Most community associations already know the Planned Community Act allows them to place a lien on a delinquent homeowner's property and foreclose on that interest. 

But to do so, associations must comply strictly with the statute governing that process.  In a case highlighting the perils of non-compliance, the North Carolina Court of Appeals recently awarded a homeowner damages and attorneys' fees because the association failed to properly conduct a foreclosure. 

The Georges owned a home in the Crossings Community subdivision, a planned community in Charlotte, North Carolina.  They were past due $204.75 on their account, so the association placed a claim of lien against their property.  Shortly after filing the lien, the association initiated a foreclosure and eventually sold the property at auction to an investor.  The investor then sold the property to another entity for $150,000.  That entity undertook to demolish and remodel the home.  The entire foreclosure process was conducted in a few months. 

But in its haste to foreclose, the association failed to serve the Georges by personal delivery with the Notice of Foreclosure.  Rather, they served the Georges' daughter.  This was not good service under the statute, despite the Georges likely having actual knowledge of the pending foreclosure.  The fatal service error became the basis to unwind the foreclosure and award the Georges compensation for all damages caused by the faulty foreclosure. 

The Court has not ruled on the total damages the association will have to pay the Georges, but the Court considered the Georges' request to recover (i) their living expenses while they were displaced from the home, (ii) any lost rental income, (iii) the unpaid property taxes that accrued, (iv) and the costs to restore the home to its pre-foreclosure condition.  

In addition, because of the broad application of the reciprocal attorneys' fee provision in the Planned Community Act, the Court also held that the Georges could recover their reasonable attorneys' fees as the prevailing party in the lawsuit.  What started as a delinquent balance of $204.75 will end up costing the association a whole lot more. 

Community associations must remember that the foreclosure process requires strict compliance.  "Close enough" or "no harm, no foul" won't cut it, and the consequences of non-compliance are more than simply returning the property to the homeowner.  Rather than collecting dues, a sloppy foreclosure can lead to an association incurring legal expenses defending itself and paying damages and legal fees to the delinquent homeowner.  This case is a cautionary tale that should make every association board shudder.  What started as a $200 debt in 2016 turned into litigation that went twice to the Court of Appeals twice and once to the North Carolina Supreme Court.  Six years later, the case isn't over, but the result is clear:  the association is going to be writing a big check to the Georges. 

By developing a detailed checklist to foreclose on a claim of lien, and understanding the legal requirements of each step in the process, an association can decrease the chance of facing liability for a botched foreclosure.