HOA bills garner bipartisan support. Critics say they could lead to higher costs, lower property values
The North Carolina General Assembly is home to plenty of bitter partisan battles. But one issue has created some notable bipartisan unity: Dissatisfaction with homeowners associations.
The state House recently created a whole new committee with an aim of conducting oversight of HOAs; it’s tasked with coming up with ideas for reforms in a report due March 2024.
Several bills targeting HOAs — and particularly their power to take people’s homes through foreclosure — have been filed this year. One of the most aggressive would ban HOA foreclosures entirely. It never got a hearing, indicating that that’s still a step too far for the legislature.
But a different bill to make it harder for HOAs to put liens on people’s homes — and to make it impossible for liens to result from minor issues like a single unpaid $20 fine — is moving forward.
House Bill 542 has an unlikely lead sponsor in Cary Rep. Ya Liu, a Democrat who’s in her first term in office. Freshmen in the minority party rarely succeed in shepherding bills through the Republican-led legislature. But Liu’s background — she’s a real estate attorney and a former councilwoman in Cary, home to many HOAs — makes her somewhat of an expert on the topic.
The frequent negative reactions that HOAs can provoke — particularly around allegations of overstepping their authority — has given her push bipartisan support.
Liu, D-Wake, has said she filed her bill because she’s heard horror stories about owners who weren’t even aware their property was being foreclosed on because they were renting it out.
“The attorneys who conduct such foreclosures typically send the letters to the rental property addresses, but the homeowners actually don't live there, and the renters don't really forward the mail to the homeowners,” Liu told WRAL News in April.
One owner, she said, lost two rental homes to foreclosure for only a few hundred dollars.
She says her bill is an attempt to strike a balance.
The bill passed its final committee before the Fourth of July holiday. It could get full approval from both chambers in the coming weeks.
Representatives for HOAs acknowledge there have been isolated cases of abuse of power by some associations. But they say going too far in limiting HOAs’ authority to enforce the rules could lead to higher dues and lower property values in the neighborhoods they manage.
Attorney Adam Beaudoin is a Ward and Smith Law attorney who represents HOAs and community management associations. He says H542 will have a negative impact on HOAs and the management companies they hire.
“It's going to be much harder for the association to enforce compliance with the rules and regulations,” Beaudoin warned. “The 3% that used to get away with stuff is going to grow from 3% to something else.”
Raising the lien threshold, he said, “will allow folks who don't want to pay to have other members of the community subsidize their enjoyment of the community during a time when they're not paying.”
‘More palatable’
Liu’s bill has several Republican co-sponsors, but the Republican majority at the legislature tends to lean pro-business. So it was perhaps no surprise that Liu’s bill was watered down by Senate Republicans in committee last month.
One change would lower the dollar threshold at which HOAs can place lien on a homeowner’s property. In Liu’s original bill, that threshold was $2,500 or one year of HOA dues, whichever was greater. The amended version lowers that to $1,500 or one year of dues, whichever is lower.
Sen. Todd Johnson, R-Union, told the Senate Judiciary committee late last month that the change would “hopefully make it a little more palatable.”
Sen. Natasha Marcus, D-Mecklenburg, countered that Johnson meant more palatable for HOAs and their lawyers, not for homeowners.
Liu didn’t disagree, but she defended the change.
While it would allow for liens to be placed on homes for much less money — possibly even just a few hundred dollars, if that’s all the HOA charges in annual fees — the watered-down version would still create more protections from an aggressive HOA than homeowners currently have.
The amendment also bans HOAs from foreclosing on property due to unpaid fines.
Under current law, HOAs can put liens on homes for small fines of even just a few dollars. Johnson said he wants to fix cases like a home sale being stopped because the homeowner didn’t know about getting fined $20 one time for not mowing his grass quickly enough.
That one ticky-tacky fine can end up costing people life-changing amounts of money, Johnson said.
“They get to a closing on a half-million-dollar house or condo or something,” Johnson said, “and it’s held up by a $20 fine that was not paid. So we don't want these to be liened, unless it's 1,500 bucks.”
Speaking to the committee, Weldon Jones, a lobbyist for the North Carolina chapter of the Community Associations Institute, thanked Liu and Johnson for working with him and others representing HOAs to make some changes. But he said they still opposed many pieces of the bill.
“A lot of this bill is making sweeping, sweeping changes to the laws of associations and condominiums in this state,” Jones said. “We would just urge your support for further study, and perhaps working on some of these things in the off-session to try to maybe get some of these ideas on paper in a way that they can be palatable to all interests,” he said.
Jones told WRAL annual surveys by his group have found “the overwhelming majority of HOA and condominium owners rate their experience living in associations as good or very good.”
“And folks continue to move into them,” he added.
But lawmakers are forging ahead.
More homeowner protections
While Senate Republicans on one hand made changes intended to ease opposition from HOAs, they also added some other protections for homeowners unrelated to liens.
One change would add transparency measures to help homeowners get their hands on contracts between their HOAs and the management companies that HOAs often hire to help them run the business of the neighborhood. It also limits those contracts to one year with no automatic renewal, rather than three years with automatic renewal, which Beaudoin says is the industry standard.
Beaudoin predicted the change would drive up the costs of management contracts for HOAs, forcing associations to pass those higher costs to members. “Management companies are going to have to figure out ways to make the juice worth the squeeze on one-year contracts without the automatic renewal.”
Another change would ban those management companies from taking a percentage of the fines that an HOA collects. It’s intended to remove any motivation for management companies to issue excessive fines for minor — or even imaginary — violations, just to make extra profit.
“We don't want to incentivize policing of these by management companies, so we're taking that piece out,” Johnson said. “It's been told to me that that doesn't happen, anyway. But I've got some other folks who have cited that this does happen. So we just want to clear it up and make sure that that’s not going on.”
Yet another change to the bill would make certain that HOAs can’t ban people from using their own property for home business purposes, like piano or swimming lessons. That came from Sen. Benton Sawrey, a Republican who represents Johnston County—one of the fastest growing places in the state with plenty of new neighborhoods and HOAs.
Bill co-sponsor Rep. Frank Iler, R-Brunswick, told the committee he supports the amendments.
He pointed to the millions of people in North Carolina living under HOAs. “It's like a local government — your dues and your taxes, and the board has all the power,” he said. “So I think we need to take a look at it, and this bill is a good start.”
As the lengthy debate was winding down, Sen. Brad Overcash, R-Gaston, asked if anyone had further questions or comments.
That prompted committee chairman Sen. Warren Daniel, R-Burke, to chime in: “Well, I would just say: this is why it's better to live on a farm.”
