Revisions to North Carolina Homeowner Association Law Loom

May 3rd, 2011

Our Firm has many Homeowner Association clients, both condominium and planned communities.  We have even more clients who are developers of real property (Declarants), both condominium and planned community.   These clients need to be aware of a bill (House Bill 165) now before the NC General Assembly. Passing its first reading, this bill is now in Committee.  Interested and concerned Associations and Developers of real property should contact their legislature representatives and let them know how they feel about the proposed amendments to Chapter 47C and 47F.  It is my interpretation of what I have read (link to bill as proposed is set forth below for your own review and interpretation) that the new law will make it much more difficult for Associations to hold owners accountable in meeting their obligations as members of a common development.  It is my belief that the while there are a few positive provisions in the amendments which are helpful in clarification of the obligations of officers and board members, some provisions of the law will lead to compliant neighbors sharing a greater financial burden of those members who do not live up to their obligations; an unfair result.  For developers of real property, you need to be aware that the legislature is taking action to make certain rights of “declarant” more difficult to assert, and are proposing that purchaser protection provisions (much the same as in the Condominium Act) be applied to the sale of planned community lots.  The purpose of this post is to point out a few areas where I have greatest concern, both for our developer and association clients:

1.       In both statutes, a specific priority application of payments is now mandated, with payments applied first to assessments, then to late charges, attorney fees and fines and interest.  It is in the best interest of the Association to have application just the opposite as that stated, and the new application pattern will create more difficulty in foreclosing liens where back assessments are paid, but other charges, fees and expenses are not, and therefore a different (more cumbersome) foreclosure procedure must be complied with.

2.       Both statutes would now mandate that when assessments are delinquent, some provision for periodic partial payment over a “reasonable time” must be created by the Association before the procedure for lien and foreclosure is commenced.  The statute is very uncertain as to what a “reasonable time” is, and refers to there being rights to file a lien if an owner “accepts” a plan and then defaults.  The statute does not say what would happen if a payment plan is not accepted, but I assume the lien process could move forward.  Unfortunately, the legislature is going to give more time for the owners to pay the assessments they are responsible for, but at the same time does not create an additional period of time for the Associations (and therefore the responsible owners) to live up to the legally required financial obligations of the Association.

3.       For Declarant, required alternative dispute resolution (between declarant and Association) is limited until after the period of Declarant control is over.

4.       Some new provisions of note in the Planned Community Act – certainty as to the limits of the period of declarant control, and purchaser protection provisions (in the form much like the public offering statement required in the Condominium Act).

5.       For both statutes, it appears that there is now a burden of a public offering statement in resales of lots, and though the statement must be given by the Seller to the Buyer, the burden of providing information to create the statement is on the Association.

These are just some of the changes.  All Association leaders need to take a good look at this proposed statute as it gets closer to being adopted law in North Carolina.  If adopted, I would predict that fewer people will be willing to take on the duties of leadership in an Association.

Link to Proposed Law: http://tinyurl.com/nclaw165          

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Will there be a ban on cell phone use while driving in NC?

March 1st, 2011

The Legislature Begins To Make its Move Against Cell Phone Use In Motor Vehicles

I am well aware that there are many different views on cell phone use while driving.  The legal arguments revolve around Safety vs. Freedom.  The practical arguments by some claim that distracted drivers using cell phone are more likely to be involved in an accident due to the cell phone use (the distraction) and that is avoidable.  Some claiming that argument are likely just annoyed by the way folks drive when they are on their cell phone. The cell phone user seems to overcompensate for the distraction by overly cautious maneuvering, which in fact is annoying, and arguably more dangerous.  There have been a few legal blogs of note over the past few days mentioning the recent introduced legislation in the NC General Assembly.  Most of these blogs are by personal injury lawyers.  But this is a business law blog, so why am I telling you about it here.  Regardless of how I may or may not personally feel about the ban from a safety or freedom standpoint, our business clients need to be aware of this legislation.  Regardless of the “main” concerns of safety or freedom, it is my belief that a good amount of commercial transactions, including important business negotiation, are now conducted in a manner which is not face to face, and is in some type of electronic form.  I believe that a large percentage is by use of the cell (or mobile) phone, and I presume that much of this is also in moving vehicles.  If any of the current bills pass, there may be a huge impact on the way you conduct your business on a day to day basis.  I am not telling you, or encouraging you, to contact your legislator to tell them how you feel. I will leave that up to you to decide if you are interested in doing so.  I do think you should know about it, and that you should know how to find out what these proposed laws say.  A House and Senate Bill would prohibit all use of cell phones in a moving vehicle, including hands free devices.  An alternate House Bill allows hands free devices, while prohibiting all other use.

