Association's Governance
A North Carolina planned community is created by recording a community declaration in the county's land records in which the community is located. N.C. Gen. Stat. §47F-2-101. A community association consisting of all lot owners is then organized as a nonprofit corporation to carry out the powers reserved to the community in the declaration and act on behalf of lot owners. N.C. Gen. Stat. §47F-3-101. Lot owners and any occupants of homes within the association are legally bound to comply with the community's declaration, treated by North Carolina courts like a contract entered into between and among all lot owners and the association. N.C. Gen. Stat. §47F-2-103(a); Wise v. Harrington Grove Cmty. Ass'n, 584 S.E.2d 731 (2003).
The declaration and accompanying bylaws, along with the articles of incorporation recorded with the Secretary of State upon the association's organization, are the association's governing documents and form the basis of its legal authority. N.C. Gen. Stat. §47F-2-103. The governing documents are considered enforceable under their terms unless the terms conflict with the North Carolina Planned Community Act (NCPCA) or another controlling statute. Id. Along with other non-judicial remedies, HOAs are authorized to institute legal proceedings to enforce the governing documents. N.C. Gen. Stat. §47F-3-102(4).
A board of directors ("executive board" or just "board" under the NCPCA) acts on behalf of the association and enforces the covenants and restrictions included within the declaration. N.C. Gen. Stat. §47F-3-103. Homeowners elect the board following the NCPCA and the association's bylaws. N.C. Gen. Stat. §47F-3-103. If allowed by the declaration, an association may have an initial, temporary period of declarant control during which board members and officers are appointed by the declarant (usually the developer). N.C. Gen. Stat. §47F-3-103(d). The board must include at least three members, and lot owners must constitute a majority of the board at all times after an initial period of declarant control. N.C. Gen. Stat. §47F-3-103(e).
Qualifications, powers and duties, terms of office, and the manner of electing and removing board members must all be outlined in an association's bylaws. N.C. Gen. Stat. §47F-3-106. An association's executive board appoints officers to carry out the board's duties (such as the duty to provide for the maintenance of common elements) and powers (such as the power to enforce covenants). N.C. Gen. Stat. §47F-3-103(e). While performing their duties on behalf of the association, board members and appointed officers have a legal obligation to act in good faith and avoid conflicts of interest. N.C. Gen. Stat. §47F-3-103(a). Board members and officers must act with reasonable prudence and in the best interests of the association. Id.
The association may not make any payment to a board member or officer—including in-kind exchanges—unless the transaction is expressly authorized in the bylaws or is approved in advance by a majority vote of the board. N.C. Gen. Stat. §47F-3-118.
Duties and powers of an HOA's board, granted by the NCPCA and the community's declaration, include enforcement of covenants, adopting budgets, assessing and collecting member fees, maintaining and regulating commons areas, and acting on behalf of the association in legal matters. N.C. Gen. Stat. §47F-3-102.
An association's corporate structure is governed by its articles of incorporation, a legal document prepared when it organizes as a corporation. Eligibility criteria and duration of terms for officers are often outlined in the articles of incorporation. Under North Carolina law, officers of an HOA are held to the same standards of conduct applicable to nonprofit corporations' officers. See generally, N.C. Gen. Stat. §55A-8-42. Members of an HOA have the right to vote on certain association matters, including the election of board-members and adoption or amendment of covenants. N.C. Gen. Stat. §47F-3-103(b). Voting occurs at member meetings. N.C. Gen. Stat. §47F-3-108.
Limitations on Association Powers
North Carolina law affords substantial deference to an association's declaration, bylaws, and articles of incorporation in interpreting association powers. N.C. Gen. Stat. §47F-1-104. Unless in conflict with the NCPCA, an association's governing documents are presumed to be enforceable under their terms, which means that no additional authority beyond the governing document is required to authorize the board to take enforcement action. Id.
In general, an HOA board's actions on behalf of the association must comply with the community's governing documents. Simply, a board cannot assume powers that are not granted under the HOA's governing documents or granted or implied under the NCPCA. Moreover, an association's governing documents may further restrict the powers which the board might otherwise exercise. Additionally, all association actions and governing documents must comply with any other applicable state and federal laws, including the Federal Fair Housing Act (FHA), North Carolina Fair Housing Act (NCFHA), Americans With Disabilities Act (ADA), Fair Debt Collection Practices Act (FDCPA), and corresponding North Carolina statutes.
The NCPCA requires board members and officers to always act in good faith, in the association's best interests, and exercise ordinary prudence in carrying out their powers. N.C. Gen. Stat. §47f-3-103(a). Board members are also answerable to homeowners through removal proceedings and elections at member meetings following voting procedures outlined in the declaration or bylaws. Certain actions may only be taken upon member vote and not by the board unilaterally.
