NC Community Association Legislative Update – April 19, 2017

Community Association LegislationSeveral important legislative deadlines have passed in recent weeks. Tuesday, April 4 marked the NC Senate deadline for filing public bills and resolutions. Tuesday, April 11 marked the NC House deadline for filing public bills and resolutions (other than appropriations or finance bills). While there are a still a few ways for bills impacting HOAs or condos to be introduced in the General Assembly this session, now is an appropriate point to look at the filed bills that, if adopted, would directly impact North Carolina’s community associations.

(1) Senate Bill 491/House Bill 625: HOA/Condo Crime & Fidelity Insurance Policies. Senate Bill 491: HOA/Condo Crime & Fidelity Insurance Policies was filed on March 29, 2017 by Sen. Norman Sanderson (Carteret, Craven, Pamlico) and referred to the Committee on Rules and Operations of the Senate. An identical House bill, House Bill 625: HOA/Condo Crime & Fidelity Insurance Policies, was filed on April 6, 2017 and referred to the House Committee on Insurance, and if it receives a favorable recommendation, will be referred to the Finance Committee. (See this prior NC Community Association Legislative Update – Fidelity Coverage & Audits blog for more details)

SB 491/HB 625 would:

  • Require HOA/Condo Crime and Fidelity Coverage. HOA or condo associations with annual assessments for common expenses of at least $25,000 or with $25,000 or more total funds invested or on deposit would have to obtain and maintain a crime and fidelity insurance policy. The policy would have to provide coverage in the amount of 125% of the total funds on deposit or invested by the executive board plus 125% of the annual budget of the unit owners’ association as of the last day of the association’s last fiscal year, but not more than one million dollars. In addition, any management company or agent to an HOA or condo association would have to obtain and maintain a crime and fidelity insurance policy. The policy would have to provide coverage in the amount of the total annual budgets of all clients of the management agent or company, but not more than two million dollars.
  • Require HOA/Condo Financial Audits. HOA or condo associations with annual revenues or expenditures or total accounts balances of $150,000 or more would be required to have an annual independent financial audit conducted by a Certified Public Accountant (CPA). The audit would have to be completed no later than one year after the end of the fiscal year and made available upon request to lot owners within 30 days after completion.

If adopted, SB 491 would take effect on January 1, 2018. The fidelity bond and audit provisions would apply to all planned communities whenever created and to all condominium associations created after October 1, 1986 (older condominiums already have audit requirements). The full Senate bill can be found at http://www.ncleg.net/gascripts/BillLookUp/BillLookUp.pl?Session=2017&BillID=S491 and the House bill at http://www.ncleg.net/gascripts/BillLookUp/BillLookUp.pl?Session=2017&BillID=H625.

(2) House Bill 814: Planned Community Act Changes was filed on April 11, 2017 by Rep. Jonathan Jordan (Ashe, Watauga) and Rep. John Blust (Guilford) and referred to the House Committee on Judiciary III. This larger bill includes parts of former HB 882 introduced in 2015 (for details see this prior NC Community Association Legislative Update – May 14, 2015), but also includes numerous other amendments, including the following changes to the NC Planned Community Act governing HOA’s listed in bill order (particularly significant changes are bolded):

  • what must be in a Declaration
  • that developers cannot place themselves in a separate “class” in a Declaration
  • that common expense payments and votes must be equal among owners and a developer
  • that no Declaration amendment process can require more than an 80% vote
  • restrictions on master associations
  • associations may be unincorporated
  • associations could not foreclose on a lot for failure to pay assessments in a like manner to mortgages or deeds of trust in the event the lot is the primary residence of an owner (instead a much more expensive judicial foreclosure would have to be followed)
  • declarant control would be phased out based on lots sales, much like condominiums
  • board member positions would be phased in with the sales of lots by the developer
  • special meetings of members could be noticed and even held by a percentage of members, regardless of whether the meeting is called by the executive board
  • additional tort and contract claims by associations against developers
  • surplus funds each year would have to be returned to members without regard for accumulating reasonable operating expense surpluses
  • an exhaustive list is provided of association records required to be maintained and available to members
  • parties to a dispute interested in alternative dispute resolution would be required to only use mediators certified by the Dispute Resolution Commission
  • an entire new Article 4: “Protection of Purchasers” would be added to the Act, giving purchasers in HOAs a right to cancel, requiring specific disclosures by developers, and adding potential claims against developers.

