Owning Up: New year brings new HOA disclosure rules to N.C.

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It may be easier to ask forgiveness than permission, but ignorance of homeowners association rules will no longer be an excuse for that covenant-breaking giant garage built by new owners.

The Planned Community and Condo Act, House Bill 165, which passed the state House 105-0 and was signed into law by Gov. Bev Perdue June 27, requires that anyone selling a North Carolina home affiliated with an HOA must tell the buyer about the association upfront.

Randy Fann, president of Greensboro-based HOA management firm Association Management Group, which manages Bradfield Farms Homeowners Association in Charlotte, said the new rules, which took effect at the start of this year, are needed.

“You hear these horror stories of people losing their homes to foreclosure because of unpaid homeowners association dues,” Fann said. “That’s what made the lawmakers start paying attention.”

Fann, whose company manages about 200 HOAs across the state, said he’s aware of situations in which new homeowners start breaking their HOA’s rules almost immediately.

“The worst thing that we see happen is when somebody moves into a neighborhood and doesn’t realize there is some restriction that makes doing something that is important to them impossible,” he said. “For example, if you’re a car guy and you want that big garage where you can work on your vehicles, and you start building it not knowing it violates the rules, people get very upset.”

The disclosures make up questions 22 to 25 on a new seller-disclosure sheet created by the law. They ask if the property is subject to any HOAs and direct the seller to list the association, the dues and when they are owed and the phone numbers and names of HOA presidents or officers.

Question 23 asks if there are any special fees or assessments in effect for the property, and the final two questions in the HOA section of the disclosure form ask about any judgments or pending lawsuits on the property relating to a HOA.

With the law, North Carolina catches up with other states around the region with similar HOA disclosure rules, including Virginia, Georgia and Maryland, which all have had such laws since the early 2000s.

The new disclosure rules make up a big section of the disclosure form, but they are necessary, according to Bill Colyer, who’s been president of the Bradfield Farms Homeowners Association for the past 10 years.

Colyer’s said some homeowners have been buying into communities or neighborhoods with an HOA with no knowledge of the association or its rules and dues.

The first draft of the legislation, written in February and sponsored by Rep. William McGee, a Republican from Forsyth County, had problems with the language, Colyer said.

“The initial legislation was convoluted, with additional expenses for the management companies and the HOAs,” he said. “It was written in a derogatory fashion towards HOAs and saying that people were dumb and didn’t know what they were getting into.

“But the vast majority who came to testify (to the legislature) said they liked their HOAs and there was a need for enforcement. It has to be enforced or the HOA will fall apart and we won’t have the communities we’re accustomed to.”

McGee disagree with Colyer’s assessment of the initial bill.

“My first intent was to write the bill in a manner which would give an entrance for the homeowner into the meetings of the HOA board members and have more disclosure from those HOAs and their board members,” McGee said. “We had many situations described to us by HOA members who had faced problems but couldn’t get responses from their HOAs without going to great expense and hiring lawyers, etc.”

McGee said North Carolina’s rules for HOAs needed improving.

“We don’t even know the number of HOAs in North Carolina,” he said. “The lowest number I’ve heard is 15,000.”

McGee and a legislative committee hosted public hearings on the bill in April. Colyer and Fann spoke at the hearings.

“I think they notified about 1,000 HOAs from around the state, and if you wanted to come make comments you could sign up,” Colyer said. “When we first went through this we were notified we had five minutes to speak to the House committee reviewing this legislation. When we got there, there were so many speakers, we were cut to three minutes.”

Colyer said the law ensures that if someone is going to buy into a community that has an HOA they will be thoroughly notified in writing by the seller about the covenants and dues.

Colyer said Bradfield Farms had not had any problems with homeowners not paying dues or complaining about rules or covenants in recent years. The Bradfield Farms HOA has yearly dues of $330 and covers 40 acres of common area in the subdivision northwest of Interstate 485 on Reedy Creek Road with two swimming pools, lifeguards, two sets of tennis courts, two playgrounds and walking trails.

“We just manage our money well,” Colyer said. “There is no such thing as deficit spending.”

He said he was pleased in particular with the section of the new law requiring HOA-management companies to be certified by the state. But McGee said there should be even more rules affecting the management companies.

“They don’t keep the books properly, they are never audited, they don’t follow the HOA rules unless a member takes them to court to get them to do so at great expense to the homeowners,” McGee said. “We want to have a place where a HOA member can write a complaint, whether it be the attorney general or a new agency that may be put in place. But last session there was just no money for that.”

Colyer sees new rules as necessary, if only for a few bad eggs.

“The vast majority of management companies, they have no problem with it,” he said. “It will take care of the few bad ones out there, and those will be gone. The problem children in the industry will be taken care of.

“This time around, the legislature in their infinite wisdom did what was right.”

BAUGHMAN can be reached at [email protected].

Some fear disclosure policy could kill sales

With a new homeowners association disclosure rule taking effect this year in North Carolina, some agents are speculating that it could be one more deal-breaker during an already-tough time for the industry.

Many agents are already struggling to bring a house to closing. And if a seller fails to properly fill out the new disclosure form, the buyer has the option to terminate their offer within three days.

So, one slipup on the form could cost an agent a sale.

“You must answer questions 22 to 25, or the buyer can terminate the offer for any reason,” said Lori Bee, team leader for Keller Williams Realty in Union County.

Bee said it’s just one more detail that needs to be watched closely by agents and sellers.

“I haven’t lost any sales on it, but it could happen,” she said.