NORTH CAROLINA COMMUNITY ASSOCIATION COLLECTIONS GUIDE

Yes, North Carolina has state laws pertaining to HOA and condo associations.

To better understand the laws for North Carolina HOAs, please refer to:

• North Carolina Planned Community Act - N.C. Gen. Stat. §§ 47F-1-101, et seq.: This Chapter applies to all planned communities created on or after January 1, 1999, except as otherwise provided in section 47F-1-102.

To better understand the laws for North Carolina condos, please refer to:

• North Carolina Unit Ownership Act - N.C. Gen. Stat. §§47A-1, et seq.: This Chapter applies to all condominiums created within North Carolina before October 1, 1986.
• North Carolina Condominium Act - N.C. Gen. Stat. §§ 47C-1-101, et seq.: The law governs, among other things, the creation, alteration, and termination; management and protection of purchasers of condominiums created after October 1, 1986.

In addition, North Carolina is a Homestead State. Unlike most states, North Carolina’s Homestead State provisions do not specify an acreage limit, but instead, only allow up to $1,000 worth of property to be declared a homestead. HOAs also have the power to foreclose on a property.

In addition to the Federal Fair Debt Collection Practices Act (FDCPA) statutes, North Carolina has its own laws regarding collections. The statutes codified in The NC Debt Collection Act are similar to the FDCPA in many respects but broadens some definitions of terms and people.

No. Although a community association can collect on debts owed, they are not considered collections agencies. However, that does not mean that a community association cannot be in violation of the collection statutes. Collections are heavily regulated and anybody who attempts to collect debts should know what they are doing. More and more community association management firms are being cited for violations of consumer protection statutes. Management companies are best advised to restrict their collections to standard accounts receivable and courtesy letters. Language is important, and it is wise to avoid terms such as “demand”.

An HOA can collect as much as is legally owed to them in fees, violations, special assessments, administrative costs, and legal fees - as outlined in the governing documents of the association.

North Carolina laws place no restrictions on what you can do with the money your association collects in past-due assessments. As long as the money is accounted for in the budget, aligns with the governing documents, and/or is approved by the board of directors it can be spent on any improvements or maintenance that is required by the association.

An association should always contact a delinquent owner to advise them regarding what is owed. Every owner is entitled to see their ledger and know how much they are owed. An owner may request their ledger at any time and an HOA should be willing and able to provide it to them. 

Also, an association that publicly publicizes information about a homeowner's unpaid assessments potentially violates the North Carolina Debt Collection Act as well as the federal Fair Debt Collections Practices Act which forbids disclosure of information to third parties relating to a debt (which includes HOA assessments).

Yes. Once a property has gone through probate and the court has decided who is the legal owner, all the past due fees are due and payable to the HOA unless the governing documents have a provision that says the debt rolls over to the association. Going forward, after probate has been settled, the new owner must pay their fair share.

It depends. Because North Carolina is not a super lien state, a bank foreclosure will take priority over a community association’s lien and does not require the lender to provide any compensation to the association for unpaid assessments. 

So, if both a mortgage-holder and a community association are foreclosing on a property, chances are often slim that the HOA will be able to collect. This is because there is often no money leftover for the HOA to collect on their debts once a bank has been paid using the sale funds. However, Axela clients are able to take advantage of a service that tracks bank foreclosures through to sale. Once the sale has concluded, Axela can petition on behalf of the association to have first access to any excess funds left over after the mortgage lender has collected.

Yes. Foreclosure should be the last desperate attempt to recover the association’s money. An HOA should consider a merit-based collection agency to recover it’s delinquent money before moving to put people out of their homes. Notices should be given to a delinquent before any action is taken.

The traditional way to collect is to have the management company send a few courtesy letters to a delinquent owner and then send the file to the attorney for foreclosure. North Carolina is a nonjudicial foreclosure state. North Carolina HOAs are now discovering that they can also refer delinquent owners to merit-based collection agencies that specialize in collections for HOAs and Condos.

The best way to handle collections for HOAs is to engage the owners and be armed with all the information you can acquire. Know the equity in the unit, read and understand the governing documents, find out where the owner is, and then begin to engage in the collection efforts. Once again, this is a very heavily regulated industry so this should be done by professional and licensed companies. Once you engage with an owner, you may be surprised to see that most of them will cooperate and come to the table. You just have to ask them and be willing to work with them.

Yes. The board of directors has a fiduciary duty to collect these assessments and if the individual is not in bankruptcy there is nothing legally stopping them from the collection of delinquent assessments.

3 years. The statute of limitations periods for HOA claims are different for every state. These periods often range typically somewhere between two and six years. In North Carolina, implied contracts, not under seal, have a statute of limitations of three years. Contracts under seal have a statute of limitations of 10 years. HOAs are considered to have implied contracts, therefore HOA enforcement actions must be filed within three years N.C.G.S. §47F-3-116(c). 

Yes. North Carolina does not differentiate between an in-state and out-of-state owner from a collections perspective. So, the HOA enforcement actions must be filed within three years for both in-state and out-of-state owners.

Yes. Every association created after January 1, 1999, must be organized as a nonprofit corporation §47F-3-101. An unregistered HOA will experience legal difficulty when attempting to collect fees. 

It depends. The amount of late fees and interest that can be charged by homeowners’ associations is usually established by a state’s HOA statute and the community’s declaration. Associations cannot charge late fees or interest arbitrarily—they must be able to rely on a declaration, state statute, or both. North Carolina can charge interest rates and late fees up to a statutory maximum, and individual HOAs can charge less but not more. For example, North Carolina set maximum rates of 18.00% §47F-3-115. In North Carolina, the maximum late fee cannot exceed $20 or ten percent of the delinquent amount §47F-3-102(11).

If the file has not gone to the attorney it is advisable to contact the manager or treasurer of the association to get a copy of the delinquent ledger. Then review the ledger and if you can prove that you made payments that were not applied properly, advise the management company. If the file has been sent to a collection agency the law requires that the collection agency give the debtor 30 days to dispute the debt.