Amendment of the declaration, termination of the community, election of board members, and decisions relating to board members' qualifications, powers, or term may only be made upon member approval. N.C. Gen. Stat. §47F-3-103(b). Budgets proposed by an HOA board are subject to rejection by a majority vote of homeowners. N.C. Gen. Stat., §§47F-3-103. An association's declaration and bylaws may specify additional actions requiring member approval.
The NCPCA expressly limits the right of associations to take certain actions, such as restricting the display of the American or North Carolina flags (provided the flag is no larger than four feet by six feet and is displayed respectfully). N.C. Gen. Stat. §47F-3-121. A restriction on the flag's display recorded before October 2005 must use precise terms (e.g., "Flag of the United States of America") to be enforceable. Id.
For later-adopted restrictions, the language of the restriction must be prominently included in bold type on the first page of the applicable instrument (usually the declaration) and must state the statutory language verbatim: "THIS DOCUMENT REGULATES OR PROHIBITS THE DISPLAY OF THE FLAG OF THE UNITED STATES OF AMERICA OR STATE OF NORTH CAROLINA." Id.
Similarly, an association may only restrict the display of political signs on a member's property if the relevant restriction expressly references "political signs" (for restrictions before October 2005) or prominently states on the first page of the instrument the precise language prescribed by the legislature: "THIS DOCUMENT REGULATES OR PROHIBITS THE DISPLAY OF POLITICAL SIGNS." Id.
Associations are afforded greater latitude in regulating political signs during the period more than 45 days before, or seven days after, an election, and with regard to limitations on the size and number of signs. Id.
Meeting and Notice Requirements
North Carolina HOAs must hold regular member meetings at least once per year. Special Meetings may also be called by the association's president, a majority of board members, or by a petition joined by at least ten percent of the community's homeowners. All meetings require at least ten but not more than 60 days advance written notice, provided via hand-delivery, regular mail, or email if the lot owner has provided an email address in writing. N.C. Gen. Stat. §47F-3-108(a). Notices must state the meeting's time and place and describe the agenda, including the nature of any proposed amendments, budget changes, or proposed removal of an officer or board member. Id.
Lot owner meetings at which elections will be held, or amendments will be considered, a quorum—defined as the presence, in person or by proxy, of at least ten percent of eligible voters for the election of executive board members must be present. N.C. Gen. Stat. §47F-3-109(a).
North Carolina HOAs must also hold member meetings for consideration of budgets proposed by the board. Within thirty days after adopting a proposed budget, an HOA board must provide members with a summary of the budget and notice that a membership meeting will be held to vote on budget ratification. N.C. Gen. Stat. §47F-3-103(c). The notice must include a statement that the budget may be ratified without a quorum. Id. The budget meeting must be held at least ten days, but not more than sixty days after the notice is provided to members. Id.
The schedule and requirements for executive board meetings are outlined in an association's bylaws. At executive board meetings, a quorum is defined as the presence at the beginning of the meeting of at least fifty percent of board votes. N.C. Gen. Stat. §47F-3-109(b). "At regular intervals," the board must allow lot owners an opportunity to attend at least a portion of the board meeting and voice issues and concerns of the community. N.C. Gen. Stat. §47F-3-108(b).
Lack of Meetings and Board Vacancies
Under North Carolina Law, in the event of a board-member vacancy, existing board members are authorized to appoint a replacement board member to complete the term's unexpired portion to the vacancy. An HOA board cannot unilaterally elect other board members—only appoint temporary replacement board members if a seat becomes vacant during a term. N.C. Gen. Stat. §47F-3-103(b).
Suppose a recalcitrant board fails to fill a vacancy or to hold meetings generally. In that case, homeowners can call a special meeting to hold an election to fill the vacant position or remove the board members who fail to fulfill their duties. A special meeting requires lot owners constituting at least ten percent of the community's votes. Written notice of the special meeting must be provided to all lot owners at least ten days in advance of the special meeting and must state the reason for the special meeting. See N.C. Gen. Stat. §47F-3-108(a).
A majority vote of homeowners can effectuate the removal of one or more board members at a meeting at which a quorum of eligible voters is present. Lot owners may remove a board member with or without cause. N.C. Gen. Stat. §47F-3-103(b). Additional procedural rules for removal may be included in an association's bylaws.
