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Can residents form an HOA on their own?

Michael HunterQ: We purchased a vacant lot in western North Carolina in 1998, and since we were the first buyers in the community, we had the developer write some covenants and restrictions (CCRs).

The CCRs are simple: no chain-link fences, no cutting of large trees, etc. All property owners should have a copy of the CCRs because real estate agents are aware of the restrictions. The developer, who has gone out of business, was supposed to form a homeowners association and turn control over to the owners when he had sold 50 percent of the properties, but this never happened. At least 50 percent of the current owners are now agreeable to the formation of an HOA. My understanding from some blogs is that North Carolina law will not allow a community to form an HOA after the community has been developed. Can you help? Can you give direction? We need to collect money to maintain the roads, but not all the landowners are willing to help.

A: On the basis of what you have described, my first concern pertains to the enforceability of the CCRs in your case. An important threshold in regard to the enforceability of restrictions is whether the CCRs were recorded with the county Register of Deeds by the developer before he started selling lots.

 A second important and related issue is whether the subdivision was created pursuant to a “general plan of development.” This requires, in essence, that the CCRs impose certain standards that apply uniformly to all the lots.

While there are numerous pitfalls that may render CCRs unenforceable for a variety of reasons, the first question you need to address is whether these two requirements have been met. You make the point that all owners should have notice of the CCRs because real estate agents are aware of them.

However, as noted above, whether an owner has notice of the CCRs is not the critical point. If the CCRs were timely recorded and are otherwise enforceable, owners who purchased lots after the recording of the CCRs should be bound by them.

I occasionally encounter a community with CCRs that either do not expressly provide for the formation of an HOA, or the language is unclear on what authority the HOA is given.

If your CCRs do not mention the formation of an HOA, you can still form one, but it will have no authority whatsoever over property owners in the community. In such a case, membership and participation in any HOA you form will be purely voluntary.

You can collect dues from the members who join and pay voluntarily, but your HOA would have no authority to require membership by owners, levy assessments against owners, or enforce the CCRs.

Forming an HOA with the powers to levy assessments and enforce the CCRs will require an owner-approved amendment to your CCRs. If the existing CCRs do not mention an HOA, or the CCRs do not specify what authority the HOA will have, then any HOA you form will be binding only on those lot owners who consent to the amendment and agree to make their lot subject to the amended CCRs and the HOA.

 In other words, you would not be able to form an HOA and “force” it onto unwilling lot owners.

If your CCRs do mention an HOA, then you may be able to form one with the powers of enforcement and assessment, but only if the CCRs specifically give the HOA those powers.

 I suggest that you contact a lawyer in your area with HOA and real estate experience to review your community’s CCRs and discuss your options in detail.

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“Ask The Experts” Articles have been Reprinted with permission from the Charlotte Observer

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