How to handle worthless lots

We have several lots in our rural community that cannot get their septic permits renewed...the county won't budge on the issue. Some of the lot owners are refusing to pay annual assessments, and won't cut their grass because they essentially cannot build on their property. We have discussed the matter with the owners to no avail. The board is now considering using the lien process, but the sense is the owners will ignore the "threat". In this state (NC) liens are "extinguished" in three years if not settled, which means via foreclosure or lawsuit. I am not an attorney (nor have we hired one), but dollar value of these lots is close to zero since they can't be used for housing (restrictions on non-residential building), and I don't see how the HOA would be able to recover the delinquent assessments or costs of trying to do so. Any suggestions?

Thanks...

septic with a leaching field may not be approved

BUT

a straight 'cesspool' system holding tank w/o leaching field is a viable option

ALBEIT EITHER

expensive if a LARGE tank is installed

OR

inconvenient repeated pumping out

CAVEAT EMPTOR

Thanks for your input Melissa...

Our HOA is owner managed, and has been for quite some time -- and frankly we have most of our "business" under control with few difficulties. However, the issue with the lots that cannot renew their septic system permits is something we just can't get our arms around.

The lot owners have engaged the county (one even hired an attorney), but can't seem to find resolution. The developer sold the lots with valid septic permits, but when the owners tried to renew them 5 years later the county somehow determined the lots did not pass the requirements for new permits of any type. As you stated, the HOA is not responsible for dealing with the septic permit issue; however, the issue does have a negative impact on the HOA. It's a bad situation for the lot owners -- they can't build, can't sell (why would anyone buy these lots), but are required to continue paying taxes and HOA assessments. Several have had their property values decreased accordingly to reduce the tax burden.

We could proceed with the lien process, but I am reluctant since in North Carolina the lien must be acted on within 3 years...otherwise it is "extinguished". My concern is we could approach the 3 year lien anniversary and be forced to try foreclosure on worthless lots -- and that seemingly would defeat the purpose of the lien.

We haven't tried some other creative solutions like encouraging the lots be sold (very cheap) to adjacent lot owners as a means for the current lot owners to rid themselves of the burden...the two lots could then be combined into 1 lot so there isn't a double lot burden in terms of assessments for the new owner.

...continuing to seek resolution on this issue, and appreciate all comments...

The value of the lots is entirely relevant.

For whatever reasons, your county has reduced the value of the unbuilt lots by making them useless. If I owned such a lot I would just walk away from it as these owners apparently have done. The county has changed the nature of these lots from residential to pasture land.

Your first course of action should be to consult with an attorney.

As a practical matter, taking title to these lots through foreclosure would be suicidal. You will spend a small fortune to acquire each title and the property cannot be used as intended. You will end up with title to commercially worthless real estate, you will receive no future assessments, and you will be liable for property taxes. This is a lose-lose-lose situation.

If I were on your board, I would recommend writing these lots off completely for budgeting purposes. I would assume that you will never receive another assessment payment from them and I would waste no money pursuing collections.

If you were in Arizona, the lot owners would have recourse against the county under state law for "taking" the property without compensation. Taking, in this context, means to adversely change what may be done with the property. You may have some recourse against the county and this should be discussed with your attorney.

Keith

I think it is time for you all to get a paid, professional leagl opinion.

I cannot see how it would hurt your association to file liens if for no other reason then to protect yourselves. You can always remove/discharge the lien if somehow they become an issue.

I think it is time to lawyer up.

That would depend on state tax laws not only for now but in the future. When things get tough state legislatures start closing tax loopholes to raise revenue. Assuming that HOA common areas are currently exempt from property taxes there is no guarantee that will remain forever.

The one time I attended a legislative hearing was when the state proposed to tax real and personal property owned or leased by non-profit corporations. That property had previously been exempt from taxes.

Imagine the mess you would be in if your HOA acquired title to those lots and the state started imposing taxes. You could find your self caught in the middle of the county assessor declaring that they are residential lots while the health department refuses to grant septic permits.

Understandably...I thought of that after I posted. One would not typically donate money to their HOA. However, in this case it may benefit both but still with the tax ramifications. There still is going to be a tax burden to pay but the end result LONG term would outweigh that.

The city in which I live is basically surrounded by a "bigger city". Years ago they tried to annex my city altogether and be absorbed into theirs. This didn't sit well and a rivarly developed. Our city grew stronger and now can NOT be overtaken by the larger city. I state this because a few years ago land on the border opened up. It was critical land on a popular divide. The owner of this land wanted to finally get rid of 20 acres of it. For some reason he was upset with the smaller town (I think over the liquor license difficulties) and DONATED the land to the BIGGER city. Even though the land really laid more in the smaller town. He decided to prevent it from being annexed in by the smaller town (Which they could do) he would donate it altogether. It is now a bunch of expensive apartments and houses who's tax revenue goes to the bigger city.

This basically where I got this strange idea. If these people who can't ever develop/use their land donates it to the HOA, they would be able to stop their bleeding. They may face some kind of tax ramifications but it's a ONE time deal. The HOA would benefit some because it appears some owners already had reduced their tax burden on the property. It will cost the HOA money by accepting this property as a donation but it too may be the one time deal.

A talk with a tax expert or the tax assessor's office would need to be conducted. Just to verify the tax burden the HOA may encounter. After the land donation, the property may change tax wise the next year. It's NOT going to be free land. However, it's a good deal for the HOA because they did not have to foreclose or purchase the property straight out which they could do.

It's just an option to consider and a little outside the box. Not saying it would work and haven't got all the details. However, it's an option for looking into even though it contradicts my previous advice on NOT EVER donating to a HOA. Since this really isn't monetary but land, it could be enough of a difference to make it worth it. Now I need to eat a donut...