North Carolina Community Association Legislative Wrap-Up – July 2017

North Carolina Community Association Legislative Wrap-Up – July 2017

Courtesy of Greensboro attorney Jim Slaughter of Black, Slaughter, Black, following is a summary of the status of various legislative bills in the North Carolina legislature that could affect condominium and community associations.  Jim always has his ear to the ground for the legislative goings-on in Raleigh, and I appreciate him allowing me to reprint his article here.

The General Assembly adjourned its 2018 regular session this month, so questions have arisen about what happens to proposals that would have directly impacted North Carolina’s homeowner and condominium associations (see NC Community Association Legislative Update-June22, 2017), but weren’t adopted. The clear answer: “It depends.”

Although legislators left town, they haven’t really left for good. The adjournment resolution provided that special legislative sessions will be held in August, September, and again by November. While these sessions are intended to be focused on legislative redistricting and other major issues, the General Assembly can consider what it wishes. While it is unlikely the following HOA/condo proposals will be taken up this year, don’t assume anything.

Filed proposals fall into 3 categories: enacted, eligible for consideration in 2018, and possibly eligible for consideration in 2018. Let’s take those in turn.

Enacted and Now Law:

(1) 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 349 was passed by both chambers and ratified on June 26, 2017. Final language can be found at at http://www.ncleg.net/gascripts/BillLookUp/BillLookUp.pl?Session=2017&BillID=H349

Community Association Bills Eligible for Consideration in 2018:

The following bills cleared one chamber and would be eligible for consideration during the 2018 legislative session.  UNDERSTAND THAT ALL OF THESE ARE PROPOSALS, AND NONE HAVE BEEN ADOPTED INTO LAW. 

(1) House Bill 625: HOA/Condo Crime & Fidelity Insurance Policies (“An Act to Require Homeowners Associations, Condominium, and Their Management Companies to Acquire Crime and Fidelity Insurance Policies to Protect the Associations’ Membership from Loss Due to the Illegal Conduct of the Association, the Executive Board and Its Employees, or a Management Company and to Require Annual Financial Audits to Be Performed by Homeowners Associations and Condominium Associations”) 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). 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 were 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 these bills are  technical, I’ll simply list bill numbers, title, and a link to the text.

• House Bill 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
• House Bill 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

(3) Senate Bill 16: Business & Agency Reg. Reform Act of 2017 had nothing to do with HOAs or condos when it was filed on January 26, 2017. Since that time the following sentence has been added to the bill:

The Legislative Research Commission shall study the creation of a mediation and arbitration board that would serve as a mediator and arbitrator of disputes between the owners of property located in a homeowners or property owners association and the governing entities of such homeowners or property owners associations. The Legislative Research Commission shall report its findings and recommendations to the 2018 Regular Session of the 2017 General Assembly when it convenes.

While HB 16 has passed both chambers, the General Assembly adjourned prior to a conference committee resolving wording differences. The full bill can be found at http://www.ncleg.net/gascripts/BillLookUp/BillLookUp.pl?Session=2017&BillID=SB+16&submitButton=Go 

Community Association Bills POSSIBLY Eligible for Consideration in 2018:

The following bills did not clear either chamber, but may not be subject to crossover deadlines due to their nature. UNDERSTAND THAT ALL OF THESE ARE PROPOSALS, AND NONE HAVE BEEN ADOPTED INTO LAW. 

(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 more activity than almost any proposal, it is currently in the Committee on Rules and Operations of the Senate. 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

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 is a Fellow and past national President of CAI’s College of Community Association Lawyers and past President of the NC Chapter of the Community Associations Institute .