NC homeowners associations wield surprising power with little to no oversight
For most of Chuck Williams’ 30 years in Wilmington, he lived in communities governed by homeowners associations. He, like most people who live under HOAs in North Carolina, never had a problem with them. He paid his dues, and they maintained the neighborhood. “Like every homeowner,” he says, “you don’t agree with everything, but I got along fine.”
In 2021, Williams retired from his job as a manager of three divisions at JCPenney—“selling socks and underwear”—and he and his wife moved just across the Cape Fear River to Leland to escape Wilmington traffic. They settled into a new townhome community, but soon after they moved in, the developer transferred control of the HOA to a management company. “And that,” Williams says, “is when the nightmare started.”
The HOA nitpicked over minor violations. They issued fine after fine. “They were just unreasonable,” Williams says.
North Carolina is home to nearly 15,000 homeowners associations. More than a quarter of the state’s residents, about 3 million people, live in HOA communities. In Charlotte, which has the country’s ninth-highest percentage of homes in HOAs, horror stories like—and worse than—Williams’ are increasingly common.
In December, The Charlotte Observer and The News & Observer in Raleigh published the results of an extensive joint investigation into HOA malfeasance. They found that North Carolina HOAs have filed more than 5,500 foreclosures since 2018, and more than 600 homeowners have lost their properties as a result. The investigation also found that 45% of the state’s foreclosures happened in Mecklenburg County.
Last year, Charlotte ranked sixth in the nation for new home construction, and since 1999, state law has required subdivisions with 20 or more homes to have an HOA. Charlotte’s explosive growth has come with a proliferation of HOAs. More of them means more opportunity for egregious behavior, and the internet has made it easy to share the worst offenses. On Quora, one user asked, “Why are HOAs hated so much?” Another reflected popular sentiment when he replied, “HOAs are hated because they are run by tyrants.”
Over in Leland, Williams couldn’t take it anymore. He looked for an organization of fed-up homeowners like him but couldn’t find any. “I’ve had enough,” he reckoned. “You gotta fight back.”
Williams’ political engagement had never gone much beyond voting, but at 74, he founded Citizens for HOA Reform to promote fair and transparent HOA governance across North Carolina. “It truly is a David-and-Goliath battle,” he says, “and at the moment, we don’t even have a slingshot.”
A couple of homeowners in conflict with their HOAs call the Charlotte Center for Legal Advocacy every week, but a few years ago, Kara Fisher Moskowitz, the attorney who runs the center’s consumer protection program, got a call that stood out.
A young woman, a new homeowner, owed her HOA, but she couldn’t figure out how much. Every time she called for a figure, the management company tacked another $20 onto the total. The company had little incentive to help. If she didn’t settle the debt, no matter how much she owed, it could foreclose on her home.
Moskowitz couldn’t do much. “The HOAs are particularly challenging for our clients,” she says. “There are fewer safeguards with homeowners association foreclosures than there are, say, for mortgage foreclosures.”
Federal law and Consumer Financial Protection Bureau rules help protect homeowners from sudden mortgage foreclosures. Most lenders must coordinate with cash-strapped borrowers through a process called loss mitigation, which helps the borrower either stay in the home or leave without the lender resorting to foreclosure. The same protections don’t exist for HOA foreclosures.
State law governs HOAs, and the North Carolina Planned Community Act, in effect since 1999, stipulates that HOAs can foreclose in the same way that a bank can. That means, as nonjudicial foreclosures, they don’t necessarily go before judges. Instead, they often go to hearings before Superior Court clerks, which restricts the defenses homeowners can mount. Today, HOAs in North Carolina are free to foreclose on homes if the homeowner owes any amount. “The state laws,” Moskowitz summarizes, “are friendly to HOAs.”
Start looking for a home in North Carolina, and HOAs can seem inescapable. Most new subdivisions have one. As the cost of construction rises, developers rely on HOAs to keep property values high—protecting their investment—as they finish building the community.
HOAs can fine property owners up to $100 a day for infractions: excessive noise, not storing trash cans properly, letting the grass grow too high. If homeowners fail to pay—and they may not understand the infraction due to opaque or confusing communication—the HOA can move to foreclose. Moskowitz has noticed that these maneuvers frequently occur in low-income communities.
State law requires developer-controlled HOAs to act in property owners’ best interest. But as Charlotte attorney James Galvin, who represents homeowners in disputes with their HOAs, told WBTV in 2022, “One hat is the developer hat who is trying to develop and sell and make as much profit as possible in that community. The other hat that they’re wearing is a nonprofit hat, and you might be able to guess which hat they like better.” The same year, Galvin told the Observer that the increasingly acrimonious relationship between HOAs and their members “mirrors the lack of social trust that exists in society in general.” Others link the distrust to the nation’s growing skepticism of government of any kind.
Last March, Rep. Frank Iler, a Brunswick County Republican, introduced House Bill 311 to improve HOA oversight and protect homeowners against high fees, a lack of transparency, and the arbitrary enforcement of rules. The bill initially provided for a division of the attorney general’s office to oversee HOAs. These associations, Iler said at the time, “charge dues. They elect a board. And they enforce rules. It’s a local government in your neighborhood. But there’s zero oversight.”
Another bill introduced last year, House Bill 542, would have prevented HOAs from foreclosing on property for debts less than $2,500 and barred nonjudicial foreclosures. Both of those provisions were stripped from the law, which languishes in committee. Williams lays the blame with the Goliath to his David: the Community Associations Institute.
The HOA industry group has 60 chapters around the country, and in 2022, the North Carolina chapter spent nearly $20,000 on lobbying. Some of those funds come from the very homeowners who are desperate for reform; many HOAs allocate some of their member dues to support the institute’s lobbying efforts. (The CAI; the Home Builders Association of Greater Charlotte; and Canopy, the Charlotte-area real estate agents’ association, either didn’t respond to or declined requests for comment.)
Meanwhile, Raleigh is a two-hour drive from Leland, and Williams can’t afford to hire a lobbyist.
In the end, the House scrapped HB 311’s provision to establish a division in the AG’s office and replaced it with a mandate to set up a committee to study HOA laws, remedies for violations, and the agencies that would be best positioned to help homeowners resolve complaints. At the first committee meeting, on Jan. 11, Rep. Iler brandished a folder of homeowner complaints 2 inches thick.
The hearing gave citizens the opportunity to voice their concerns, and many did. It wasn’t the first go-round on this issue. In 2011, more than a decade ago, a House select committee investigated abusive HOA practices and determined that there may be a need to limit their ability to foreclose. It’s long been clear that there’s a problem, but despite strong bipartisan support for reform, the solution isn’t as easy to identify.
“It gets so complicated,” Williams says, “because you’ve got the legal system, you’ve got the real estate people, you’ve got insurers, and you’ve got budget concerns. And what are the rules going to be?”
Williams’ grandchildren play in the next room, and he acknowledges in a faltering drawl how hard it can be to go up against organizations that hold so much sway, both in the state government and in the neighborhood. HOAs can determine quality of life, and they have the power to take homes—most people’s biggest investments.
Williams and fellow homeowners, he says, are “just everyday people who want to live our lives.” But HOAs’ unchecked power has made him an activist. He drove the two hours up from Leland for the January hearing in Raleigh. “It’s just the beginning,” he says. “Honestly, I don’t think I’ll ever live long enough to see any meaningful change. But I think we’ve got the ball rolling.”
ALLISON BRADEN is a contributing editor.
Allison Braden
Source link
