By Matt Tomsic
mtomsic@scbiznews.com
Published Aug. 13, 2012
The letters and emails started arriving in 2005.
Residents across the state were upset with their homeowners associations and board members, which were filing liens against their homes without notice, using their board positions for personal gain, shouting down residents during meetings and withholding financial documents.
They sent their letters and emails to state Sen. Darrell Jackson, who introduced a bill to provide oversight for homeowners associations and to give homeowners an appeals process — other than filing a lawsuit — for disagreements with their associations.
Jackson’s bill, introduced more than once, stalled, dying in committee each year.
Jackson reintroduced the S.C. Homeowners Association Act in December 2010 after introducing the act two years earlier. Since then, stakeholders have traded drafts, but an updated version hasn’t been introduced.
“A lot of these homeowners feel like they have no recourse against their homeowners association,” Jackson said. “What it appeared to us was that they were answerable to nobody.”
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| Other stories in this series Special Report: Your Home, Homeowners associations file foreclosures, buy home in July For ongoing coverage, check www.charlestonbusiness.com/hoa |
‘No state law …’
In 2011, the bill didn’t make it out of committee and wasn’t given any hearings.
Under the bill, the S.C. Department of Consumer Affairs would regulate homeowners associations across the state. At incorporation, an association would have to register with the department and pay a $100 fee and renew its registration each year. The law also would provide a framework for open meetings, amending bylaws and record keeping. The bill requires an annual budget to be submitted to Consumer Affairs and be available to owners at their request.
Assessments couldn’t rise more than 20% year-over-year without approval from the homeowners, and late fees for unpaid assessments would be limited to the greater of $15 or 10% of the assessment.
The cap on late fees would limit homeowners associations such as Melrose Park Town Homes Horizontal Property Regime, which charges a monthly late fee equal to 5% of the total unpaid balance plus 1% interest, according to a foreclosure lawsuit filed in Charleston County. The property regime filed a foreclosure against Richard Santillo for unpaid dues and assessments in May 2009. According to court filings, the regime filed monthly late fees of $154, $180 and $204 as Santillo’s balance increased until about a year later, when the late fees were three times the cost of each monthly assessment of $212.
Santillo owed nearly $11,000 when the property regime filed its foreclosure lawsuit. Under the bill, Santillo’s monthly late fees would have been capped at $15, lowering his total debt to $7,000.
The bill also limits fines to $100 per violation, and an association can’t charge more than a total of $1,000 in fines.
The bill provides the framework for homeowners to contest fines and assessments and file complaints against their associations through Consumer Affairs, which would mediate disputes involving at least $250. Homeowners associations also would be required to hold a hearing before filing a lawsuit or fines.
Under current state law, Consumer Affairs can’t act on complaints against a homeowners association. The state agency receives few complaints from homeowners about their associations, said Danny Collins, the deputy for regulatory enforcement for Consumer Affairs, but it would expect an increase in complaints if lawmakers gave Consumer Affairs regulatory power over associations.
“What we have to tell them is there is no state law regulating homeowners associations,” Collins said. “They proposed the bill; it didn’t pass.”
Politics
In 2011, the regulatory bill didn’t receive any committee or subcommittee hearings, but two years earlier, state senators held six subcommittee hearings and one Judiciary Committee hearing.
The first subcommittee hearing brought representatives from the S.C. Homebuilders Association and the Community Association Institute, which represents the interests of property managers and homeowners associations. Both organizations and the S.C. Realtors Association opposed the bill. The AARP also was involved in hearings and negotiations and supported the bill.
“One of the things that I figured out through my time in the Senate — something this big and this broad — it’s going to be tough to get this legislation through in a state like South Carolina,” Jackson said. “A state like South Carolina, there is an inherent distrust among some people of government intervention and overly regulating things. However, I think this is somewhat different.”
Julian Barton, the director of government affairs for the S.C. Homebuilders Association, said the bill was expansive and required associations to file more paperwork and deal with more bureaucracy than they do now.
“Putting all these burdensome regulations on them was felt to be overkill for a problem that didn’t appear to be terribly large,” Barton said, adding most homeowners associations work well and responsibly. “We were not totally opposed to it, but we had some grave concerns about the bill as drafted, and we were not alone.”
John Thompson, chairman of the legislative action committee for the Community Association Institute, said his organization also opposed the bill.
Thompson said the institute opposed the registration fee, the provision for mediation and regulation by Consumer Affairs. Thompson said other recourses — like electing new board members — can be used instead of filing a lawsuit.
“We do support that it be mandatory to have an internal process where an association has to hear a grievance from an owner,” Thompson said. “But we don’t support the state being that body that hears those grievances.”
Not all organizations opposed the law.
