The Marsh View Homeowners Association, which governs the Marsh View neighborhood on Johns Island, declined to comment about foreclosing on member homes for unpaid dues. (Photo/Leslie Burden)
By Matt Tomsic
Published July 30, 2012
Four years ago, Michael Deese and Barry Oliver bought a three-bedroom townhome on Johns Island for $210,000. Months ago, their home was sold to Marsh View Homeowners Association for $500.
The public sale ended a foreclosure process begun by Marsh View over unpaid dues.
Since buying their home, Deese and Oliver had become disabled. They were working with their mortgage lender in the Home Modification Program as their monthly dues to the Marsh View Homeowners Association increased and continued to go unpaid. The dues piled up while they struggled to pay their mortgage.
By November 2011, they owed $9,500 in dues and other legal costs.
|Click image for larger version of graphic. (Information graphic/Jean Piot)|
Their case is one of hundreds of foreclosures filed since 1993 by homeowners associations in Charleston County for unpaid dues and assessments — some for as little as $332 — according to an analysis of the filings by the Charleston Regional Business Journal.
While the majority of cases are dismissed or settled, homeowners associations have legally foreclosed on a handful of homes, and in some instances, received the property’s title during the public sale by using the debt owed instead of actual cash.
Charleston County has more than 750 homeowners associations, according to voluntary filings with Homeowners Association USA, which provides education, support and referrals to associations. No government agency oversees, licenses or collects data about homeowners associations, and state law provides the framework for associations to foreclose on its homeowners to recover unpaid dues and assessments.
A state lawmaker targeted those issues in 2011, when he introduced the South Carolina Homeowners’ Association Act, but the bill stalled in a state Senate committee.
Homeowners associations risk losing amenities and insurance coverage when homeowners don’t pay their dues, and foreclosure lawsuits can be an effective tool to recover unpaid dues.
Homeowners stake their homes and risk losing an asset worth tens — if not hundreds — of thousands of dollars over a few sentences included in closing documents.
$5,000 or less
Since 1993, Charleston County homeowners associations have filed roughly 630 foreclosures for unpaid dues, with 63% of the cases filed after 2000.
Of those 400 cases filed after 2000, 47 homeowners owed less than $1,000 when the foreclosure was filed; 101 homeowners owed between $1,000 and $2,000.
In total, 68% of homeowners received foreclosure summons for less than $5,000 in unpaid dues and assessments.
“While it seems like it’s a very harsh thing to do, the thing is, it’s very effective,” said Jim Laumann, the president of Homeowners Association USA. In Charleston County, roughly 1% of the cases end with foreclosure, and most are settled or dismissed. “Most people are not going to allow that sort of asset to go into foreclosure over homeowners association dues.”
Two aspects of state law allow associations to file liens against property owners for unpaid dues. If the association consists of condominiums, then the Horizontal Property Act governs it, said Ryan McCabe, an attorney who specializes in homeowners association law for Columbia-based Rogers, Townsend & Thomas. The act allows associations to file liens then foreclose on the lien and have the property sold to pay the debt.
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“When people hear the term foreclose, they think of a mortgage,” McCabe said. “But a foreclosure is a type of lawsuit that covers a whole lot more than mortgages and assessment liens.”
Legally, McCabe said, a homeowners association foreclosure would be similar to a contractor’s foreclosure on a home because of a lien for unpaid renovations.
In March 2011, Marsh View Homeowners Association filed its lien against Deese and Oliver for $6,225, according to filings with the Charleston County Register of Mesne Conveyance.
Deese and Oliver missed monthly payments of $299 from January 2010 through December 2010, racking up roughly $4,000 in debt. In 2011, the dues increased to $330, and they continued missing payments.
Trying to keep their home
McCabe said homeowners associations decide case-by-case when to foreclose on a home for unpaid dues. McCabe and Laumann both recommend that association boards — a group of homeowners elected to govern the community — adopt a written policy to govern foreclosures. Associations must consider the amount of money owed, the amount of time from the last payment, the fiduciary duty of the board to collect the debt, bylaw requirements, financial conditions, the costs associated with legal action and other factors.
McCabe and Laumann also urge associations to consider payment plans with the homeowner and use foreclosure as a last resort.
Marsh View filed its foreclosure case against Deese and Oliver in November 2011, and by then, they owed $9,500.
A month after the filing, Deese and Oliver wrote their own answer to the legal complaint.
“We are in the process of working with our mortgage company for a Home Modification Program due to disabilities of both defendants so we can keep our house,” they wrote.
Deese and Oliver argued the association didn’t provide the services paid for by the dues. Both men couldn’t be reached for comment after repeated attempts. Marsh View wasn’t available to comment on the case.