Amendments to Declaration
North Carolina's PCA requires amendments of association declarations to be approved by the homeowner vote. Any amendment must be approved by at least sixty-seven percent of the allocated votes. N.C. Gen. Stat. §47F-2-117. A declaration can require a larger majority than the two-thirds required by the statute. However, it cannot set a lower standard for amendment (unless the association is wholly non-residential). Id. Voting on a proposed amendment may occur at a regular or special meeting, as long as the meeting notice adequately describes the agenda. N.C. Gen. Stat. §47F-3-108(a).
Amendments become effective upon approval and recordation in the county land records. An action to challenge the validity of an amendment must be brought within one year after the enactment of the amendment. See N.C. Gen. Stat. §§ 47F-2-117(b) and (c). In order to be fully enforceable against lot owners, "an amendment should not exceed the purpose of the original declaration." Armstrong v. Ledges Homeowners Association, Inc., 633 S.E.2d 78 (N.C. 2006).
Termination of a community association requires approval by at least eighty percent of lot owners. N.C. Gen. Stat. §47F-2-118(a). As with an amendment, a termination agreement must be recorded in the appropriate land records before it becomes effective. Id.
The community's declarant may also amend a declaration to the limited extent necessary for the declarant to exercise a development right reserved in the declaration. N.C. Gen. Stat. §47F-2-117(a). "Declarant rights" potentially include the right to add or withdraw land from the community, create or subdivide lots or common elements, use easements, maintain offices, and appoint and remove board members and officers during the temporary period of declarant control. N.C. Gen. Stat. §47F-1-103(11).
Association Records and Member Inspection Rights
Under the North Carolina PCA, an HOA must maintain and preserve its "financial and other records," including all board and member meetings. An association's bylaws should identify and describe the minimum records that the association must maintain. However, the records kept must include written records of cash receipts, expenditures, assets, and liabilities. N.C. Gen. Stat. §47F-3-118.
North Carolina HOAs must make their "financial and other records" reasonably available for inspection and copying upon the request of lot owners or the authorized agents of lot owners. N.C. Gen. Stat. §47F-3-118. A request for inspection should be made in writing at least five business days in advance. N.C. Gen. Stat. §55A-16-02. An association can impose a reasonable inspection charge, not exceeding the estimated labor and material costs of producing or copying the records. N.C. Gen. Stat. §55A-16-03. A protocol for requesting inspection of an HOA's books and records is often outlined in the community's bylaws.
The documents subject to inspection are further supplemented by the Nonprofit Corporation Act and include lists of members, governing documents, accounting records, meeting minutes, and board resolutions. See, N.C. Gen. Stat. §§55A-16-01, 55A-16-02. Within 75 days after the close of the fiscal year, North Carolina HOAs must prepare and make available to members at no charge an annual income and expense statement and balance sheet. N.C. Gen. Stat. §47F-3-118. A majority vote can require a more extensive audit of the HOA's books and records for the executive board or lot owners' current or preceding fiscal year. Id.
Publication of Members' Personal Information
Although North Carolina's PCA does not specifically restrict an association's ability to publicize member information, the FDCPA generally prohibits "debt collectors," including property management companies acting on behalf of HOAs, from publicizing member information relating to assessments. 15 USC 1692d.
Additionally, North Carolina's Debt Collection Act prohibits "debt collectors," defined under that law as anyone engaged in collecting a consumer's debt, from unreasonably publicizing information relating to a debt. N.C. Gen. Stat. §75-53. The prohibited publication includes any disclosure to a third party relating to a consumer's debt, any communication about a debt that is reasonably likely to be overheard by a third party, and dissemination of any list that includes debt-related information. Id.
Thus, an association that publicizes information about a homeowner's unpaid assessments potentially violates the North Carolina Debt Collection Act. Sensitive identifying information relating to members may be protected by other state and federal laws protecting confidential information and not necessarily limited to debt collection or HOAs. See Privacy Rights, Confidentiality, And Data Security For Homeowners' Associations (HOPB).
Budgetary Requirements
North Carolina's PCA and Condominium Act set forth similar standards for HOAs and condo associations to adopt and approve budgets. Under both statutes, an association's executive board must prepare periodic budgets for the community. N.C. Gen. Stat., §§47F-3-103(c) (HOAs), 47C-3-103(c) (condominiums).
The specific methods for adopting budgets and calculating assessments will be outlined in an association's governing documents, and the board must comply with those requirements. A budget does not become effective until after a member meeting is held to ratify the proposed budget. Id. A budget proposed by the board can be rejected by a majority vote of lot owners, in which case the previous budget remains in place until a new budget can be prepared and ratified. Id. If the proposed budget is not rejected, it is deemed to have been ratified. Id.
