HOA rental fees; Recovery of court costs and attorney’s fees in lien/foreclosure actions.

Q: May a North Carolina homeowners’ association (HOA) impose a surcharge on units that are rented out by a homeowner? Our HOA has proposed a fee of $25 per month to be assessed against all rental properties.

HOAs only have whatever authority is granted to them under the North Carolina laws and the HOA’s governing documents. The laws do not grant HOAs the authority to levy any type of fee or surcharge against owners of rental property.

In fact, the law specifically states that “an association shall not levy, charge, or attempt to collect a service, collection, consulting, or administration fee from any unit owner unless the fee is expressly allowed in the declaration.”

So, unless your community’s declaration specifically allows the HOA to impose a rental surcharge, it cannot do so.

Recovering foreclosure fees

Q: If an HOA needs to file a lien or foreclosure against a property for failure to pay the HOA assessments, can the HOA recover its attorney fees and court costs, in addition to the unpaid assessments, late fees and possibly interest?

In most cases, the answer is “yes.” Both the North Carolina Condominium Act and the Planned Community Act give HOAs the right to recover their fees for foreclosures.

The pertinent portion of the law reads: “a judgment, decree, or order in any action brought under this section (allowing the HOA lien and foreclosure) shall include costs and reasonable attorney’s fees for the prevailing party.” The law also imposes a cap of $1,200 in attorney fees for uncontested foreclosures. There is no cap if the foreclosure is contested.

Prior to sending the account to a lawyer for a lien, the HOA is required by law to send the owner a letter giving the owner 15 days to either pay the debt or contact an HOA representative to discuss payment options (a name and phone number of an HOA representative must be provided in the letter).

The HOA is not required to offer or accept any alternate payment arrangements, but virtually every HOA I’ve ever represented has been willing to work with owners (within reason) who cannot pay in full all at once.

The letter must also advise the owner that if he does not pay or work out a payment plan within 15 days, he will be responsible for all attorney fees and court costs arising from any legal action to collect the assessment.

Originally published in the Charlotte Observer on March 16, 2013.

11 thoughts on “HOA rental fees; Recovery of court costs and attorney’s fees in lien/foreclosure actions.

  1. Is the HOA responsible for any loan balances if the bank cannot recovered enough from the foreclosure sale to pay off the mortgages on the property? I understand the HOA would not be able to recover unpaid funds, but would they be responsible for any loan payoff shortages?

    • The HOA is never responsible for mortgage debt on homes the HOA takes title to through lien/foreclosure. Remember, it is the prior homeowner who borrowed the money and gave the mortgage. The HOA does not owe a debt to the mortgage lender, but the lender has a deed of trust on the property, and hence the right to foreclose on the property if the mortgage is not paid.

      • Thanks for making that point clear. It’s not the HOA’s mortgage obligation, and they are not liable for the mortgage payment is what I’m understanding. I was told by an HOA board member that he thought the HOA would have to pay the mortgage if the foreclosure option was used for those way behind on dues. That is why I have suggested he contact your firm so he can gets some decent reliable answers and actions. Keep up the good work. I have suggested your blog to many in the Raleigh area since condo/HOA information is needed, and so far, your articles have educated many of us.

  2. our condo assoc board boarders on the corrupt edge. refuses to follow bylaws. board members get priorty and special treatment. other community members are affraid of retalation and wont speak up. at a recent annual meeting a motion was made for the removal of a board member-they refused to hear it. our board member who handles the landscaping/lawn care is a landscape archi tect and passes all of our work to them without a second bid(approaching$400,000 for 3 years) what do i do? help!!!

  3. My HOA is taking me to court to foreclose on my house for past HOA dues amounting to $2,625. I called my HOA after receiving my court summons, explained that I had not received any bills and although I was uncomfortable sending that large of sum without seeing exactly how it added up, I would send it in. The employee told me that the money had to be sent to the lawyer handling the collection and that the lawyer would then keep all of it for her attorney’s fees and I would still owe the same balance to the HOA. The lawyer’s fees are apparently $2,794 (which I do not have).
    My house is already in foreclosure with my mortgage company but I found out this morning that the HOA can not only foreclose on the house but reap all of the money gotten for it so I would still owe my mortgage company as well. Shouldn’t my mortgage company have foreclosure priority since I owe them $150,000 more than I owe the HOA? Also, the HOA says that they wouldn’t have sent any bills since the account had been turned over to the attorney and can’t really help me because it’s out of their hands. Wasn’t the attorney then obligated to send me a bill or notify me in some way of upcoming dues? I was never given an opportunity to pay any new dues without late/attorney fees immediately attached.
    I’ve been doing a lot of research on this topic since I haven’t been able to retain legal counsel that I can afford in such short notice (18 days between receiving the summons & the court date) and have read a lot of horror stories about HOAs foreclosing on homes and don’t understand how it’s legal. I’m trying to rectify the situation but none of the parties involved are willing to answer my questions let alone work with me.
    I plan on taking a cashier’s check to court for the $2,625 and offering it to the HOA but if they are still going to foreclose, that money is going right back in the bank since it is our whole savings. If the HOA accepts the payment, does the lawyer have the power to foreclose on my house just for her attorney fees/

    • It sounds like there’s a lack of communication in your case. Often when homeowners claim that the foreclosure notice is the first notice they have received about their delinquent assessments, we find that either the homeowner is not opening their mail, they have moved and not provided the HOA with their new address, or there is some other problem with the mail delivery. Most HOAs send multiple late notices, and they are required by law to send one letter to the owner at least 15 days before the account is referred to the attorney for a lien filing, and another letter before the foreclosure is filed.

      Typically when an HOA or management company refers an account to its attorney, all communication must go through the attorney. The reason is that the management company may not know exactly what stage the legal process is in, or how much in attorney’s fees or court costs have been incurred. I suggest that you contact the law office handling the foreclosure and request an account statement that includes a breakdown of the balance owed. Keep a copy of all communication (i.e., emails). If you don’t get the statement before your court hearing, you should go the hearing and request a continuance until you can verify the balance owed. If you find that you cannot pay the balance all at once, you should request a payment plan. Despite the inflammatory comments you may have read by a few prolific HOA internet trolls, I can assure you that HOAs aren’t interested in taking people’s homes away through the foreclosure process – the goal is simply to get the debt paid. Foreclosure is a last resort. Most HOAs will agree to reasonable payment plans, provided there is not a long history of broken promises on the part of the owner.

  4. Thank you for your response. It’s been difficult for me to get straight answers from the multitude of people I’ve contacted regarding this situation. I have moved twice in the past year but have changed my address with the USPS both times. The HOA’s lawyer will not send me any paperwork so hopefully I will have a judge who will allow me to speak my side and if they foreclose, I will file bankruptcy.

  5. this has been most helpful…does the hoa have to get permission from the homeowners to sell a property that has been obtained through forecloser..I’ve checked the ccr’s and declarations and I don’t see this anywhere… your input would be appreciated

    • Unless your governing documents speak to the issue, the HOA does not need homeowners’ approval to sell a property it acquired through foreclosure. I’m assuming your HOA is a nonprofit corporation. Corporations act through their boards of directors, and only need membership approval for certain things specified in the governing documents or state law. Selling property acquired through foreclosure is not one of them, though selling common elements DOES require homeowner approval per state law.

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