“Lights were turned off in the common areas, grass was not cut and the pool was not maintained,” they wrote. “We also disagree with the amount being claimed and ask for a complete accounting as we believe funds were not credited to our account and the balance is incorrect.”
Laumann said homeowners who fall behind need to be proactive in addressing the debt because late fees, interest and other costs can add to the homeowners debt, making it more difficult to catch up on the mounting debt.
“Once it’s turned over to an attorney, the fees exponentially go up,” he said. “As a homeowner, you don’t want to allow it to get to the attorneys because the dollars get bigger, and it’s more difficult to resolve.”
As the case progressed, attorney’s fees reached $1,650, according to court filings, plus $495 in costs associated with legal filings, serving court papers and other court administrative costs.
Marsh View’s declarations allow charges of $25 a month for late fees and a yearly interest rate of 8%.
Deese and Oliver owed roughly $865 in interest and $890 in late fees and other charges, pushing their debt to $12,750, according to court filings. Their unpaid dues equaled $8,855, and a judge ordered the home sold at a public auction.
On May 15, Deese and Oliver’s home was sold to Marsh View Homeowners Association for $500.
State law allows the lien holder to bid on the property at auction, and the lien holder gets a bid equal to their judgment, in Marsh View’s case: $12,750.
McCabe, speaking generally about state law, said the lien holder isn’t paying the court if the sale price is less than or equal to its judgment. So if no one else bids on the property, it defaults back to the lien holder for an amount equal to or less than its judgment.
McCabe said, in general, the associations receive the property’s title when other bidders realize the lender’s mortgage is ahead of the association lien, meaning that at any point, the lender could foreclose on the property and take it from the new owner.
Marsh View received the title for Deese and Oliver’s home on June 7.
On July 19, a white notice was posted on Deese and Oliver’s cranberry red door, now owned by Marsh View.
It said, “This property has been determined to be vacant.”
Attorneys said homeowners association foreclosures aren’t conflicts of interest when the associations recover the property, and foreclosure power is given to them by state law.
Laumann said associations get a black eye with foreclosures, but without that power, residents can free-load.
“If 10% of the residents are in arrears and not paying their dues, without any kind of teeth in the law, then that 10% gets redistributed back to the (paying) residents,” Laumann said.
Amenities like pools, landscaping and other common areas are put at risk if the association is losing money, and bigger issues, like insurance coverage, can also be jeopardized.
McCabe said a circuit court judge acts as a control for the foreclosure cases. The cases go to a Master-in-Equity judge, and since January, thousands of foreclosures have been filed in Charleston County by lenders and homeowners associations. In June, nearly 1,000 foreclosure cases were filed.
“They’re reticent to allow associations to foreclose,” McCabe said. “They follow the law, and they allow them to proceed, but they always check to make sure that the association has a right to foreclose.”
Other states have begun enacting legislation specific to homeowners associations to provide more controls and more requirements for associations, but attorneys aren’t sure if a homeowners association law is needed in South Carolina.
In 2011, state Sen. Darrell Jackson, D-Hopkins, introduced the South Carolina Homeowners’ Association Act, but the act stalled in committee months later, partly because of the interest the bill received from groups and associations, said Antjuan Seawright, a spokesman for Jackson, whose district includes Richland County.
Jackson’s office was getting overrun with calls from homeowners across South Carolina, Seawright said. The callers said their homeowners associations were increasing dues and issuing fines for everything from unkempt yards to wrong-colored mailboxes.
“In some cases, their dues were more expensive than some people’s mortgages,” Seawright said, adding associations were acting independently and making their own rules. “At the end of the day, what he was trying to do is find a way to regulate homeowners associations without cutting them out but putting some regulations on how they are governed.”
Seawright said Jackson hopes to re-introduce the bill next session, to bring all sides together and have the bill debated on the Senate floor.
McCabe said he doesn’t know whether South Carolina needs a more specific law governing homeowners associations. In the Palmetto State, associations aren’t regulated by any state agency and no state agency collects a comprehensive list of homeowners associations in Charleston County.
In North Carolina, the General Assembly has been struggling with how to oversee its state’s associations and has been trying to answer a question: Should homeowners associations have the right to foreclose and should the state enact laws to govern an organization that can take someone’s home?
“I don’t know the answer,” McCabe said. “I would say that the statutes tend to favor the homeowner, and they put some limitations on the amount of attorney’s fees, what steps the board has to go through. But they did maintain the right of an association to foreclose.”
Reach Matt Tomsic at 843-849-3144. Editorial intern Nick Johnson contributed to this report.