“We were more concerned with protecting the homeowner versus the developer,” said Teresa Arnold, a legislative director for AARP. “I think most homeowners associations are fine, but I do believe that if they are not following their own rules, there has to be recourse.”
Arnold said she heard from members about issues with their homeowners associations. Eunice McAllister, a woman in her late 80s, had a dispute with her homeowners association over the cost of assessments and argued the association wasn’t taking care of the common areas. The association filed a lien, then foreclosed on McAllister’s home to recover her unpaid assessments.
“Ultimately, she lost her condo that was paid for,” Arnold said. “She was one of the people we thought about.”
The AARP argued state law needed to protect homeowners and provide independent appeals when they face fines, liens and foreclosures. An analysis by the Charleston Regional Business Journal found homeowners associations in Charleston County filed 400 foreclosures since 1996, and 68% of the cases were filed when the homeowner owed less than $5,000. Some owed as little as $332.
“It’s not an isolated issue,” Arnold said. “It’s a potential for any homeowner in a homeowners association to have a problem and to go to court with the threat of losing their home. That’s just, to me, kind of outrageous. We ought to have a little more protection as a homeowner.”
Stalled legislation
No one can pick one reason the bill didn’t pass.
“It’s always difficult to say, because it’s difficult to know what other issues may receive more priority,” said Paula Benson, senior staff attorney for the Senate Judiciary Committee. Benson has worked on the proposed legislation since its inception years ago.
During the 2011-2012 session, the General Assembly dealt with redistricting and other election issues, she said.
“I think that is one of the things that made this not into a priority issue,” Benson said. “With the new election, I think it will just depend upon what the members are hearing from their constituents. And if they are hearing an outcry from constituents that this is important, then I think it will receive recognition.”
Jackson and AARP’s Arnold said lobbying and other political activity by interested parties stalled the bill. During one committee meeting, Arnold said, AARP was the only consumer advocate.
“You have a bunch of developers coming in and the Realtors Association, and you have these large groups that have a lot of resources,” Arnold said. “You have very few consumer organizations that take this on. We needed a better balance of representatives. We needed more people from the community who will speak up about this issue if they have been mistreated by their homeowners association.”
The S.C. Builders PAC represents the Home Builders Association of South Carolina and has raised $595,000 and spent $470,000 during this election cycle, according to filings with the S.C. State Ethics Commission. The Home Builders Association of South Carolina also paid $42,000 to lobbyists during the first half of 2012 and paid nearly $26,000 for its annual HBA Bird Supper, described as a “dinner for the General Assembly,” according to ethics commission filings.
The S.C. Realtors Association Political Action Committee has raised $1.9 million and spent $1.5 million during this election cycle, and the South Carolina Association of Realtors paid $40,000 to lobbyists during the first half of 2012.
The Community Association Institute also paid lobbyists $30,000 during the first half of 2012. The AARP doesn’t have a political action committee registered in South Carolina, but the organization paid South Carolina lobbyists $13,000 during the first half of 2012.
‘Somewhat optimistic’
In December, Benson and other stakeholders, mostly representing community management, met to discuss the bill and a draft of a new bill. AARP and Consumer Affairs also sent representatives, and Benson gave each person time to discuss issues with the bills, asking them to address her and not interrupt each other so the conversation wouldn’t devolve.
Benson hoped to break the years of gridlock, and Barton of the Home Builders said the meeting lasted a couple hours.
“It was clear that there was more opposition to this than support for,” Barton said. “At the General Assembly, if you don’t have consensus, then you have a problem from day one.”
Benson said mandatory mediation at the state level was one consistent sticking point, though it didn’t get discussed because the group ran out of time.
“The only way to have something pass is (through) a consensus effort,” Benson said. “As with most things, usually it’s a compromise that everyone isn’t going to be extremely happy with but something they can live with.”
Jackson plans to reintroduce the bill during the next session.
“I feel good, because I think over the years, we’ve been able to cultivate some relationships with legislators,” Jackson said. “Usually on legislation like that, to do it right after an election is really a good time. I am somewhat optimistic that we can get something done.”
If the bill had been passed, it would have provided more protections for homeowners like Santillo and McAllister. Both homeowners associations would have been required to hold a hearing before filing their foreclosures and fees.
Under the bill, Santillo’s monthly late fees wouldn’t have mushroomed to more than three times his monthly dues.
In 2009, Melrose Park Town Homes filed a foreclosure lawsuit against Santillo for $3,000 in unpaid assessments. Two years later, Santillo owed $14,000 and his monthly late fees skyrocketed to $600.
Under the bill, McAllister could have appealed to Consumer Affairs for mediation instead of trying to fight her foreclosure — and losing — in court.
Reach Matt Tomsic at 843-849-3144.
