Hope Derby Carmichael has been appointed to the North Carolina Bar Association’s Community Associations Committee, an ad hoc committee of the NCBA’s Real Property Section.  The Community Associations Committee meets regularly to discuss issues related to condominiums and community associations which impact the legal jurisprudence or statutory framework in North Carolina.  The Community Associations Committee assists with education efforts for lawyers and their clients on related issues and also makes recommendations to the Bar Association regarding the support of proposed legislation before the General Assembly.  Most recently, the Committee has offered itself as a resource to the General Assembly’s House Select Committee on Homeowners Associations which is studying issues arising out of the N.C. Condominium Act and Planned Community Act.

Several Jordan Price attorneys will be speaking at CAI-NC’s First Annual Law Day in Chapel Hill on February 27, 2010.  In addition to attorneys from other areas of the State, Henry Jones, Hope Carmichael and Brian Edlin will speak on various issues facing planned communities in North Carolina, including recent legislative developments.  The seminar is scheduled for February 27, 2010 at Extraordinary Adventures in Chapel Hill, North Carolina.  The seminar is designed for volunteer community leaders, as well as, community management professionals.  Topics will range from running meetings, collections, foreclosure of liens, recent legislation and case law and election and removal of officers and board members.  For more information, including registration information, please click here.

Brian Edlin of Jordan Price recently obtained a unanimous jury verdict in Chatham County Superior Court against homeowners who had asserted various counterclaims against a contractor including fraud, unfair and deceptive trade practices and punitive damages. The case arose out of a cost plus project that initially started as a gazebo and retaining wall project and morphed into substantial improvements to the homeowners’ property, including the labor and materials necessary for various water features, an arbor, an elevator shaft, and the labor for preparation and placement of a large cabana, among other improvements to the defendant’s property.  When the homeowners refused to pay the contractor the contractor removed himself from the project and removed his license from the permit issued by Chatham County for the work.  The contractor filed a lien against the property and sued in Wake County Superior Court for breach of contract, unjust enrichment and conversion of certain tools the contractor contended the homeowners’ kept and refused to allow the contractor obtain after he left the project.  The case was subsequently transferred to Chatham County and the homeowners asserted various counterclaims against the contractor. Among other claims, the homeowners alleged claims of fraud in the contractor’s billing practices and unfair and deceptive trade practices and punitive damages.  The homeowners also contended there were various deficiencies in the contractor’s work and claimed damages against the contractor for such alleged defective work.  The homeowners also alleged the contractor had committed an assault against one of the homeowners.  The homeowners’ fraud and unfair and deceptive trade practices claims were dismissed on summary judgment.  The homeowners’ assault and punitive damages claims were dismissed on directed verdict and did not reach the jury.  Thus, the only counterclaims submitted to the jury were the issues of the cost to complete or repair the contractor’s work after he left the jobsite for non-payment.   The case was tried for four (4) days in Pittsboro and the jury deliberated for several hours.  After deliberation, the jury came back with a unanimous verdict in favor of the contractor on both its claims unpaid work and the conversion of its tools.  The jury awarded nothing on the homeowners’ counterclaims.

Effective October 1, 2009, townhome communities, planned unit developments and condominiums in North Carolina will be subject to several statutory changes in both the Planned Community Act (Chapter 47F) and the Condominium Act (Chapter 47C).  These changes in the law will require some additional procedures on the part of the homeowners association and on the attorney for collection of delinquent assessments.  The General Assembly also enacted legislative changes affecting the use of solar collector devices, but these changes will not affect the current law for any existing planned communities or condominiums – only subdivisions or condos created after December 1, 2009.

The first piece of legislation, House Bill 806, was signed into law on August 26, 2009.  This bill was designed to insure that all owners receive notice of the filing of the claim of lien prior to the institution of foreclosure proceedings.  Generally under the new law, the Association is now required to make “reasonable and diligent efforts” to ensure that its records contain the owner’s current mailing address.”  While there are some specific requirements, this law also imposes a heightened obligation on the Association to act on any information managers, board members or attorneys may have that the mailing address in the Association’s records is not accurate – this would include knowledge of returned mail from the post office, knowledge that the property is vacant or knowledge that there is a tenant occupying the property rather than the owner.  House Bill 806 also imposes new requirements for the claim of lien document that is filed with the Clerk of Court.  Every claim of lien must now contain a statement in boldface, capital letters, on the front page of the lien that essentially states that the document constitutes a lien against the owner’s property and that if not paid, the lien may be foreclosed.  Your attorney handling such liens should be familiar with the new law.  In addition, the person signing the claim of lien must sign a certificate of service, attached to the lien itself, by which that person verifies that he has mailed a copy of the claim of lien both by regular, first-class mail, and by either certified mail, return receipt requested, or by overnight delivery with a qualified carrier (such as Fed Ex, UPS, DHL, etc.)   The second piece of legislation, House Bill 1387, was signed into law on August 28, 2009.  This bill invalidates any new restrictive covenants, created on or after December 1, 2009, which covenants would prohibit the installation of solar collector devices (solar panels, receptors for solar appliances, etc.)  This law does not apply to any existing restrictions contained in Declarations prior to December 1, 2009, and it does not apply in any event to multi-story “stacked” condominiums.  Managers and developers, however, should be aware of these changes in law as they affect new communities created on or after December 1, 2009.   For a copy of House Bill 806 please click h806.pdf. 

Jordan Price lawyers successfully defended a claim brought by owners in a Raleigh subdivision against their homeowners association seeking a ruling from the court that their lot was in compliance with the restrictive covenants of the community and that the homeowners association had unlawfully levied fines against the owners.  The trial court rejected the owners’ arguments and the Court of Appeals recently affirmed the trial court’s ruling.