Individual lots' assessment liability is determined according to allocations outlined in the declaration. N.C. Gen. Stat. §§47F-3-115; 47C-2-107. That is, within the community's declaration, each lot is assigned a percentage or fraction of the common interests in the entire community, and each lot's assessment is based on the proportion the assigned allocation bears to the association's budget.
All remaining funds are either refunded to lot owners pro-rata or credited toward future assessments if any surplus funds remain after covering common expenses, reserves, and a reasonable operating expense surplus. N.C. Gen. Stat. §§47F-3-114; 47C-3-114.
HOA Fee Collection and Lien Authority
North Carolina's PCA authorizes associations to levy assessments against lot owners to maintain, repair and replace common elements. N.C. Gen. Stat. §47F-3-107(a). Lot owners are assessed according to allocations outlined in the association's declaration. N.C. Gen. Stat. §47F-3-115(b). Assessments must be made at least annually. N.C. Gen. Stat. §47F-3-115(a).
To the extent a specific common expense benefits fewer than all lots, the association can limit assessments for that expense to the benefitted lot owners. N.C. Gen. Stat. §47F-3-115(c). If an individual lot owner is legally responsible for damage caused to a common element, or if a common expense is incurred due to the negligence or misconduct of a lot owner or occupant, the board can assess the lot owner for the expense or repair cost or seek to recover damages from the lot owner for the repair costs or diminished value. N.C. Gen. Stat. §§47F-3-107(b); 47F-3-115(f).
Delinquent assessments accrue interest at a rate set by the association not exceeding eighteen percent (18%), except that associations created before 1999 can only charge interest if expressly permitted by the declaration. Id. A board can impose late fees for delinquent assessments, not to exceed the greater of $20.00 or ten percent of the unpaid assessment. N.C. Gen. Stat. §47F-3-102(11).
An association's executive board, at its sole discretion, may permit a lot owner to pay amounts owed in installments, in which case the association may charge a reasonable administrative fee for processing the installments. N.C. Gen. Stat. §47F-3-116(i). An HOA may not seek to recover collection costs from a delinquent homeowner unless the community's declaration expressly authorizes the recovery of collection costs. N.C. Gen. Stat. §47F-3-116(h).
After an assessment is more than 30 days delinquent, a North Carolina HOA can record a claim of lien in the relevant county's land records to secure payment of any unpaid amounts, including late charges, fines, interest, and any other charges permitted by the declaration. N.C.G.S §47F-3-116. At least fifteen days before recording the lien, the association must state the amount due to the lot owner via regular mail to the property address and any other mailing address for the lot owner the HOA has in its records. Id. The claim of lien must identify the parcel, record owner, amount, and date due. Id.
A copy of the lien's claim must be served upon the lot owner in the same manner as a civil summons. It must include a statement informing the lot owner that the document evidences a lien that can be foreclosed upon like a mortgage. Id.
Fee Increases and Special Assessments
North Carolina's PCA does not provide a specific procedure or impose any additional requirements on boards for assessment increases. Thus, increases occur as part of the budgeting process, the protocol for which is outlined in N.C. Gen. Stat. §47F-3-103, and the association's governing documents. Under the PCA, North Carolina HOAs are authorized to maintain, repair, and replace common elements "when necessary" and impose assessments on lot owners "as necessary." N.C. Gen. Stat. §47F-3-107(a).
Although the statute does not specifically address "special assessments," any special assessments authorized under an HOA's governing documents must also comply with the statutory requirements applicable to regular assessments. Specifically, the assessment must be proposed within a budget submitted by the board and ratified by lot owners at a member meeting. N.C. Gen. Stat., §47F-3-103(c).
Importantly, proposed assessments are deemed as having been ratified if not rejected by a majority vote. Id. Special assessments for limited common elements (i.e., elements benefitting fewer than all lots) are assessed exclusively against the lots benefitting from the limited common element to which the assessment relates. N.C. Gen. Stat. §47F-3-115(c). Limited assessments are apportioned according to the allocations outlined in the declaration. Id.
A lot owner charged by the board with the cost of repairing damage to a common element can also request a hearing before an adjudicatory panel appointed by the board, or before the board itself, to determine the owner's liability. N.C. Gen. Stat. §47F-3-107(d). Any such lot owner must be provided notice and allowed to be heard and to present evidence. Id. However, if the amount of purported damage exceeds the jurisdictional amount for small claims in North Carolina, liability may be determined by a court of competent jurisdiction. Id.
Foreclosure and Personal Lawsuits
Although most states only allow homeowners' associations to foreclose on assessment liens judicially (i.e., through the court system), North Carolina associations can foreclose on assessment liens nonjudicially. That means, after complying with the statutorily required protocol, an association can foreclose through a trustee's sale, in the same manner as a mortgage or deed of trust, rather than by going to court. N.C. Gen. Stat. §47F-3-116(f).