Here is a link to each of the bills, at the official NC Legislature sight, so that you can link there any time and see the status.

House Bill 31: bans use of cell phones by all drivers, including hands-free operation. Includes “cameras, music, the Internet and games.”  http://tinyurl.com/4b9znf4

Senate Bill 36: bans use of cell phones (hands-free included) and related devices by all drivers (similar to HB 31).  http://tinyurl.com/47jkkqk

House Bill 44: Bans use of handheld cell phones, but allows use of hands free phones.  http://tinyurl.com/4jt7eay

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HOMEOWNERS ASSOCIATIONS

January 26th, 2011

Filing Assessment Liens and Foreclosure

This post is intended to briefly review the process of claim of liens and enforcement of properly filed homeowner (Planned Community or Condominium) claims of liens in North Carolina.  The links in the prior article below can take you to the referenced statutes. 

Liens for Assessments are the topic of consideration in Section 3-116 of both the Planned Community Act and the Condominium Act.  The procedures for enforcement of liens are similar in both.  The lien filing (the “claim of lien”) must be drafted using new, and specific, statutory wording found in subsection (g) of Section 3-116 of the applicable Act.  That subsection requires, as it did prior to the statutory re-write, that certain basic information (name, address, legal description, and amount) be included;   however, the claim of lien must now, in capitalized and bold letters, contain the following words on the face:  “THIS DOCUMENT CONSTITUTES A LIEN AGAINST YOUR PROPERTY, AND IF THE LIEN IS NOT PAID, THE HOMEOWNERS ASSOCIATION MAY PROCEED WITH FORECLOSURE AGAINST YOUR PROPERTY IN LIKE MANNER AS A MORTGAGE UNDER NORTH CAROLINA LAW.”  Once prepared, the statute requires that the claim of lien be served upon the owner in a specific manner (specifically the statute references the requirements used for service of a civil complaint), and that a certificate of service be filed along with the claim of lien.  In fact, the foreclosure process, once the lien is filed, is going to be very similar to that procedure used in a foreclosure action based on a deed of trust.     

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HOMEOWNER ASSOCIATIONS

April 19th, 2010

Changes to Development Laws Create New Requirements in Filing Assessment Liens

For our Homeowner Association clients, whether Planned Community Subdivisions (regulated under Chapter 47F of the North Carolina general Statutes), or a condominium (regulated under Chapter 47C of the North Carolina General Statutes), there have been a few major changes to the North Carolina General Statutes which will directly impact your operations.  This is especially true as it regards taking action to collect delinquent assessments (including the filing of liens), as well as foreclosure procedures required to be complied with in any attempt to enforce properly filed liens.  This post will address collection efforts including initial collection letters, demands for attorney fees and the filing of liens.  My next post will discuss the process of filing a foreclosure to enforce a properly filed lien against a planned community lot or condominium unit.  

Prior to October of this past year (2009) there was a basic understanding that an Association could simply file a lien for assessments once those assessment was over 30 days overdue.  NCGS 47C-3-116 (and corresponding 47F-3-116) basically stated that back assessments constituted a lien when overdue and when a lien was filed.  In most cases, Associations made repeated attempts to collect prior to filing a lien, but there was no uniform notice requirement other than having the 30 day delinquency.  The change to the statute is such that now, once you have waited the 30 day period, a notice letter must first be sent to the lot or unit owners giving them a 15 day period to pay the assessments in full, prior to the filing of a lien being authorized.  Fortunately, there remains a 15 day period for assessing attorney fees and costs as well, such that the notice for payment of assessments prior to a lien being filed, and for giving notice of the intent to charge attorney fees, can run contemporaneously.

Assuming that assessments are not paid within the 15 day period, and therefore the  Association is entitled to file a lien for the amount of assessments delinquent, it is critical to note that the statute has changed the amount of information required to be supplied in the lien document to be filed with the Clerk of Superior Court, and additionally the statute now requires that the lien holder must certify that the lien has been served on the owner in the same manner as service of process in a lawsuit, and that the certificate of service be filed along with the lien.

So what does this mean for most of our Association clients?  Basically, if you have not revised your lien forms and processes lately (since late in 2009), most likely you are working with old, out of date forms and procedures.  Use of old forms and processes may negatively affect your ability to successfully collect delinquent assessments.

To review the condo statute or the current planned community statute follow the links below:

Condo:  http://tinyurl.com/y83mmfo

Planned community:

http://tinyurl.com/y2gdxwv


Feel free to contact me if you have any questions regarding these statutes.

