Imaginary HOA

Our Homeowners Association consist of a computer file named XX Homeowners Association By-Laws and an EIN (Federal Tax ID). We file federal form 1120-H, U.S. Income Tax Return for Homeowners Associations.

However, there is no declaration of a HOA filed and attached to the deeds. There is no Articles of Incorporation, and we are not a Non-Profit Corporation, or corporation of any kind. That is, our HOA is imaginary. I suspect that any contract that we sign is invalid.

That hasn’t stopped us from having an annual homeowners meeting where we elect officers. These officers estimate the annual expenses(approximately $10,000), assess each of our twenty-nine homeowner their share, and contract for the maintenance of the front entrance decorations. They have contracted with a landscaping company to do maintenance on the entrance decorations and they have signed an easement with the entrance lot owners so the landscape company has access to the decorations. They have bought liability insurance for the HOA, and insurance for the entrance decorations(valued at $50,000), which they don’t own.

Everyone that I have talked with thinks that the HOA is real, and that membership and paying the assessment is mandatory. This has been going on for about eighteen years with 100% participation. I’ve been elected as the Vice-President and discovered this when I looked into our history.

Is this a can of worms that I want to open? Should we contact a lawyer and try to fix this?

Never heard of a Declaration of HOA.

I have heard of a Declaration of Covenants, Conditions and Restrictions.
Have you checked all deeds for development to see if there are deed restrictions attached (which is what the CC&Rs are)?
Have you checked the PLAT for CC&Rs?

An HOA may or may not be incorporated.
Incorporation is not always a requirement.
Any requirement to be incorporated would be in State statutes.

Do you want to open the can of worms?
Only you can answer that.

Should the Association contact an attorney to verify their status?
Perhaps.

One could also check with their title insurance or, simply go to the courthouse or records office and check what is attached to their deed.

County clerk, register of deeds. Tell them you're looking for the original, filed copies of the HOA documents and see what you come up with.

Thanks to all responders. The general consensus is “Where have you looked” and “Look harder”. This is certainly good advice.

On my deed, there is a statement that it is “Subject to Restrictive Covenants recorded on book xxxx, page xxx.” This made the contract to buy the property a contract to abide by the covenants. All is well understood and accepted.

There is nothing else attached to the deed or plat. There is nothing in the deed, plat, or the covenants that refer to a homeowners association or anything concerning assessments, dues, payments, fines, fees, or mandatory membership.

I could go to the county courthouse, county clerk, and register of deeds, but if any pertinent documents exist, I would think that they would be attached to the deed. Where else would I look?

I have looked in the NC corporations’ database, and there is nothing identified with our subdivision. That is why I believe that we are not incorporated.

GwenG,
Would you elaborate on your concern that “It is a huge potential liability to the homeowners if they are led to believe that their HOA is operating with a corporate veil to "protect" them-not to mention fraudulent to permit a situation to persist that is in fact, "an emperor with no clothes".
I share your concern. I just need to know more.

The person that was instrumental in setting up the present situation says:

"You are reading too much into everything."
"You need to find something else to think about."
"This is 18 year old stuff."
"I am a very busy person and don't have time for questions like these."
"No such questions have ever been asked in 18 years."

Thanks to all,
Gary

That is such cringeworthy talk. Have you ever paid a contractor, found out he had no license to be one, and been told "You are reading too much into everything" when confronted about it? Because that feels like exactly what I'm reading.

Tell them that you'll stop paying dues and see what happens. All of a sudden, the law might become important to said person.

What is referenced is the Protective Covenants. Nothing more and nothing less. There is no reference to any homeowners association.

I have never heard of Restrictive Covenants that did not establish an authority for a homeowner association to run the business of the association. Prior to turnover, the Developer did this. But, after turnover, it is the homeowners' job via their representatives. There must be some vehicle described in the Restrictive Covenants that calls on an entity to conduct business for the association. Are you sure you have read the Covenants thoroughly?

The Association that is authorized by the Covenants will then establish a (usually) not-for profit corporation which will describe how the corporate side will be operated and give it certain corporate authorities that will not conflict with the Covenants. If this has not been done (and it should be easy to establish this with your Secretary of State), it should be done pronto.

Corporations help to limit the exposure of individuals' properties with regard to debt obligations, court judgements and litigation, accidental injury and death on common property and such. Without a corporation, "injured" individuals can name every single homeowner as responsible for damages and each homeowner will have to hire an attorney to defend them. If they lose, their assets can be attached and seized. I don't think that is what homeowners have in mind when they buy into an association.

Many people do not realize there are actually TWO distinct bodies to an HOA--the property restrictive side that is the Covenants attached to the deed and "runs with the land"--the CONTRACT--and the corporate side, which is the operational side of the business of the HOA and does NOT run with the land and is not a contract. There are two different "lives". One can have HOA Covenant deed restriction without a corporation to run the HOA, but it is a very bad idea because it exposes members to personal liability for mishaps on common property and misdeeds of the corporation and corporate players.

