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.     

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   

Are some rules meant to be broken?

I take a break from lease issues this week.

I was visiting my Dad last weekend. He lives in a very restricted community in Virginia. The community has a lake, golf course and golf club, community clubhouse, several public pools, stables, and more. All highly regulated by a powerful Board of Directors, who are not shy when it comes to creating regulations (such as no towels hanging on your deck at any time if visible from the lake). On Saturday morning I went for a short run on the main road around the lake. While running I noticed the golf course signs which stated that runners and walkers were not allowed to do so on the golf course trails while the course was open for golfers. I recalled that my Dad had indicated that this was a huge controversy and the golfers, who are those with the most power, ruled the day. After much discussion and argument (members against the Board), the edict was made, and unless you like to run when it is pitch black many of the trails through the community are off limits. The Board rationalized this as a measure for the protection of the public. But I wondered, who will protect those overweight gentlemen sitting unprotected in their motorized golf carts. As I ran I pondered this thought until, once again, I found myself being chased by an unleashed dog. A huge black one this time, much larger than one I had ever seen before. My folks moved to this community over twenty years ago, and the rule has always been the same. Pets must be leashed in the common areas. After breaking free from the threat of that dog, I came upon one of the few public parks in the community. I call it the “Brick Park” because it has a fenced pile of bricks, with the picture of a house that sat upon the site and was the headquarters for Stonewall Jackson, or some other confederate officer during the Civil War (I don’t want to give too much information for fear of revealing the name of this community). As I entered the small park I began to run on a paved trail when I came upon another unleashed dog. This time a small dog, with the owner a short distance off, watching. Yet another clear violation of a rule that has been consistently broken for years.

As I represent so many homeowners associations, I began to think about association rules and regulations and some of the clear downfalls to associational governing systems. I guess I was thinking about these things somewhat more than usual due to a series of emails I had recently received as a homeowner in my own North Carolina planned community. One of the neighbors (who I do not know) started the communication by sending around an email to all of the neighbors stating that her cat had gotten loose in the neighborhood. She requested that if anyone had any information about its whereabouts, she would appreciate the help. A few days later another email came around letting all of us know that her pet cat had been found; however, she unwittingly indicated that the reason that the cart had been lost was that she was trying to help the cat transition to being an “outside” cat. Basically, she had admitted to taking action that was clearly in violation of our pet restrictions within the common areas (another restriction indicating that pets must be leashed). That email to all of the neighbors elicited this response from one of the other neighbors (set forth without edit or correction, capitalization included):

“IT DOESN’T MAKE ANY DIFFERENCE WHETHER THE CAT LIKES TO ROAM OUTDOORS OR NOT , THE BY LAWS PROHIBIT ANY PET TO ROAM OFF THEIR OWNERS PROPERTY WITH OUT A LEASE. I HAVE A DOG AND ABIDE BY THE RULES AND I EXPECT YOU TO DO THE SAME WITH YOUR CAT.

THERE ARE A GROWING NUMBER OF BIRDS IN THE AREA AND I DO NOT WANT THEIR NUMBERS REDUCED BECAUSE SOME DAMN CAT IS RUNNING LOOSE. IF I SEE A LOOSR CAT I WILL SIC MY DOG ON IT AND SEE WHAT HAPPENS TO THE CAT. CATS ARE HOUSE PETS AND THAT IS WHERE THEY BELONG.”

All of this got me to wondering about where Homeowners’ Associations go wrong in regard to bylaws, rules and regulations. My conclusion is that discontent and division occurs among neighbors either when an Association has too many rules, or when they simply do not have the resolve or mechanism to enforce rules in place. When a set of rules is already in place, and those in charge allow rules to be violated, but thereafter create new and additional rules of special interest, many owners seem to lose faith in those who are elected. Rules end up being broken time after time (such as in my Father’s development with respect to the leash rule). They then simply become quite impossible to enforce. As new special interest rules are created, those interested in the original rules simply walk away with a bad taste in their mouths, coming to the conclusion that the leadership is a joke.

My experience helping Associations with their covenants, bylaws and rules and regulations has led me to believe that a key to the ability to enforce the easy case (the case where the violation is egregious and an overwhelming majority would vote for enforcement, if they had the chance), is the strict enforcement of the cases which do not seem so offensive. If you are a leader in a North Carolina homeowners association, you need to know that your lack of uniform enforcement of a covenant, bylaw or rule will make it more difficult to enforce that obligation in the future. I have come to the conclusion that the best Association is one with rules made specifically for the unique community to be regulated, and which are enforced uniformly. After establishment of this finely tuned and uniformly enforced set of bylaws, rules and regulations, amendments should be few and far between, and the appearance of favoritism, or special interests, should be avoided at all costs.

As an aside, it was interesting to me that the email quoted above did not receive negative response as to the correctness of the position being made by the sender (technically, she is correct). The barrage of responses obviously came back with concerns about the tone of the response as communicated. Another topic, for another day, and a different blog.

Thanks,

Tom Grella