While the short title of the bill only references the Planned Community Act, several amendments apply to the Condominium Act, including:

  • special meetings of members could be noticed and even held by a percentage of members, regardless of whether the meeting is called by the executive board
  • meetings of the association and executive board could be conducted by telephone or video, but only if all unit owners can participate
  • unit owners would have an opportunity to attend any executive board meeting to comment
  • the board would have to meet 4 times a year while under developer control
  • any materials distributed at a board meeting would have to be made available to all unit owners
  • after declarant control has ended, action by unanimous consent of the board would only be for “ministerial actions”
  • an exhaustive list is provided of association records required to be maintained and available to members
  • parties to a dispute interested in alternative dispute resolution would be required to only use mediators certified by the Dispute Resolution Commission
  • a list of 16 items is provided that any seller of a condo would have to provide a prospective purchaser, and a “certificate containing the information” must be provided by an association to a unit owner upon request within 10 days

The full bill can be found at http://www.ncleg.net/gascripts/BillLookUp/BillLookUp.pl?Session=2017&BillID=H814

(3) SB 114: Annual Report Modernization was filed on February 21, 2017 by Sen Andy Wells (Alexander, Catawba), Sen. Jeff Tarte (Mecklenburg), and Sen. Ronald Rabin (Harnett, Johnston, Lee). While the bill has seen significant activity, it is currently in the Senate Committee on Finance and Insurance. SB 114 would make numerous changes to the laws governing submission of annual reports by business entities, including nonprofit corporations, to the NC Secretary of State. The changes are so varied and so many that, if this interests you, it may be best to review the bill in full at http://www.ncleg.net/gascripts/BillLookUp/BillLookUp.pl?Session=2017&BillID=S114

(4) HB 598: Swimming Pool Electrical Safety was filed on April 5, 2017, and referred to the House Committee on Judiciary I. The bill, which has numerous authors, was recommended by the NC Department of Health and Human Services after the death of a Raleigh lifeguard in 2016 by electrocution and drowning. The accident revealed that while pools are required to undergo routine inspections for chemicals, signage, fencing and restrooms, those inspections do not include electrical systems. HB 598 would require that the electrical circuit or receptacle providing power to a pool’s pump motor include a ground-fault circuit-interrupter protection and then regular electrical inspections for pools that are inspected.

The full bill can be found at http://www.ncleg.net/gascripts/BillLookUp/BillLookUp.pl?Session=2017&BillID=H598

(5) Various Roads Bills. Several bills have been filed related to roads, particularly subdivision roads. Some of these may be the result of SB 581: Study Subdivision Streets, that was adopted in 2015 and resulted in a study on “orphan roads” (roads that neither the developer nor association wish to claim due to the costs of repair or getting the roads admitted to the state system). More on the 2015 bill and study can be found at this Fourth Community Association Bill Signed into Law: Streets & Traffic Safety Devices blog.

Rather than detail the proposals here, I’ll simply list bill numbers, title, and a link to the text. As the legislative session progresses, it will be clearer which bills will likely survive. At that point, more details can be provided.

The next few weeks should be busy legislatively, particularly as both chambers rush to meet the all important “crossover deadline,” the date on which a bill must have passed one chamber to move forward. Updates will be made as the session progresses.

Author: Jim Slaughter
Articles have been Reprinted with permission from Black, Slaughter, Black.

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