounts due in installment payments. This type of payment arrangement scenario is not required by either side, and lies in the sole discretion of the parties involved.
If an association gains title to a property through foreclosure, it is subject to prior liens and encumbrances on the property. If the primary mortgage holder, or other purchaser of a lot obtains title to the lot as a result of a foreclosure on a first mortgage or deed of trust, such purchaser will not be liable for the assessments against the lot. Such unpaid dues are typically considered a “common expense” that is collectable from all the lot owners and to be pro-rated over the community owners. So, one can quickly realize how struggling communities just get deeper and deeper in debt as multiple properties are foreclosed. And, tempers flare between neighbors when those who pay their HOA dues feel as if they are unfairly supporting those who do not (or cannot) pay.
In February 2011, the NC General Assembly addressed this issue in the form of House Bill 165. This proposed legislation increased the time period that dues or assessments had to remain unpaid before an association could foreclose, required the association’s executive board to vote to begin foreclosure, and required more disclosure to potential home buyers about homeowners associations. Source: Lawmakers turn attention to homeowners groups, By Patrick Gannon, Jan. 23, 2012; StarNewsOnline.com. This is a step in the right direction, but this issue will continue to cause disagreements and struggle in communities across North Carolina until the economy and the overall real estate market improves.
If you have questions about your Home Owner’s Association Dues, or are facing and HOA foreclosure, call the office at 828-285-8888, or fill out our Contact Us form on this site.