NC, Need to get lenders on board with CCR changes?

Started by MichaelH34 • 12 replies • 334 views

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MichaelH34 (North Carolina)
Posts: 179

Posted:

We've still got our original "developer" CCRs and while we're wanting to change them, it hasn't happened yet.

One thing a real estate attorney (from a different state) relative of a new resident mentioned is that "Your biggest challenge will be getting the mortgage lenders on board. They'll need to consent to any changes for them to be binding on the lenders."

This was a new one on us. We haven't yet had the opportunity to get the background from this relative.

Anyone else familiar with this requirement?

AugustinD
Posts: 3,698

Posted:

Is this a condominium association?

A clause in the CCRs requiring the consent of mortgagees (meaning lenders) to a proposed amendment is not uncommon.

There may or may not be such a clause in your HOA's Declaration.

Your quoting verbatim what your Declaration says about amending the CCRs would be best.

Even if there is such a clause, and if the NC Planned Community Act applies to your association, then by my reading of the relevant statute section, no consent of mortgagees would be required. See https://www.ncleg.gov/EnactedLegislation/Statutes/PDF/BySection/Chapter_47F/GS_47F-2-117.pdf

If this relative of an owner at your HOA/COA has not read the CCRs or state statutes, then he/she is out of line. AFAIC and at most, he/she should have said to check for such a clause; then check the state statutes; and then talk to a HOA/COA attorney.

HenryS7 (Pennsylvania)
Posts: 336

Posted:

Honestly, ask the lawyer if he is providing legal advice and if he can put his comment in writing. Likely, that will shut him down pretty quick.

MelissaP1 (Alabama)
Posts: 13,836

Posted:

Real Estate Attorneys are not experts in HOA's. Plus your under developer control. You have to wait till they turn the HOA over to the owners. Have to understand a HOA is NOT real estate. It's a corporation. It's members being the "stock holders".

Former HOA President

MichaelH34 (North Carolina)
Posts: 179

Posted:

replying quickly so briefly as well.

AugustinD: This is a townhome assn. There's nothing in our current CCRs requiring lender approval. While he received a copy of the CCRs I can't say if he's actually read them.

MelissaP1: We aren't under dev control. We simply still have the original CCRs with developer language.

AugustinD
Posts: 3,698

Posted:

Quote:

Posted By MichaelH34 on 02/07/2022 6:56 AM
AugustinD: This is a townhome assn. There's nothing in our current CCRs requiring lender approval. While he received a copy of the CCRs I can't say if he's actually read them.

Then add the following to the query HenryS7 suggested:

Would you please cite the section of the CCRs that states mortgagee approval is required for a CCR amendment?

Maybe just do it in a phone call to the relative? All to achieve the goal HenryS7 eloquently stated.

Little suggestion: Find out which of North Carolina's HOA/COA statutes apply to your community. Sometimes there's language at the beginning of the Declaration that clarifies this.

MichaelH34 (North Carolina)
Posts: 179

Posted:

The thread seems to have changed from my intended question of if any of you are familiar with language I mentioned, where lenders have a right to approve or disapprove CCR changes, to how would I address this "helpful" owner. I'm less concerned with how I work with, or not, this person.

In a re-review of the CCRs I did locate this language...

10.03 Amendment by Association. Amendments to this Declaration, other than those
authorized by Section 10.02 above, shall be adopted by the Association in the following manner:
(a) At any annual or special meeting of the members of the Association, an amendment to
this Declaration may be proposed by either the Board of the Association or by any
Owners present in person at such meeting. Any such proposed amendment must be
approved by the Owners holding at least sixty-seven percent (67%) of the total votes in
the Association; provided, however, that (i) any amendment which materially and
adversely affects the security, title or interest of any Institutional Mortgagee must be
approved by such Institutional Mortgagee, and (ii) during any period in which Developer
owns a Lot or Dwelling in the Development, then Developer must approve such proposed
amendment.

So now my question becomes, who gets to decide what is a "material or adverse" change to the CCRs that would result in our needing to get the lenders involved? Anyone had to go through this with a townhome HOA?

MichaelH34 (North Carolina)
Posts: 179

Posted:

AugustinD: to answer your last q,

THIS DECLARATION of Covenants, Conditions and Restrictions for [...] pursuant to Chapter 47F of the North Carolina General Statutes, the
provisions of which shall apply to this development.

JohnC46 (South Carolina)
Posts: 14,265

Posted:

So now my question becomes, who gets to decide what is a "material or adverse" change to the CCRs that would result in our needing to get the lenders involved? Anyone had to go through this with a townhome HOA?

It would depend on the change thus require a legal opinion. In a former HOA, we had someone throw this argument up as we were ruling to allow awnings and she was opposed to awnings. By the way, she was an PM for a high rise condo building. Our lawyer said no way do mortgage holders have to be notified.

AugustinD
Posts: 3,698

Posted:

MichaelH34, thank you for the interesting follow-up. Good to hear JohnC46's example, with his HOA attorney's stamp of approval, as well. A few things:

-- Yes, and as I am bet all here agree, check with the HOA attorney as needed.

-- From my reading, an example of a CCR amendment that would affect a mortgagee's "security, title or interest" might be a change that concerns the lien the HOA has for regular and special assessments. As in the proposed change perhaps gives the HOA (or attempts to give the HOA) more rights than the mortgagee in foreclosure proceedings.

-- The (possibly) fun part: Michael has indicated that the NC Planned Community Act (statute) applies to his HOA. The latter statute state in part the following, regarding amending:

Except in cases of amendments that may be executed by a declarant under the terms
of the declaration or by certain lot owners under G.S. 47F-2-118(b), the declaration may be
amended only 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 larger majority
the declaration specifies or by the declarant if necessary for the exercise of any development
right.

Does this statute section and the covenant Michael quotes above represent a bona fide conflict? Meaning this statute section is saying, "Mortgagee consent is not required under any circumstances?"

MichaelH34 (North Carolina)
Posts: 179

Posted:

AugustinD, that's interesting. My copy of 47F omits the word "only" and the language is part of 47F-2-117 not 47F-2-118

MichaelH34 (North Carolina)
Posts: 179

Posted:

Sorry, multitasking. My copy does have "only" but that language is in 117 rather than 118, my source being https://www.ncleg.net/EnactedLegislation/Statutes/PDF/ByChapter/Chapter_47f.pdf

It seems to me that the "only" is intended to apply to how the voting is done rather than who, but that's why lawyers always have to be involved. :-(

KerryL1 (California)
Posts: 14,550

Posted:

The section includes, "(i) any amendment which materially and adversely affects the security, title or interest of any Institutional Mortgagee must be approved by such Institutional Mortgagee..."

Our CC&Rs say something similar. But ours also include a list of potential "material" effects. They're mainly really serious, like forbidding subdividing individual condos. Do your. CC&Rs, Michael?

I don't think this conflicts with owners' rights to amend. But with others, you need a real NC HOA attorney to interpret this for you. We also have a very knowledgeable NC poster who might check in.

I wouldn't waste any time contacting the RE attorney in a different state. Instead, perhaps just inform your new owner that to protect the Assn., you need the opinion of a NC HOA attorney. Laws are different in every state and CC&Rs vary a lot too.

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