NC a ‘lawless’ land for HOAs and community associations

CHARLOTTE, N.C. (WBTV) - Homeowners at Waterfront at Langtree in Mooresville have been asking for financial statements and an accounting of their community association fees for months. In return, they’ve received scribbles of expenditures on a yellow legal pad and a post on their community Facebook page about what the money has supposedly been put toward.

It was a shock to the homeowners to find out that if the financial information wasn’t turned over, there wasn’t anyone tasked with holding the association accountable. It’s not just the case for their community but any neighborhood with an association in the state.

A dearth of rules and regulations in North Carolina over developers and community associations put homeowners at risk according to Charlotte attorney James Galvin, who represents homeowners in cases involving their association.

“There are strong lobby groups for the community associations world and for the builder and developer world and so they’re sure to get versions of statutes that are favorable to them,” Galvin said.

“There is no similarly situated homeowners association or homeowner centric lobby group.”

At Waterfront and other communities, the pressing issue is about who actually controls the association.

At Waterfront the developer, JRN Investments, appoints and controls the board. According to the covenants written by JRN, the company doesn’t have to relinquish the HOA until 2039.

Under state law, developers have no requirement to ever hand the HOA to homeowners.

Galvin said that most developers have no intention of indefinitely holding onto associations but could find it beneficial if there are other properties nearby they’re building.

Galvin described situations in which a developer could advertise for a pool or pond in one community, and then “sell” the property to another company in their control that’s developing the community right next door.

At the same time, state statute requires that developers in control of associations act in homeowners best interests.

“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,” Galvin said.

Galvin says that sometimes means developers are underfunding the HOA, keeping fees artificially low and not contributing their part, leaving future HOA boards stuck in a financial pit and facing serious challenges.

“A lot of people heard about the Surfside collapse of the condominium,” Galvin said.

“That is closely attributable to declarant (developer) control and reserves and just having a perpetual state of an underfunded reserve account.”

Even if homeowners are denied some simple like financial records, the only recourse for homeowners is to organize, spend thousands of dollars for an attorney and hope for a quick resolution.

“What’s the economic justification for a homeowner to engage in $3,000 worth of motions, hearings, communications, all to get something that they’re not sure what it is, they just want to see it,” Galvin said.

Galvin says that on top of state lawmakers taking a closer look at how to protect homeowners, new HOA boards can take steps to protect their financial standing too.

“I would have new board members just take a really good look at the documents and if they can’t understand the documents to hire an attorney to do so,” Galvin said.

“Honestly, I find the most responsible homeowners begin paying attention before the transfer (from the developer). They let them know that we’re here, we’re watching.”

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