NORTH CAROLINA COMMUNITY ASSOCIATION COLLECTIONS GUIDE
North Carolina Community Association Collections Guide: Get answers to your questions about North Carolina HOA Collection Laws
Welcome to North Carolina
The state of North Carolina has over 1 Million homes in 14,000 community associations. According to CAI, an estimated 2.7 million North Carolina residents live in a community association.
North Carolina has several community association laws. The old North Carolina Condominium Act(Chapter 47C) applies to condominiums created on or after October 1, 1986. The North Carolina Planned Community Act (Chapter 47F) applies to HOA’s created on or after January 1, 1999. About one-third of both chapters apply retroactively to associations created before the operative dates of the statutes.
Condos and HOAs are subject to the North Carolina Planned Community Act and the North Carolina Unit Ownership Act which both provide more specific regulations regarding the management and organization of community associations.
Before you read anything on this page about the laws governing Condo and HOA collections in North Carolina, make sure you have read the governing documents for your association. The governing documents may be stricter than the state laws, and in those cases, the governing documents take precedence.
As a general rule, neither your management company or board members should attempt to make contact with delinquent homeowners in an attempt to collect the debt, beyond the initial courtesy letters. You need an attorney or a licensed collection agency to collect on your behalf.
Are you living with the Consequences of nonpaying homeowners? If so, you need a better approach to collections for your community association!
This guide will will give you the same techniques that we use to help our clients reduce delinquencies, all but eliminate bad debt write-offs, and see significant savings on legal fees.
Disclaimer: The information provided on this page is for general informational purposes only and does not constitute legal advice. Axela is a technology provider and is not a debt collector. Laws and procedures may change and may vary depending on the specific circumstances. This information should not be relied upon as a substitute for advice from qualified legal counsel. Users should consult an attorney regarding applicable laws and compliance requirements.
State Collection Laws for HOAs & Condos
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.
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.
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).
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.
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.
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. 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.
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.
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.
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.
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. 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.
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).
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 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.
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”.
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.
Why Choose Axela
Take Control of Your Delinquencies
Watch this video to learn how Axela’s collections tools can return delinquent funds to your community association's accounts.
Axela’s technology increases recovery times. On average, using our collections tools results in money in your community’s account within 67 days of the assessments becoming delinquent.
Reduce delinquencies, stabilize your cash flow, and prevent the need to take special measures to cover budget shortfalls.
COMMUNITY FOCUSED
Our tools can be adapted to follow your governing documents and processes. It’s as seamless a process as you will find.
SPEEDY RECOVERY
Our proprietary software has resulted in an average recovery time of 67 days. Compare that to a lien judgment, where you must rent out the unit and collect rental fees!
FULL TRANSPARENCY
We provide you with easy-to-understand monthly reports. You’ll have access to your customer portal 24/7 to instantly check the status of any account.
