Here’s something I bet you didn’t know. Homeowners associations in North Carolina can file to foreclose on your house for even one missed payment of HOA dues. It’s happened more than 5,500 times since 2018. And almost half of those filings occurred in Mecklenburg County. The Charlotte Observer and the News and Observer of Raleigh have teamed up for an investigative series on HOA foreclosures. The Charlotte Observer’s Ames Alexander is one of the reporters on the series and he discusses the subject with WFAE's Marshall Terry.
Marshall Terry: I, like probably many people hearing this, live in an HOA. And I was shocked by what you found. Walk me through how it works, if you will.
Ames Alexander: Yes. So if you're 30 days late paying your dues, your HOA can file a lien on your house. And if you're 90 days late, the HOA can file to foreclose on you. They can also be for attorney fees and late charges and other costs. So what begins as a small bit can mushroom into a much bigger one. And to get approval to foreclose on you, your HOA doesn't have to appear before a judge in North Carolina. They can get the OK from a court clerk. And for the HOA, that's a relatively fast and inexpensive process.
Terry: And we're not talking tens of thousands or even, necessarily, thousands of dollars. These missed payments can be relatively small, right?
Alexander: Yeah, that's right. Under North Carolina law, HOAs can foreclose for any amount of debt. I looked at the court files in more than 100 HOA foreclosure cases and found that about half of the homeowners had debts of less than $2,000. Some owed less than $500 in dues.
Terry: So, as I mentioned at the beginning, HOAs in North Carolina have filed to foreclose in more than 5,500 cases since 2018, and 45% of those have been in Mecklenburg County. Why so many in Mecklenburg?
Alexander: You know that's a really good question. Mecklenburg has about 10% of the state's population, so a disproportionately high number of foreclosures are happening here. The people I've talked to aren't really sure why that's happening so often here. Homeowner advocates say they've seen a number of HOAs here that are aggressive about foreclosing on folks. One theory I've heard is that in a banking town like Charlotte foreclosing on homeowners is seen to be a more acceptable thing than it might be in some other places.
Terry: Tell me about one of the cases you uncovered in Mecklenburg, a person who actually lost his home over a debt that started as a few hundred dollars.
Alexander: One of the people I talked to was Eric Peper. He owned a three-bedroom house in southwest Charlotte, and his income dropped during the pandemic, and he fell about $400 behind on his quarterly dues. And he said he always made sure he paid his mortgage on time, but he figured he'd pay the HOA when he got his next tax refund, but instead his HOA foreclosed on him. And in 2022, Charlotte LLC bought the house at the foreclosure auction for $3,700 bucks. Peper lost his house along with all of his equity, and now he's living in a small rented bedroom.
Terry: What do HOAs say about all this?
Alexander: So attorneys representing HOAs say these organizations don't want to foreclose on anyone. These are their neighbors, and this is the last thing they want to do. But they say when homeowners don't pay their dues, they really need the power to foreclose so they can keep paying for community services, like water and sewer, without raising the dues for others. And they say homeowners who fall behind on their dues are given plenty of notice and many opportunities to pay their debts so they can avoid losing their homes. It's also important to note, I think, that the large majority of HOAs never pursue foreclosure. Only a tiny percentage of people in HOA communities actually lose their homes.
Terry: What recourse, if any, do homeowners have?
Alexander: Homeowners who fall behind on their dues shouldn't assume they can just catch up with the payments next year. They should first contact their HOA to see if they can negotiate a repayment plan. And if they can't, they should do everything they can to drum up the money the HOA is demanding. Otherwise they really could lose their home and all of their equity. If you get a notice that your HOA has filed to foreclose on you, that doesn't mean that all is lost. You have the right to pay your debt to your HOA and thereby prevent foreclosure at any point before the sale of your house becomes final.
And if you think your HOA didn't follow the law, you can hire an attorney to try to challenge the association's actions. But that can be expensive, of course. You know if you and a lot of your neighbors are unhappy with your HOA, you can vote to change the bylaws, remove board members or even disband the HOA.
Terry: Why do HOAs in North Carolina have so much power? And is it like this in other states?
Alexander: HOAs have a lot of key people in their corner — influential lawyers, developers, local government officials. Cities and counties often like HOAs because they pay for a lot of the services like road and sewer maintenance that local government would otherwise have to pick up. HOAs have had great influence in crafting state laws in a way that benefits them.
I haven't done a national study on this, but I do know that HOAs wield a lot of power across the country and that homeowner advocates believe there's a need for reform in many states. That said, lawmakers and the number of states have made it more difficult for HOAs to foreclose on people. In Georgia, Arizona and California, for instance, HOAs aren't allowed to foreclose over tiny debts. And in many other states, HOAs have to appear before a judge if they want to foreclose.
Terry: Is anyone trying to change the laws in North Carolina, and what kind of political clout do HOAs have in Raleigh?
Alexander: For sure. Homeowner advocates are pushing for reform, and some lawmakers have introduced bills to try to rein in HOAs. But, so far, those legislators and advocates haven't scored many victories. The state legislature has appointed a study committee to look into whether HOA laws need to be amended. We'll see if that goes anywhere. The HOA industry in North Carolina has a very active lobby, and they have the ear of top lawmakers. One indication of that: There were three bills introduced this year to increase oversight and limit the foreclosure power of HOAs, but all those bills were either gutted, diluted or left to die.
