One duty of a real estate closing attorney is to research the history of title to a tract of real estate and, as a part of that title search, determine what restrictions, if any, are attached to property being purchased. Restrictions are generally attached either through the agreement of several property owners to be bound by certain restraints, or by a single owner seeking to subdivide property and to have all subdivided lots be under a common subdivision scheme. In either event, restrictions in North Carolina have to be recorded in the county register of deeds where the real property exists to be binding against that property and put others on notice.
Restrictions can range from a list of “things not to do” to a structured agreement creating complicated layers of master and sub-associations which deal with the business of maintaining common area and maintenance for the use of its property owners and allow for the collection of dues.
So, it’s worth mentioning that there is a difference between restrictions which simply restrict a property and restrictions which set up a homeowner’s association (“HOA”).
Where there are only restrictions, violations require other property owners bound by the same restrictions to enforce them. Many times this is done by a civil action. Where there is a HOA, enforcement is more specifically detailed in the recorded restrictions which will usually allow fines and in severe cases, foreclosure for non-payment of those fines. Therefore, it is important to differentiate between the different types of restrictions.
As a closing attorney, we find that differences in restrictions are important because many financing lenders will ask us whether a borrower is in a HOA. To answer their question, we will see if the restrictions 1) appoint a non-profit homeowner’s association and 2) whether those restrictions allow for the collection of dues. It does not matter if the HOA is actively collecting dues or not. If the two aforementioned criteria are met, there is a HOA and dues may be collected.
We often hear from financing lenders that there is no HOA if dues are not being collected. This is incorrect. First, whether dues are collected or not does not terminate a HOA if one were established. The HOA does not simply go away without a formal termination recorded in the county register of deeds. Second, many startup HOAs in new subdivisions do not actively collect dues but that does not mean they will not start doing so. In fact, they plan to do so. Finally, many old HOAs may have stopped collecting dues but they could certainly start collecting those dues again in the future.
Be careful if you are in an association which is not currently collecting dues but has the ability to do so. Many people are told in the closing process that there is no HOA when, in fact, there is one.