Although nonjudicial foreclosures are generally quicker and cheaper, an association also can pursue judicial foreclosure, accept a deed in lieu of foreclosure, or seek a money judgment against the lot owner personally rather than a sale of the lot subject to a lien. N.C. Gen. Stat. §47F-3-116(g). If the amounts owed by the lot owner only include fines, interest on fines, or attorney's fees, the HOA can only foreclose its lien judicially. N.C. Gen. Stat. §47F-3-116(h).
Before the HOA commences foreclosure, it must record its claim of lien, and the assessments must be at least 90 days past due. Any foreclosure must also be approved in advance by the affirmative vote of the executive board. The HOA must first provide formal written notice to the lot owner of the intent to foreclose. The trustee charged with conducting a foreclosure sale can be appointed within the lien's recorded claim or in a separately recorded document. After a foreclosure is started, but before the sale, a lot owner can redeem the property by paying all amounts due, including all foreclosure fees incurred by the HOA and the trustee's commission. See N.C. Gen. Stat. §47F-3-116(f).
The foreclosure sale is open to the public, and anyone, including the association but not the trustee, can bid on the property. Id. The statute of limitations applicable to HOA foreclosures is three years, which means foreclosure proceedings must be commenced within three years after the claim of lien is recorded or else the lien is extinguished. N.C. Gen. Stat. §47F-3-116(c).
Lot owners are responsible for any attorneys' fees, costs, and expenses incurred by an HOA in collecting amounts due, provided the association informed the lot owner in advance of its intent to recover those fees and allowed the lot owner 15 days to pay the amounts owed without attorneys' fees. N.C. Gen. Stat. §47F-3-116(e).
An HOA can alternatively elect to pursue a money judgment against the lot-owner, rather than a judicial foreclosure. A personal suit to recover assessments is essentially a legal collections action and will usually be brought in the district or small claims court (depending upon the amount owed) of the county in which the homeowner resides.
Cases brought by an HOA are subject to the same requirements as other lawsuits and generally begin with service of the summons and complaint upon the defendant. After service, the defendant has an opportunity to respond, the parties can conduct discovery, and the case is eventually decided by a jury or judge or resolved via a negotiated settlement agreement.
Suppose the court enters a judgment. In that case, the plaintiff can attempt to collect on the judgment by attaching the defendant's property using a writ of execution or other post-judgment remedies. North Carolina is among the small minority of states that do not allow for wage garnishments to recover outstanding civil judgments (except domestic support obligations).
Right to Due Process
Depending upon the association's governing documents' language, an HOA can enforce covenants using fines, suspension of voting rights and facility privileges, or instituting a civil action. Fines must be "reasonable" and cannot exceed $100 per violation and $100 for violations continuing more than five days after a determination is made that a violation has occurred. N.C. Gen. Stat. §47F-3-102(12). Before an HOA's board can impose a fine, the board must notify the homeowner in writing of the proposed fine and allow him or her the opportunity to be heard. Id.
If a hearing is sought, it is held before either an adjudicatory panel made up of non-board-member lot owners or the executive board. N.C. Gen. Stat. §47F-3-107.1. A board's power to suspend voting or facility rights is subject to similar requirements as fines. That is, the member whose rights may be suspended must be provided notice of the proposed suspension and the opportunity for a hearing before the executive board or an appointed panel. N.C. Gen. Stat. §47F-3-102(12).
If rights are suspended due to nonpayment of assessments, the amounts due must be at least 30 days delinquent before the suspension can be enacted. N.C. Gen. Stat. §47F-3-107.1. Because the PCA does not expressly authorize the suspension of voting rights, a community's declaration must specifically authorize the board to suspend voting rights in order for the board to exercise that power.
If an HOA elects to enforce covenants via a civil action, it must abide by all of the due process requirements applicable to any other lawsuit. The defendant homeowner must be served with the summons and complaint and must be allowed to respond and defend against the action, conduct discovery, and present evidence to the court.
Small claims courts, which typically hear actions involving less than $10,000 in alleged damages, have a more streamlined process that district or superior courts. Notably, an individual association's governing document may require the HOA to take additional steps before enforcing covenants.
Violation Enforcement
An HOA's potential remedies depend in part on the association's governing documents. North Carolina's PCA authorizes executive boards to impose fines, suspend facility privileges, and institute civil proceedings in the event of a covenant violation. N.C. Gen. Stat. §§ 47F-3-102(12). If the violation comes in the form of unpaid assessments, the board can charge interest and late fees, record a lien against the lot, and eventually foreclose on the lien. N.C. Gen. Stat. §§ 47F-3-107(a), 47F-3-115(f), 47F-3-102(11).