Anyone who says you are "thinking too much" is a bobblehead. Ignore them and do due diligence.

OMG

aaaaaaaaaaaaaaaaaaargh

I AGREE

In your first post, Gary, you mention that you have bylaws. How many pages are they? What's in them? What do they say? Anything about elections ? Or the organizational structure of your entity?

Yes, we have a well written set of bylaws, approximately four pages. They cover elections, and organizational structure of our so called homeowners association. They were written by a few of the homeowners, and distributed to the others, with the implication that they were binding. However, I believe that they have no significance to anyone outside of our group of homeowners.

Membership in a legal HOA is mandatory. It has the power to assess homeowners, charge late fees, and even foreclose on property for non-payment. That doesn't happen simply because some of the homeowners write a set of bylaws. There must be a legal entity established, with the homeowners contractual consent. I can't find any such document.

If you have no mechanism to enforce covenants, what use are they except for members who wish to enforce against each other? Curious. What is the restrictive covenant(s) that was recorded with your deed?

You might act like a corporate association, but you are not one. This is called an illusion.

It is also apparent that you are not a mandatory association and do not have authority to collect assessments and place liens to foreclose for unpaid fees. You are probably not governed by any state homeowner law.

You are a voluntary association. A Club. IMO, it is fraudulent to "pretend" to the members that the community is something other than a voluntary and informal organization. You can do all the things you have been doing for years, with apparent success, but it is wrong to represent fraudulently to the members (and to the public). Be proud of being a well-run community improvement club!

Gary,

Without reading the covenants that are attached to your deed, nobody can really comment with certainty.

Typically, if an Association is mandatory, it will be within those covenants (available from the records office in book xxx page xxx)

To answer "How does your HOA know how to operate without having any documentation or by-laws?"

Our group of homeowners has written a set of by-laws, but its only value is to this group. Although we act like a HOA, we are not really a HOA. Our subdivision has a set of covenants (recorded and enforceable) that we can use for reference if there is a violation.

For those interested, here is a link to the Restrictive Covenants.

https://www.dropbox.com/s/vzy5k6at64rid9r/Hawkshead%20Covenents.pdf?dl=0

LOL ... told you I would have more questions

Your statute definitions state:

(4) "Common elements" means any real estate within a planned community owned or leased by the association, other than a lot.

The above in bold would be in incorrect. Per the covered statutes as noted above parts of this section apply:

§ 47F-3-102. Powers of owners' association.
Unless the articles of incorporation or the declaration expressly provides to the contrary, the association may:
(1) Adopt and amend bylaws and rules and regulations;
(2) Adopt and amend budgets for revenues, expenditures, and reserves and collect assessments for common expenses from lot owners;
(3) Hire and discharge managing agents and other employees, agents, and independent contractors;
(4) Institute, defend, or intervene in litigation or administrative proceedings on matters affecting the planned community;
(5) Make contracts and incur liabilities;
(6) Regulate the use, maintenance, repair, replacement, and modification of common elements;
(7) Cause additional improvements to be made as a part of the common elements;
(8) Acquire, hold, encumber, and convey in its own name any right, title, or interest to real or personal property, provided that common elements may be conveyed or subjected to a security interest only pursuant to G.S. 47F-3-112;
(9) Grant easements, leases, licenses, and concessions through or over the common elements;
(10) Impose and receive any payments, fees, or charges for the use, rental, or operation of the common elements other than the limited common elements and for services provided to lot owners;
(11) Impose reasonable charges for late payment of assessments, not to exceed the greater of twenty dollars ($20.00) per month or ten percent (10%) of any assessment installment unpaid and, after notice and an opportunity to be heard, suspend privileges or services provided by the association (except rights of access to lots) during any period that assessments or other amounts due and owing to the association remain unpaid for a period of 30 days or longer;
(12) After notice and an opportunity to be heard, impose reasonable fines or suspend privileges or services provided by the association (except rights of access to lots) for reasonable periods for violations of the declaration, bylaws, and rules and regulations of the association;
(13) Impose reasonable charges in connection with the preparation and recordation of documents, including, without limitation, amendments to the declaration or statements of unpaid assessments;
(14) Provide for the indemnification of and maintain liability insurance for its officers, executive board, directors, employees, and agents;
(15) Assign its right to future income, including the right to receive common expense assessments;
(16) Exercise all other powers that may be exercised in this State by legal entities of the same type as the association; and
(17) Exercise any other powers necessary and proper for the governance and operation of the association. (1998-199, s. 1; 2004-109, s. 4; 2005-422, s.

As noted in (2) above the association can collect assessments for common expenses. The OP has yet to clarify their "common elements" subject to any assessments.

So where are you supposedly referencing the Covenants? The statute states they do not have to be declared subject to the section ... instead they must state they are NOT subject to the section.

