North Carolina is proud that it was the first state to vote for independence from Great Britain (Halifax Resolves, 1775). Today, some 238 years later, another battle for independence from oppressive government has commenced in the NC General Assembly. This time, it is the people subjected to authoritarian, oppressive private HOA governments who seek equal justice with regard to safeguarding their homes against HOA foreclosure. This time, it is the citizens of North Carolina who seek a redress of their grievances against the NC General Assembly that has supported, and continues to support, special laws for special groups.
In every stage of these oppressions we have petitioned for redress in the most humble terms; our repeated petitions have only been answered by repeated injury. (Decl. of Indep.).
Today, the NC assembly has two HOA bills before it, HB 175 and HB 331: one seeks to impose harsher terms for HOA foreclosure rights, HB 331, and the other seeks to remove the unconscionable right of HOAs to foreclose, HB 175. While NC currently allows unconscionable nonjudicial foreclosure, HB 331 would now put the HOA in the same position of a Trustee holding a deed of trust with the “power of sale,” which amounts to an auction sale without having to go to court. This amounts to putting the HOA in the same position not only as the mortgage holder, but as the trustee as well.
The bill further proscribes new foreclosure procedures that supersede the general NC foreclosure statutes, just for HOA foreclosures. There is nothing in the detailed procedures contained in 4 pages of the bill that addresses any procedures for the homeowner to contest the amount of debt being foreclosed by the HOA. What does the simple phrase, as used in the bill, “if not contested” mean?
On the other side of the battle-line, HB 175 does away with special foreclosure rights just for HOAs. And rightfully so! The right to foreclose has been argued on the basis of the need to collect assessments – read HOA “taxes” — so the HOA can survive. Well, this argument could apply to any nonprofit that seeks to foreclose in order to survive. But, there are no such laws protecting these nonprofits from failure, is there? And these nonprofit, charitable, and educational corporations can argue that they provide a public service, while the HOA provides services to a private group of people, only its members.
Other arguments against HOA foreclosure rights include:
- The HOA has not advanced any hard funds like a bank, yet it is treated as a public entity with the right to foreclose on the nonpayment of “taxes.” But, the Assembly does not feel the need for checks and balances on the HOA board for this grant of special powers.
- The US Supreme Court has held that punitive damages, which the foreclosure essentially amounts to, in excess of 10 times the actual damages, violated the 8th amendment’s prohibition on the infliction of cruel and unusual punishments. For example: Foreclosing on a $2,000 debt, of which $500 is the actual assessment debt, on a home valued at $140,000 amounts to a whopping 70 times the debt.
- Foreclosure discriminates and is essential an intimidation and punitive measure that is effective only on certain members and not others – only those who have paid their mortgage over the years so that the HOA can collect funds in excess of the existing mortgage. Is it fair for the good people who have paid and paid not only their mortgage but their HOA dues over the years to lose their home? I think not! But, on the other hand we hear their self-righteous chant that it’s “unfair for others to pay for deadbeats” who are behind in their assessments. There seems to be a huge disconnect here.
I cannot entirely blame the members for this attitude, because they have been deceived. They have never been told the facts about the possible adverse financial conditions that could lead to holding them legally obligated for the debts of others. HOA membership is like buying into a small, privately held business that has limited ability to exit or to raise additional funds if needed. Also, the HOA is similar to a partnership where each member is jointly and severally obligated for the debts of the HOA.
If some members cannot meet their “fair share,” any deficiency will be made up from those who can afford to pay. These additional funds, like now being needed by many HOAs, can only come from existing members, which can be imposed upon them through the courts.
Also, I cannot reconcile this obsession by members against letting the deadbeats get away with not paying their HOA debts that often amount to less than $2,000, but who say nothing when their HOA spends $5,000 – $100,000 in attorney fees pursuing trivial lawsuits against minor and questionable violations of rules. We see these cases in the media quite frequently. Something is wrong with the attitudes of members in HOAs, definitely wrong! The attitude of the HOA members themselves is discriminatory and unconscionable.
Which direction will the General Assembly take? For the people by ending the unconscionable and discriminatory HOA rights to foreclose, or for the defective HOA legal structure that denies homeowner protections?