NC Community Association Legislative Update – June 22, 2017

Community Association LegislationI’m asked frequently about the status of  proposals filed this session in the General Assembly that, if adopted, would directly impact North Carolina HOAs and condominium associations. The “crossover deadline” (the date on which a bill must have cleared one chamber to move forward) has passed, which means this a good time to check in on various bills. (FYI, while the crossover deadline is a big deal, keep in mind the News & Observer’s warning several years ago: “[Legislative] rules are made to be circumvented, so there are many ways to keep legislation alive.”)

Community Association Bills That Passed One Chamber by Crossover Deadline:

(1) House Bill 625: HOA/Condo Crime & Fidelity Insurance Policies. House Bill 625: HOA/Condo Crime & Fidelity Insurance Policies was filed April 6, 2017 by Rep. John Bell (Craven, Greene, Lenoir, Wayne), Rep. John Bradford (Mecklenburg), Rep. Rodney Moore (Mecklenburg), Rep. Jason Saine (Lincoln), and Rep. Linda Hunt Williams (Wake). (An identical Senate bill, SB 491: HOA/Condo Crime & Fidelity Insurance Policies, did not survive crossover.) Since that time HB 625 has passed the House and was forwarded to the Senate, where it is now in the Committee on Rules and Operations of the Senate.

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, most of SB 491 would take effect January 1, 2018, and the audit requirements would take effect on the association’s next fiscal year. FYI, 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 bill can be found at http://www.ncleg.net/gascripts/BillLookUp/BillLookUp.pl?Session=2017&BillID=H625.

(2) 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.

Because some of these bills are highly technical, I’ll simply list bill numbers, title, and a link to the text.

  • HB 457: Performance Guarantees/Subdivision Streets  (“An Act to Make Changes to State Law Concerning Performance Guarantees on County Subdivision Streets Offered for Public Dedication”) was filed by 21 House members on April 6, 2017, passed the House and was forwarded to the Senate, where it is now in the Committee on Rules and Operations of the Senate. The full bill can be found
    at http://www.ncleg.net/gascripts/BillLookUp/BillLookUp.pl?Session=2017&BillID=H457
  • HB 376: Subdivision Improvement Guarantee Changes (“An Act to Make Changes to the General Statutes Related to Subdivision Improvement Guarantees”) was filed on March 15, 2017, by Rep. Cody Henson (Henderson, Polk, Transylvania) and Rep. Chuck McGrady (Henderson). HB 376 passed the House and was forwarded to the Senate, where it is now in the Committee on Rules and Operations of the Senate. The full bill can be found at http://www.ncleg.net/gascripts/BillLookUp/BillLookUp.pl?Session=2017&BillID=H376
  • HB 349: Currituck-Developer Funds for Road Constr. (“An Act to Allow Currituck County to Use Developer Funds for the Construction of Roads to Allow for Interconnectivity of Subdivision Streets and Roads was filed on March 14, 2017, by Rep. Bob Steinurg (Camden, Chowan, Currituck, Pasqyuotank, Perquimans, Tyrell). HB 349passed the House and was forwarded to the Senate, where it is now in the Committee on Rules and Operations of the Senate. The bill has been calendared for hearing this week. The full bill can be found at at http://www.ncleg.net/gascripts/BillLookUp/BillLookUp.pl?Session=2017&BillID=H349

Community Association Bills Likely Not Subject to Crossover Deadline:

(1) House Bill 865: Community Association Property Management Act was filed April 20, 2017 by Rep. Jonathan Jordan (Ashe, Watauga), Rep. John Blust (Guilford), and Rep. Rodney Moore (Mecklenburg). HB 865 was referred to the Committee on Judiciary I and provides that:

  • beginning October 1, 2017, all community association managers must have an NC real estate broker license
  • association community managers would not be permitted to exercise control over (a) the reserves or investment accounts of an association, or (b) an operating account of an association, unless control of the account is allowed under a contract approved by the association board and duplicate financial statements are sent by the financial institution to the community manager and the association’s board at separate addresses
  • community managers would have to be covered by a fidelity bond or insurance policy of at least $20,000
  • community association contracts could not be longer than one year and must be cancellable at any time with 60 days’ notice
  • all community associations must register annually with the NC Real Estate Commission by paying $100 and providing certain information, including the name of the community manager and the names and addresses of all board members
  • all board members, within 60 days of election, would have to complete a minimum of 4 hours of education on the laws related to community associations provided by the Real Estate Commission at a cost of $75 per board member. Board members not completing such education must resign or risk a violation hearing, $100 violation fine, and a continuing fine of $100 per day while in violation
  • the existing “Real Estate Education and Recovery Fund” would be expanded to include community associations if the monetary loss was caused by a real estate broker “acting as a community association property manager”

The full bill can be found at http://www.ncleg.net/gascripts/BillLookUp/BillLookUp.pl?Session=2017&BillID=H865

(2) 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

The next two weeks will likely be a whirlwind of legislative activity. The General Assembly is finishing up the state budget and then likely will rapidly consider many bills on numerous topics before ending for the year. Any of the above bills could also be considered in the 2018 legislative session.

If you have specific questions on any bill, feel free to contact me or another attorney at our firm. If there are developments on any of these legislative proposals, additional information will be posted.

Jim Slaughter serves on the North Carolina Chapter Board of the
Community Associations Institute
and served as 2014 national
President of CAI’s College of Community Association Lawyers.

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

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