An HOA board has the authority to file a lawsuit to remedy violations on the association's behalf. N.C. Gen. Stat. §47f-3-102(4). Often, a cease-and-desist letter from the HOA's counsel, demanding that the homeowner discontinue covenant violations, will precede the formal institution of legal proceedings. However, the PCA does not expressly require that in all circumstances. A civil suit can be filed in small claims, district, or superior court—depending upon the amount in controversy and the form of relief sought.
For the most part, an association's choices when filing are to ask a court to award a money judgment against the lot owner or order injunctive relief—an order entered by the court that directs the lot owner to comply with the community's covenants and cease further violations.
Moreover, suppose recovery of attorneys' fees is authorized under the declaration. In that case, an association can recover its reasonable attorneys' fees incurred in enforcing a violation of the community's declaration, bylaws, or properly enacted rules. N.C. Gen. Stat. §47F-3-120.
Although an association may generally have an easement to access or move through a lot owner's property for the limited purpose of maintaining, repairing, and replacing common elements, North Carolina's PCA does not authorize "self-help" by an HOA (i.e., accessing a member's property without the member's consent to correct a violation). See generally, N.C. Gen. Stat. §§47F-3-107(a); 47F-1-103(28).
Fine Limitation
For violations of the declaration, bylaws, and rules and regulations, an association can impose "reasonable" fines and suspend the violating member's access to the association's privileges or services. N.C. Gen. Stat. §47F-3-102(12). Fines cannot exceed $100 for a violation, and for each continuing violation that occurs more than five days after a decision is reached that a violation has occurred. Id. No fine can be imposed until the member has received notice of the proposed fine and the opportunity to be heard. Id.
Hearings are held before either the executive board or an adjudicatory panel consisting of other lot owners who are not board members. N.C. Gen. Stat. §47F-3-107.1.
Suspension of Rights and Privileges
Associations are allowed to suspend delinquent members' access to the association's privileges or services, except that a member's lot access cannot be suspended. N.C. Gen. Stat. §47F-3-102(11). The rights cannot be suspended until thirty days after any unpaid amount comes due; and until after the member has received notice of the proposed suspension and the opportunity to be heard. Id., N.C. Gen. Stat. §47F-3-107.1.
Hearings are held before either the executive board or an adjudicatory panel consisting of other lot owners who are not board members. N.C. Gen. Stat. §47F-3-107.1. Although suspension of voting rights is not specifically included within North Carolina's PCA, a non-compliant member's voting rights may be suspended along the same lines as common element privileges as long as the community's declaration expressly authorizes the suspension of voting rights.
Rental Restrictions and Tenant Screening
In general, North Carolina law does not prohibit associations from imposing rental restrictions. Therefore, properly-recorded, "good faith" restriction promoting a substantial interest in the association and enforced in a non-arbitrary manner will likely be upheld. See, J.T. Hobby & Son, Inc. v. Family Homes of Wake County, Inc., 274 S.E.2d 174
(1981); Armstrong v. Ledges Homeowners' Assoc., Inc., 633 S.E.2d 78 (N.C. 2006) (stating that a community's original declaration may prohibit rentals). However, a board cannot unilaterally impose a restriction; it must be authorized by the association's declaration or a validly adopted amendment. An amendment restricting the rental rights of a homeowner who took title before the amendment's effective date is probably unenforceable against that homeowner. See Armstrong, infra.
North Carolina courts err on the side of unrestricted property rights, so ambiguous restrictions are typically interpreted in favor of the homeowner, and general residential use restrictions are insufficient to support an HOA policy restricting rentals. See Wise v. Harrington Grove Cmty. Ass'n, 584 S.E.2d 731 (2003).
North Carolina's PCA does not restrict HOAs' ability to screen prospective tenants if permitted by the governing documents. However, the Federal Fair Housing Act and North Carolina Fair Housing Acts' anti-discrimination rules make tenant screening a risky pursuit for associations. 42 U.S.C. §3604(a).
Even if a screening policy is not intended to discriminate based upon any prohibited factor, if the policy results in a "disparate impact" on a protected class, it may violate the FHA and North Carolina law. Texas Department of Housing & Community Affairs v. Inclusive Communities Project, Inc., 135 S. Ct. 2507 (2015).