The covenant at issue in Schwartz v. Banbury Woods was a parking restriction that required boats, trailers, campers and all similar property to be parked in a screened area which is approved by the Architectural Committee in accordance with rules governing such items adopted by the Board of Directors of the homeowners association.  A dispute arose with respect to the owner’s parking of a 2004 Tioga motor home on their lot and eventually the homeowners association levied fines against the owners in accordance with Chapter 47F of the General Statutes.  The owners sued arguing that the fines were invalid and arguing that their 2004 Tioga motor home was not a camper or similar property in accordance with the covenants.  The trial court granted summary judgment for the homeowners association and the Court of Appeals affirmed stating, that it would “defeat the plain and obvious purposes of [the parking] restriction” to adopt the owner’s argument that the 2004 Tioga motor home was not a camper or similar property requiring screening.  The Court of Appeals also affirmed the levying of fines stating that the homeowners association had complied with the procedures of N.C.G.S. § 47F-3-107.1.  You may read the Court of Appeals opinion here. banbury-woods-case.pdf

An article written by Brian Edlin was recently featured in the December 2008 publication of the Real Property Newsletter for the North Carolina Bar Association.  The article traces the highlights of the past 10 years of North Carolina’s Planned Community Act, N.C.G.S. §47F-1-101 et seq. (“Act”) and reviews the legislative changes to the Act since its enactment in 1999.  The article also discusses several of the important cases interpreting the Act over the past 10 years, including cases on fines, standing and the constitutional issues associated with applying portions of the Act to pre-1999 communities.  You may read the article here december-2008-newsletter.pdf.

          The North Carolina Supreme Court has recently retained the case of Riverpointe Homeowners Association v. Mallory to consider certain constitutional issues raised with the Planned Community Act.  Specifically, the Supreme Court will consider arguments from the homeowner in this case that the powers granted to communities in Act, including fining, are unconstitutional as applied to communities formed prior to the effective date of the  Act.

          The Supreme Court issued an order on 27 August 2008 in which it retained review of the constitutional issues raised in the homeowners appeal. The issue of retroactive application of the Act has already been decided favorably for homeowners associations by the North Carolina Court of Appeals in the 2007 case of Reidy v. Whitehart. 

The Virginia Graeme Baker Pool and Spa Safety Act (“Act”) was passed by Congress and signed into law in December 2007.  The Act is named after Virginia Graeme Baker, the granddaughter of former Secretary of State James Baker, who died in a hot tub in 2002.  The Act applies to condominium, townhome, and homeowners’ associations who have pools.

The purpose of the Act is to promote safety of pools and spas and help prevent drowning, especially of children.  The Act establishes a federal pool and spa drain cover standard, a state pool safety grant program and an education program to inform the public of methods to prevent drowning and entrapment.  The Act applies to “public pools and spas” which includes those open to the public generally, whether free or for a fee and those open exclusively to: (1) members of an organization and guests, (2) residents of a multi-unit apartment building, apartment complex, residential real estate development, or other multi-family residential area; and (3) patrons of a hotel or other public accommodations facility.  The Act is intended to apply to community association pools and spas.

Under the Act, by 19 December 2008, public pools and spas must be equipped with anti-entrapment devices or systems.  Generally speaking, every “public pool and spa” with a single main drain, other than an unblockable drain, must be equipped with at least one of the following devices:  (1) safety vacuum release system which ceases operation of the pump, reverses the circulation flow, or otherwise provides a vacuum release at a suction outlet when a blockage is detected, (2) suction-limiting vent system with a tamper-resistant atmospheric opening, (3) gravity drainage system that utilizes a collector tank, (4) automatic pump shut-off system, or (5) device or system that disables the drain. 

              For a copy of the new law, please click here.

The Supreme Court has recently held that a default judgment in favor of an owner against a general contractor cannot form the basis for extinguishing a subcontractor’s lien on property under N.C.G.S. §44A-23.

In the case of Carolina Building Services v. Boardwalk, LLC, the Supreme Court was faced with this issue after a general contractor abandoned a job project before completion of the project.  An unpaid subcontractor filed a lien on the project after the abandonment by the general contractor.  The subcontractor filed suit against the general contractor and owner to perfect the lien and the owner asserted a claim against the general contractor.  The owner moved for default judgment against the general contractor and presented affidavits that the cost to complete the project exceeded the balance of contract owed to the general contractor, effectively nullifying the subcontractor’s lien on funds.  The subcontractor presented competing affidavits showing the owner completed the project for less than the balance of contract, thus preserving the subcontractor’s lien rights.  The trial court indicated the subcontractor did not have standing to challenge the default judgment against the general contractor on the owner’s claim and entered judgment in favor of the owner, effectively cutting off the subcontractor’s subrogation lien rights.  On appeal, the Court of Appeals affirmed the trial court’s ruling.  However, on discretionary review, the Supreme Court held that the general contractor’s default on the owner’s crossclaim was an “action” prejudicing the subcontractor’s lien rights under the mechanics lien statute and the subcontractor should have had an opportunity to prove its entitlement to a lien on funds owed to the general contractor.  Writing for the Supreme Court, Justice Newby indicated, “[subcontractor] presented an affidavit that raised a genuine issue of material fact concerning [the owner’s] liability to [the general contractor] based on a lien against [the owner’s] real property. Rather than consider this affidavit, the trial court focused on the default judgment for [the owner] against [the general contractor]. By its plain meaning, an action is ‘[a] thing done.’  Thus, [the general contractor’s] choice not to defend [the owner’s] claims constituted an “action” which prejudiced the rights of [subcontractor] contrary to the statutory mandate of N.C.G.S. § 44A-23.  [Subcontractor] should have an opportunity to present its evidence concerning the merits of recovery under its lien on real property.”