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Association Answers

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Can HOA board members profit from insider deals?

By Michael Hunter
Michael Hunter
Charlotte attorney Michael Hunter focuses on community and condominium association law for the firm of Horack Talley. E-mail questions.

Q: The president of our homeowners’ association tells us it’s illegal to disclose names of owners who are delinquent in payment of assessments. Is this correct? He and others have profited from their knowledge of delinquencies by buying lots for low prices without notice to other HOA members who might buy them.

A: The answer to the first part is yes, it is unlawful for homeowners’ associations (HOAs) and their debt collectors to publicize information concerning a person’s consumer debt without the person’s consent.

There are state laws (North Carolina General Statutes, Chapter 75, Article 2) and federal laws (the Fair Debt Collection Practices Act, 15 U.S.C. 1692) that regulate creditors, collection agencies and others who regularly engage in the collection of debts owed to others. The federal laws are not considered to apply to the HOA itself, since the federal law applies only to “debt collectors” and not the actual creditor to which the debt is owed.

However, the North Carolina laws apply to both creditors and debt collectors and prohibit the communication of any information regarding a consumer’s debt with a third person without the debtor’s written consent. See N.C.G.S. § 75-53, which can be found on this page: http://www.ncga.state.nc.us/gascripts/statutes/statutelookup.pl?statute=75

The second part of your question is whether it is proper for the HOA president to profit from other owners’ delinquencies.

If the homes are going into foreclosure, either by the HOA or a mortgage lender, it is not improper for him to bid at the foreclosure sales and purchase the lots in this manner. Such proceedings are public record and anyone may bid.

If the HOA president is using the delinquencies to coerce homeowners to sell to him at reduced prices, this may not be technically illegal, but it certainly smacks of self-dealing and profiting on “inside information.” If this is the case, you should consider whether the members should call a special meeting to discuss having him removed from the board.

Developer won’t share info

Q: The developer of our community still retains control of our HOA and refuses to hold annual meetings or share information about how dues are spent. What is our recourse?

A: There are two chapters of North Carolina state laws that govern HOAs: Chapter 55, the North Carolina Nonprofit Corporation Act, and Chapter 47F, the Planned Community Act (or Chapter 47C, which governs condominiums). The Nonprofit Corporation Act states plainly that “a corporation shall hold a meeting of shareholders annually at a time stated in or fixed in accordance with the bylaws.”

The Planned Community Act (PCA) states that “a meeting of the association shall be held at least once each year.” It also states that “in addition to any specific information that is required by the bylaws to be assembled and reported to the lot owners at specified times, the association shall make an annual income and expense statement and balance sheet available to all lot owners at no charge and within 75 days after the close of the fiscal year to which the information relates.”

If the developer continues to ignore your written requests that the laws be followed, you may need to hire an attorney to represent you and other like-minded owners. You may be able to recover your attorney fees if litigation becomes necessary.

HOA won’t identify board

Q: My HOA in South Carolina refuses to give me the names of the members of our board of directors. Is this legal?

A: This answer is from my law partner, Cynthia Jones, who is licensed in South Carolina.

Like North Carolina, the South Carolina Nonprofit Corporation Act of 1994 requires the corporation to maintain, as part of its corporate records, the names and addresses of all current officers and directors. Those records may be inspected by members who give written notice of their desire to see them at least five business days in advance.

The particular statutes can be found in the South Carolina Code of Laws §§ 33-31-1601, 1602, and 1603 (which may be found here: http://www.scstatehouse.gov/code/t33c031.php). I assume it’s the HOA’s property manager who is refusing your request. I suggest that you send written notice to the property manager with your request to see the records. Be sure to give at least five days’ notice. Note that the law allows the HOA to impose a reasonable charge for the cost of labor and material for any copies that it provides to you.

Charlotte attorney Michael Hunter represents community and condominium associations for Horack Talley. Email questions to home@charlotteobserver.com.
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