Association’s Rent Collection from Owner’s Tenants
North Carolina's PCA does not empower HOAs to attach rent owed to a homeowner by the homeowner's tenant or to evict tenants. If a tenant violates community covenants, the association has the same enforcement rights as when a homeowner is in violation. However, the enforcement powers must generally be directed at the homeowner, or against the lot itself.
In Armstrong v. Ledges Homeowners Association, 633 S.E.2d 78 (N.C. 2006), which involved an amendment to the HOA's declaration, the North Carolina Supreme Court suggested that a "garnishment or 'taking' of rents" amounts to an unreasonable restriction akin to an assessment.
On-Street Parking
Under North Carolina law, "restrictions are generally enforceable when clearly outlined in the original declaration." Armstrong v. Ledges Homeowners Association, 633 S.E.2d 78 (N.C. 2006). Thus, a validly-recorded, uniformly enforced restriction on parking that is reasonable
and serves a substantial interest of the community will likely be enforced—particularly if the street in question is part of the association's common elements. A restriction that conflicts with local ordinances is probably not enforceable, however. See generally, N.C. Gen. Stat. §47F-1-106.
Installation of Artificial Turf
North Carolina associations have considerable discretion in regulating exterior appearances of structures and improvements as long as the community's declaration grants authority for the type of regulation contemplated. N.C. Gen. Stat. §47F-1-104. Thus, a prohibition on artificial turf installation will likely be enforceable, as long as the prohibition is supported by an applicable restriction within the community's declaration. See Armstrong v. Ledges Homeowners Association, 633 S.E.2d 78 (N.C. 2006) ("restrictions are generally enforceable when clearly outlined in the original declaration.").
It is worth noting, though, that North Carolina's PCA does not permit enforcement of covenants requiring irrigation of landscaping to the extent enforcement would conflict with governmental water conservation measures. N.C. Gen. Stat. §47F-3-122.
Homeowners' Enforcement Rights
While North Carolina's PCA does not expressly authorize enforcement suits by lot owners, the statute, according to its terms, is supplemented by general law and equity principles. N.C. Gen. Stat. §47F-1-108. One such "general principle of law and equity" is that North Carolina courts enforce restrictive covenants in the same manner as other contracts. Wise v. Harrington Grove Cmty. Ass'n, 584 S.E.2d 731 (N.C., 2003).
Because homeowners are a party to the restrictive covenants and have vested rights and obligations thereunder, homeowners have a legal right to enforce covenants against other non-compliant homeowners or against the HOA itself. See Armstrong v. Ledges Homeowners Assoc., 633 S.E.2d 78 (N.C. 2006)
Oversight Over HOAs, Management Companies, and Developers
No state regulatory agency directly exercises exclusive jurisdiction over community associations in North Carolina. As nonprofit corporations, HOAs must register with the Secretary of State, and that office generally oversee their corporate governance. With regard to certain consumer protection matters, HOAs are also potentially subject to the state Attorney General's jurisdiction.
In North Carolina, property management companies usually must hold a real estate license if they are involved in leasing, renting, or listing properties. As such, they are regulated by the North Carolina Real Estate Commission. Most developers fall under the jurisdiction of the North Carolina Licensing Board for General Contractors. On the local level, developers are also frequently regulated by planning boards, city councils, and county commissions.
Homeowners Association Registrations
North Carolina does not specifically require homeowners' associations to register as homeowners' associations per se. However, to be validly created, an association must record its declaration in the county's land records in which the community is situated. N.C. Gen. Stat. §47F-2-101.
Moreover, HOAs are required to organize as not-for-profit corporations under the North Carolina Nonprofit Corporation Act. N.C. Gen. Stat. §47F-3-101. Like other nonprofit corporations, homeowners' associations must register and file regular reports with the North Carolina Secretary of State and designate an official agent for service of process.
Nonresponsive Homeowners Associations
It is usually best to resolve problems with an association by talking things out or using the association's democratic processes, as outlined in the declaration and bylaws. Under North Carolina law, members of an HOA have a right to attend and voice their concerns at member meetings held at least annually and board meetings "at regular intervals." N.C. Gen. Stat. §§47F-3-108(a) and (b).
Moreover, members can call special meetings on their own initiative if at least ten percent petition for the special meeting. N.C. Gen. Stat. §47F-3-108(a). If a board member abuses power or acts unfairly, members can try to elect someone else for the next term or attempt to recall them. Removal of one or more board members requires the approval of a majority of homeowners. It must otherwise be carried out following the protocol established in the association's bylaws. N.C. Gen. Stat. §47F-3-103(b). Lot owners may remove a board member with or without cause. Id.
