After years of waiting, NC homeowners push legislators to rein in powerful homeowners associations

This story was first published by NC Newsline, story by Clayton Henkel

Sue Hodgin drove two and half hours from Southport to Raleigh last week to tell legislators that her HOA controlled community was operating as “a secret society.”

“Residents that fund them cannot get information out of them. No information can be obtained on board activity, discussions or even the approved construction plans for lots in the community,” Hodgin told members of the House Select Committee on Homeowners’ Associations. Sue Hodgin said her HOA controlled community operates more as a secret society.

“You tell me, what would be the harm in our all knowing what new builds in our communities are going to look like?” Hodgin asked rhetorically.

Hodgin said her HOA allows residents just two to three minutes of public comment at the beginning of their virtual meetings.

“The actual meetings then become private. The Zoom calls are not recorded for later listening and the minutes are scantily produced,” she said.

Hodgin said big corporate management companies provide the homeowners associations a further level of insulation from the residents who are paying the assessments.

“If HOA’s and their management companies are going to be all business, please consider lifting their nonprofit status and make them businesses so that they have appropriate oversight and accountability,” she urged lawmakers.

Wednesday’s meeting was the second in two weeks in which lawmakers struggled to understand the tangled connection between current law governing North Carolina’s 14,000 HOAs and which agencies were best suited to address complaints and perhaps mediate solutions. William Keller told legislators promised amenities have not been delivered, even as HOA dues are paid.

Keith Marine, North Carolina’s branch manager for the HOA management group Associa, said his company manages over 1,700 associations, representing 200,000 homes in the state.

“Nearly 90% of those homeowners have shared with us that they are happy with their HOA…or they have sort of a neutral opinion,” Marine offered in the hopes of allaying legislators’ concerns.

William Keller’s position was far from neutral.

Keller, who served as an HOA president in Virginia, recounted how his current HOA management company was failing in its fiduciary responsibilities.

“We have an amenity center that hasn’t been opened. We’ve lived there for two and a half years yet they’re collecting dues every month which is why we have such a large accumulation of money and we feel that the developer has done this in order to mitigate his expenses for operating the amenity center when it is open,” said Keller. “We would ask that this legislation includes more requirements as to what management companies and these developer boards are legally able to do.”

Shifting the blame

Harmony Taylor representing the Community Association Institute, an HOA lobbying group, told legislators each community is different, and boards of directors cannot simply change the restrictive covenants.

“It is something that we frequently see where a small group of owners will want to make a significant change, and they can’t get their co-owners to agree to that, and that’s that built-in protection for the rest of the owners who don’t agree to that change,” Taylor explained.

With regards to transparency, Taylor said North Carolina law already provides “a significant amount of transparency” with boards of directors and their actions. Every HOA is required to hold an annual meeting that all members are able to attend and speak to their board.

“Candidly, owners, like everyone else, they’re busy. They often don’t attend the meetings and they don’t want to review the records. And this can create a perception of lack of transparency. When the information is available, it just has to be obtained,” said Taylor.

More oversight needed, but avoid false hopes

Janice Almond of the Mediation Network of North Carolina told lawmakers mediation is a solution when both parties are willing to come to the table. But many HOAs simply refuse to cooperate and don’t respond. Daniel Mosteller, Deputy General Counsel for the Attorney General’s office, warns about offering false hope to homeowners.

Daniel Mosteller, deputy general counsel for the Attorney General’s office, also wanted to temper expectations heading into the legislative short session.

“As you consider and evaluate the possibilities of creating some sort of oversight agency, we encourage you to avoid creating false hopes, either because an agency is not able to address the issues that HOA members are raising or because the agency lacks the substantial resources that would be necessary to address every HOA members’ complaints,” cautioned Mosteller.

HOAs in North Carolina are classified nonprofit corporations and are governed by the North Carolina Planned Community Act.

“Our courts have said that HOA disputes are internal company disputes,” Mosteller said. “Additionally, current North Carolina law allows the legal documents that govern HOA operations to provide the HOAs very substantial discretion.”

Over the last three years, the state attorney general’s office has received 357 complaints against HOAs or their property management companies. Roughly half of those complaints related to fines, about a quarter were complaints alleging inadequate access to the HOAs’ financial and corporate records.

House Bill 542, which would put in place some guardrails regarding HOA-initiated foreclosures, remains in a conference committee. No action has been taken since last fall.

As lawmakers consider what additional powers should or could be granted to the 2.7 million HOA members in North Carolina, Mosteller reminded them each complaint would require resources to investigate.

“If just 5 percent of HOA members had complaints in a given year, that would be roughly 135,000 complaints.”

The House Select Committee on Homeowners’ Associations, which holds its next meeting February 7th, is finished taking public comment. At that time, legislators will have a little more than three weeks to finalize what recommendations they’ll make to the full General Assembly.

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