Tom Grella   

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Taxation

February 22nd, 2010

A Failure to pay Payroll Taxes is a Risky Proposition

Erwin v. US (January 13, 2010, see link below) is a recent case coming out of the US Court of Appeals for the Fourth Circuit, and happens to be a case originating in North Carolina.  The Case discusses what some believe is a well established rule.  In fact, many might read the case and find nothing new at all.  The result by the Court was to once again find personal liability on an individual for payment of payroll taxes not paid by a Company that the taxpayer held an ownership interest in.  The Court set forth, in great detail (see opinion link below), the facts upon which Mr. Erwin claimed that he should be given special consideration, and not held personally liable for payment of the payroll taxes in question.  One can read the text of this opinion and somewhat sympathize with Mr. Erwin’s position.  He had hired what he thought was a reputable firm to handle payment of these taxes, and found out that they were not so reputable after all (or at least quite incompetent as it related to the details of payment of taxes).  He had given this outside firm specific instructions to use Company funds to pay payroll taxes, however these instructions were not adhered to.  Mr. Erwin even took funds out of his own pocket and delivered them to this outside firm for the payment of payroll taxes, but this request was not fully complied with either.  After finally firing this firm, there is additional incontrovertible testimony that monies of the Company were paid for lease rents and other expenses, while payroll taxes remained due and unpaid.

I recommend this case as a guide for your Company, and for those employees in your Company who may become personally liable for unpaid payroll taxes if the worst case scenario should occur.  This case goes through, in some detail, the requisite factors for personal liability for payroll taxes.  Basically, personal liability will extend to anyone who is (1) responsible for collection and payment of the taxes, and (2) willfully fails to see that the taxes are paid.  The Court goes into some detail to show that the category of responsible persons is actually quite broad within a Company, and “willfulness” in failure to pay is more easily achieved than one might expect.  The Court provides in the text of this case the full list of the factors that are to be considered in determining whether a person is responsible.  Willfulness was found by the Court simply due to the fact that the Company had paid these monies (which are held in trust) for other debts and liabilities of the Company.

The bottom line here for our clients is that we cannot strongly enough encourage you to understand that at the point payroll is calculated, all payroll taxes due to the government are held by the Company in trust, and in a fiduciary capacity.  These funds must be turned over to the government, and cannot and should not, be used for any other Company purpose. To do so is very risky as the Court has made it clear that there is not likely “reasonable cause” to do otherwise.  Further, delegation of the duty of payment to employees or outside vendors is done at your own peril, so choose wisely.  A quick read of the case (link below) can really give the reader some idea of the seriousness of proper application of withholding taxes.

http://pacer.ca4.uscourts.gov/opinion.pdf/081564.P.pdf

Tom Grella   

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Employment Law Education

November 15th, 2009

Learn the Fundamentals

To all of our business blog readers out there, I wanted to make you aware of an excellent opportunity.  On December 1, 2009 in Asheville, my partner, Grant Osborne will be speaking at a program on the fundamentals of employment law.  This is not one of those programs just for lawyers, but will have informative and practical information that all business leaders should be aware of.  Here is the web link to the brochure for this program, and I hope that you will consider attending. 

http://www.sterlingeducation.com/viewseminar.php?semID=581

Tom Grella

 

 

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CREATION OF CONDOMINIUM

November 10th, 2009

When can I record?

There is a question that arises in just about every new construction condominium, and that is:  When can I create the condominium.  A condominium is only created upon the recording  of a declaration of condominium.  Until the moment that the declaration is recorded, a parcel of land remains a parcel of land, and units of space cannot be conveyed (other than in the traditional sense, as a subdivision or planned community).  In many condominiums, especially where there is only one or just a few buildings, and no phasing of units by building is intended, there will come a time when a portion of the building is complete, and a portion is not.  At that time, the question arises whether the declaration is allowed to be recorded, because once recorded, the space is legally created and definable and can be conveyed.  Delays in creation of the condominium usually mean delays in the ability to close on sales and convey.  Obviously, delays like this mean delays in meeting financial obligations. 

North Carolina law provides that a condominium declaration cannot be recorded unless all of the structural components and mechanical systems of the building are complete as certified by either a North Carolina licensed architect or engineer.  For definitional purposes, the official comment to the statute is quite helpful.  Generally, structural components are complete when those portions of the building necessary to keep it standing are in place, and when the building is weather tight.  I once had a client that desired to record a condominium declaration and sell a lower unit fully complete (including windows) even though the upper units had no windows or window frames yet installed.  Clearly, without some of the building windows in place, it was my view that the declaration should not be recorded.   Mechanical systems of a building are complete when such normal or customary (in the locale) systems for the building (as opposed to individual unit fixtures) such as plumbing, electrical, and heating and air conditioning are in place and operation when connected to.   