Alternatively, members can organize other homeowners in a campaign to limit the board's power by amending the HOA's declaration. See, N.C. Gen. Stat. §47F-2-117. It is generally a good idea to keep records of any written communications with the association and to take and preserve contemporary notes of any verbal communications. In the event of future retaliation, thorough records can help demonstrate if an association has acted arbitrarily or capriciously—or if a board member or officer is not acting in good faith. See, N.C. Gen. Stat. §47f-3-103(a).
However, suppose non-judicial remedies are unsuccessful or do not address complaints. In that case, it is important to remember that an association is not the final arbiter of disputes between it and its members. If necessary, a homeowner can bring a suit against an association in the small claims, district, or superior court (depending on the issues and amount in dispute) of the county in which the development is located. Armstrong v. Ledges Homeowners' Assoc., Inc., 633 S.E.2d 78 (N.C. 2006).
A suit against an association can seek money damages incurred by a homeowner due to the association's failure to perform its duties or "injunctive relief" – a court order compelling the association to perform duties or enforce covenants. North Carolina law encourages (but does not require) homeowners and HOAs to attend prelitigation mediation before instituting legal proceedings. N.C. Gen. Stat. §7A-38.3F(b).
Either party may contact the North Carolina Dispute Resolution Commission or the Mediation Network of North Carolina and request that a mediator be assigned, and if the other side is willing to participate, that mediation be scheduled.
North Carolina HOAs and condo associations must notify members at least annually of their right to initiate a mediation. The statutory provisions relating to the mediation of disputes between HOAs and members do not apply if the dispute arises solely from a member's failure to pay assessments. See N.C. Gen. Stat. §§7A-38.3F(c), (j), and (b).
Litigation and even mediation can be complicated. Before taking legal action, it is usually a good idea to consult with an attorney who has experience in the areas of the law relevant to the dispute. A good attorney can advise whether a claim is worth pursuing and, if so, the best way to go about it.
Condominium Hazards
If a hazard is in an area that the association has a duty to maintain. In that case, the member can petition a court to enter an order directing the association to perform its lawful obligations by addressing the hazard. See generally, N.C. Gen. Stat. §§47F-3-102(4) (for HOAs), 47C-3-102(4) (for condominiums). Moreover, if injuries result from a hazard in an area that the association must maintain, the injured party can pursue a tort claim against the association (but usually not another homeowner, absent some aggravating factor). N.C. Gen. Stat. §§ 47F-3-111(b), 47C-3-111(b).
HOAs and condo associations are required to carry liability insurance covering any injuries arising out of or in connection with the use, ownership, or maintenance of common elements. N.C. Gen. Stat. §§47F-3-113, 47C-3-113. If a hazard arises in an area that the developer has to maintain, then neither the association nor any owner is responsible for damages resulting from the hazard, and any action should be pursued against the developer. N.C. Gen. Stat. §§ 47F-3-111(a), 47C-3-111(a).
It is worth noting that North Carolina law favors prelitigation mediation of disputes between homeowners and HOAs (or condo associations). So, before filing a lawsuit to convince the association to take care of a hazard, it may be worth contacting the North Carolina Dispute Resolution Commission or the Mediation Network of North Carolina and requesting the assignment of a licensed mediator to the dispute. See, N.C. Gen. Stat. §7A-38.3F(c). Mediators are usually accomplished professionals (often former judges). An independent opinion from a knowledgeable third-party may convince an otherwise intractable association to take action.
Discrimination or Harassment
A member who believes he or she has been harassed or discriminated against in access to housing based upon race, color, religion, sex, familial status, national origin, or disability can file a complaint under the Federal Fair Housing Act or North Carolina's Fair Housing Act. FHA Complaints can be filed with the Department of Housing and Urban Development's Office of Fair Housing and Equal Opportunity. Alternatively, a civil complaint can be filed in federal district court. A complaint under the state statute can be filed with the Housing Discrimination Section of the North Carolina Civil Rights Division or pursued in state court.
A member who believes he or she has been harassed or discriminated against in access to public accommodations based upon disability can file a complaint under the Americans with Disabilities Act. ADA complaints can be filed with the Department of Justice's Civil Rights Division, or a civil complaint can be filed in district court.
The appropriate response to harassment will depend on the precise nature of the conduct. If the harassment rises to the criminal conduct level, it should be reported to the local sheriff's department or other appropriate law enforcement office.
However, if the harassment relates to the collection of debts by a debt collector, in that case, the harassed individual can bring a civil action under the federal FDCPA or North Carolina Debt Collection Act or report the harassment to the federal Consumer Financial Protection Bureau or North Carolina Attorney General. Before taking legal action, it is usually a good idea to consult with an attorney who has experience in the areas of the law relevant to the dispute.