If the membership took on a contract for the entrance property as OP is eluding to ... then possibly yes there would be common property.

....... the windmills of my miiiiinnd .......

The Covenants were recorded in 1985. NC Mrta likely expired them in 2015. This can be easily confirmed with a title search and attorney opinion.

§ 47F-3-102 states:

(d) Notwithstanding the provisions of subsections (a) and (c) of this section, any planned community created prior to January 1, 1999, may elect to make the provisions of this Chapter applicable to it by amending its declaration to provide that this Chapter shall apply to that planned community. The amendment may be made by affirmative vote or written agreement signed by lot owners of lots to which at least sixty-seven percent (67%) of the votes in the association are allocated or any smaller majority the declaration specifies. To the extent the procedures and requirements for amendment in the declaration conflict with the provisions of this subsection, this subsection shall control with respect to any amendment to provide that this Chapter applies to that planned community.

This statute does not apply but, if the Covenants had provided for an association, it might have conceivably been enacted by vote of the homeowners. BUT, there was no authority in the Covenants for homeowners to involuntarily encumber other homeowners with a law. The law specifically defers to the voting methods described in the Declaration and the Declaration did not provide for an association or voting on anything.

This is not an HOA. It is a subdivision governed by local laws. It has formed a Club that collects voluntary contributions to decorate property it does not own. No one has questioned it and apparently, there are persons who do not welcome anyone to look too closely...

Paying insurance? What for? Landscaping contractors for property that does not belong to the owners? Who owns the entrance?

If the homeowners want to pretend to be a HOA, so be it. But, anyone who states an authority to collect assessments is misrepresenting fraudulently.

Gwen ... MRTA did not expire them.

§ 47B-3. Exceptions.

Such marketable record title shall not affect or extinguish the following rights:

(13)  Covenants applicable to a general or uniform scheme of development which 
restrict the property to residential use only, provided said covenants are otherwise enforceable. The excepted covenant may restrict the property to multi-family or single-family residential use or simply to residential use. Restrictive covenants other than those mentioned herein which limit the property to residential use only are not excepted from the provisions of Chapter 47B. (1973, c. 255, s. 1; 1995, c. 443, s. 3.)

JanetB2,
Thanks for your interest.

First, let me state that there are no common elements as defined as “any real estate within a planned community owned or leased by the association, other than a lot.”

There are four corner lots that contain entrance decorations. These decorations are stonework, trees, shrubs, and signs. They were in place before any lots were sold. When these lots were sold, there was not any homeowners association, imaginary or real. I believe that these decorations became the property of the individual lot owners. I am 100% sure that that this property is not owned by the HOA. The HOA did not exist when this property was sold to the individual lot owners.

After the lots were sold, a few of the homeowners wrote a set of bylaws and called them Homeowner Association By-Laws. No legal organization was ever formed. Meetings were held, and officers were elected. The developer turned responsibility of the architectural committee over to the officers of the homeowners association.

The primary function of the homeowners association is to maintain the entrance decorations. The officers estimate the annual expenses (approximately $10,000), assess each of our twenty-nine homeowner their share, and contract for the maintenance of the front entrance decorations. They have contracted with a landscaping company to do maintenance on the entrance decorations and they have signed an easement with the entrance lot owners so the landscape company has access to the decorations. They have bought liability insurance for the HOA, and insurance for the entrance decorations (valued at $50,000), which they don’t own. I believe that the HOA is imaginary, and has no legal ability to enter into a contract.

No entering into a contract. It sounds like your neighbors made one up already. Not sure how to explain best to make sense. A contract doesn't have to be formal to be binding. You could write an agreement or a check on toilet paper. Contracts can be even verbal. In your case, your HOA is enacting it's own kind of contract via those written by-laws. It's a kind of "Fake it to you make it" kind of thing.

I would ask a lawyer for a formal answer. However, a developer isn't doing much more than your HOA is doing. They draft up the same documentation. They just put it on file at the courthouse. Believe you can even buy some of these documents at Office Depot. It's in the area of off the shelf lease or Will agreements. It's like $20 and some come with a CD. Do it yourself approach with all the paperwork. Insert lawyer here if needed.

"Confused. You say your HOA has by-laws and then covenants?"

The property deed has reference to covenants, properly recorded and enforceable. The covenants do not make any reference to a HOA.

Our so-called HOA has a set of well written set of bylaws. They cover elections, and organizational structure of our so-called homeowners association. They were written by a few of the homeowners, and distributed to the others, with the implication that they were binding. However, I believe that they have no significance to anyone outside of our group of homeowners. I believe that our so-called HOA is not a legal entity.

Membership in a legal HOA is mandatory. It has the power to assess homeowners, charge late fees, and even foreclose on property for non-payment. That doesn't happen simply because some of the homeowners write a set of bylaws. There must be a legal entity established, with the homeowner’s contractual consent. I can't find any such document.