Once a condominium declaration is recorded, space (or condominium units) can be conveyed by the Declarant to others.  However, developers of any condominium structure which includes one or more residential units need to be aware that the purchaser protection provisions of the North Carolina Condominium Act do not allow the conveyance of any Unit in the building (residential or commercial) until the Unit is substantially complete as evidenced by a certificate of occupancy issued as provided by law, or in the alternative if such Unit is certified substantially complete by an architect or engineer.  Though there are no case interpretations on point, absent a certificate of occupancy, it is my believe (without legal certainty, but based on what I believe to be the logical interpretation of the statute) that the architect or engineer is certifying completion as to the “Unit” contracted for.  In many mixed use condominiums, sales of residential condominiums proceed prior to lower floor commercial units being contracted for.  In many instances, commercial units are “finished” by the purchaser after closing, based upon the commercial needs of the business to be operated, and the “unit” conveyed is actually just a “shell”.  Therefore, for the purpose of conveyance of a shell, it is my belief that the best interpretation is that the architect or engineer would be certifying to substantial completion of the Unit “shell”, as opposed to the Unit as “upfitted” or “finished”.

In that this question comes up in almost every new construction condominium, I hope this is helpful information.  Feel free to contact me if you have need of further interpretation.

Thanks,

Tom Grella   

 

 

 

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North Carolina Condominium Law

November 8th, 2009

I apologize for the long delay in posting any new blog article.  Technical difficulties, plus a bum gallbladder in the need of immediate removal, has slowed things down.  However, I am back now, and so is some of my condominium development activity which kept me so busy just two short years ago.  Fortunately, or unfortunately, it now comes in two different forms.  First, I am seeing that some of those folks who had planned for condominium, or planned unit townhomes, on their property, are now instead opting to create apartments funded by HUD 221(d)(4) loans.  Their hope is that the project might someday be converted to condominium.  Second, I am finding that some owners of apartment projects, finding themselves in financial difficulty, are declaring their projects as condominium for the purpose of keeping their heads above water by selling off some or all of the project prior to institution of foreclosure proceedings against them. 

Because condominium work continues, I thought that it would be helpful to provide my readers with some helpful information answering some of the commonly asked legal questions in condominium projects in North Carolina.  Tune into my next several posts.

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Commercial Real Estate Lending

September 3rd, 2009

Where has all the money gone?

For me, until very recently, law practice was very heavily about the financing and closing of large business and commercial real estate transactions.  My time remains occupied by legal matters, but truly over the past year the flavor has changed.  More folks are talking about HUD loans when it comes to multi-family projects.  Other folks are coming in to discuss the raising of capital from private investors in various forms of the private placement of securities.  Many commercial clients are taking a wait and see approach to the economy, and all of seem to be listening to the media,  shaking their heads and asking: where has all the money gone?

This week I direct  you to a very informative article written by the leaders of RedFish Advisors, an Asheville, North Carolina real estate investment advisory group.  I found it a very interesting perspective on a topic that I know something about, but certainly not enough.

Link to article:

http://www.redfishadvisors.com/uploads/File/REDFISH%20REPORT%20AUGUST%202009%20PRINT%20VERRSION.pdf

 

Thanks,

Tom Grella

 

 

 

 

 

 

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Business Purchase Agreement Terms

August 18th, 2009

Just what is the norm when it comes to terms in a Business Purchase Agreement?

As you may be aware, McGuire, Wood & Bissette, P.A. handles many business purchase agreements for our clients.  It is our endeavor to provide the client with the most favorable  purchase agreement possible, while taking into consideration the bounds of reasonableness as to the terms of the purchase or sale (as the case may be).  In many instances it is difficult to determine what is, or is not, reasonable under any given set of circumstances. 

Recently, the Business Law Section of the North Carolina Bar Association, through  its listserve, sent out a link to a Purchase Agreement Study, conducted by Houlihan Lackey.  Houlihan Lackey is an international investment bank that provides a wide range of advisory services in the areas of mergers and acquisitions.  They say that their work comes in all shapes and sizes, but that this study summarizes selected terms of middle market transactions.  The terms selected are indemnification provisions with respect to representations, warranties and covenants.  Recognizing that there really is no agreed upon definition of what is “fair and normal” or a “market” provision, the study presents the patterns of provisions within transactions, and sets benchmarks for consideration  by transactional parties and their legal counsel. 

To follow is the link to the 2008 study, however please realize that  I have no comment or opinion as to the validity of the information contained therein, and I cannot tell you how long this link will actually work, as it is outside of my control.  I hope you enjoy review of the information contained in the study.  I found it very interesting, and believe it will be useful in considering my own approach to drafting what I hope are fair and reasonable terms for my business clients.

 

click here

Thanks,

Tom Grella

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