(00:00) Speaker: It's time for AMG's 2024 Community Leaders Series Podcast Edition. Over the last three decades, AMG has worked to make the role of community leaders more effective and less of a headache. Seminar topics are a response to which our Executive Board members have requested. And now here's your host and CEO of AMG, Paul K. Mengert.

(00:23) Paul K. Mengert:  Welcome, everyone, to AMG's 2024 Community Leaders Series podcast edition. Our topic for this episode is Association Fines, and I'm pleased to have with me today Harmony Taylor as our special guest. Harmony is a partner with Law Firm Carolinas. She works out of the Charlotte office but practices across North Carolina. Her firm also represents associations in South Carolina, however, today's topic is really geared for North Carolina associations from the legal perspective, although some of the practical tips certainly apply everywhere. Harmony's practice focuses on representing community associations on litigated and non-litigated matters. She regularly speaks to boards, managers and owners of community associations, including at North Carolina’s CAI Law Day, the National CAI Conference, and the CAI Law Conference, which is held annually around the United States. She possesses extensive experience in interpretation and enforcement of governing documents, collection of unpaid assessments, board and membership procedures, and compliance. It's a true honor to have you with us today, Harmony. And, of course, some of you know that Harmony and I serve together on the CAI North Carolina Legislative Group. So, we have a somewhat unique perspective behind the curtain of what the legislature is thinking about some of these things. Harmony, it's so good to have you with us today.

(01:37) Harmony Taylor:  Thank you so much, Paul. It's my pleasure to be here.

(01:40) Paul K. Mengert:  Let's jump right in. We have a number of community leaders and board members ask us about the fining process that is authorized for North Carolina planned communities and condominiums. And I understand the boards can levy fines that can ultimately lead to foreclosures.  Tell us a little bit about how this works, why the legislature set it up and what the procedure might look like.

(02:10) Harmony Taylor:  Certainly, Paul and you and I both know from our legislative work that the legislature has been looking carefully based upon some owner concerns, that the fining process in this state. Fines are a very important mechanism that associations use to secure enforcement of their governing documents. Almost all associations, condominiums and planned communities in this state are set up as nonprofit corporations, and they don't have large legal budgets to go out and pursue enforcement through the civil courts every time someone fails to honor the contractual obligations that they agreed to when they purchased their property. And that's a good thing. We don't want associations involved in lawsuits all the time. That's where fines come in, because fines are an important mechanism to secure enforcement of the various rules and regulations of the association, whether they're set out in the covenants or in some rules that are adopted pursuant to board authority. Fines allow the association after notice and opportunity for hearing, to fine someone up to $100 per day per violation when someone is not following the various rules that they have. And that can be,

(03:17) Paul K. Mengert:  Harmony, let me jump right in, because you said something that's important that I think is often misunderstood. After holding a hearing is there any way to do a fine without holding a hearing, in the state of North Carolina?

(03:30) Harmony Taylor:  There really isn't, Paul. Sometimes you have covenants that have very specific mechanisms for their enforcement, and we'll give an alternative procedure, but it always requires a level of due process so that no one is getting fined without knowing about it. They have to get some notification of the violation in advance and some opportunity to speak to the board of directors or the administrative group that's deciding this before that can be imposed.

(03:58) Paul K. Mengert:  And, you know, while occasionally we get pushback on holding a hearing, I really, you know, first of all, you have to do it by statute unless under very rare circumstances, like you said, and then even then, you better check with your attorney because it's not going to be looked well upon if you didn't have the hearing. But what I find is, while the hearing is somewhat of an administrative burden for the community leaders, I would guesstimate in 85% of the cases where a homeowner shows up for the hearing, the matter gets resolved. So, if you're looking for resolution, the hearing often is all you have to do to get this resolved. You know, it's just it handles misunderstandings, and it communicates the problem. And often, you know, I just can't tell you the number of times I've had people show up and the person who's being accused of violating says, I just didn't understand, and I'll fix it. I'm so sorry. I mean, that's the usual outcome of a hearing in my experience.

(05:00) Harmony Taylor:  That's absolutely true. And I think it's important to note that no association budgets, assuming they're going to get fines, associations don't want to collect fines. They want compliance with the governing documents for the benefit of all of the owners in the community. So, if that fine process gives an opportunity for communication and this to be resolved, that's the desired outcome. If I may, I'll give a perfect example from my own community where I serve on an architectural review committee.  There has been a violation ongoing in my community. And a hearing was scheduled for this coming Monday. As I was driving to work this morning, I see that the homeowner has corrected the violation. There will not be a fine there. The hearing will be canceled, and everyone will be appreciative of the owner of coming into compliance with what they said. It's a perfect opportunity to show how that hearing, though, pushed this toward a resolution which got everyone where they needed to be, in compliance with the governing documents.

(05:56) Paul K. Mengert:  Absolutely. If, uh, our experience at AMG is if people if communities will follow the fining procedure as it is envisioned, it really works very well to resolve the problem. And of course, and please correct me if you think I'm misstating this, but the process would begin with a notice that articulates what the problem is and how you can resolve it. The next step might be to have them called to a hearing where you would further explain those issues and give people the why. After the hearing, you have to send a detailed notice of the result of the hearing. And AMG recommends to our clients that that communication come from the law firm. We recommend that for a couple reasons. One is we're now at the stage we want to make sure that we really have the i's dotted, and t's crossed, and we haven't missed something. And also, our experience is when homeowners get a letter from a lawyer saying there's been a hearing and there'll be these fines. It's taken differently than if they get it from the board and the manager. I'm not going to go through all the steps after that because it gets turned over. If the fines don't, if it doesn't get resolved or, uh, handled at that point, it usually needs to go to the attorney that will then do a, uh, collection and enforcement process. Do you have anything to add to that before we go to our first newsbreak today.

(07:23) Harmony Taylor:  I'll just say, Paul, that my firm works with over 2000 associations through North and South Carolina, and the vast majority of the situations that we see, either the issue gets resolved prior to or at the fine hearing or shortly thereafter, and we always encourage associations and their boards to look at those fines as something that should be waived once the compliance has occurred, unless there is some extreme situation that would warrant otherwise.

(07:54) Paul K. Mengert:  And as you know, AMG recommends the same thing that the fine is a tool to gain compliance, not a revenue source. Absolutely. So, we would always recommend the same thing if the problem is resolved, waive the fine. It's a good neighborly thing to do. And it will bring it will bring the homeowner who it was once in violation more into the fold. And listen, these rules and regulations and covenants, they were all set up to protect the rights of the owners and help them with their property values.

(08:23) Harmony Taylor:  Definitely.

(08:25) Paul K. Mengert:  I thank you, Harmony. We're going to take a break from the AMG Community Leaders Series and go to an interesting newsbreak. I'm Paul Mengert, and we'll be right back.

(08:37) Speaker:  And now it's time for your HOA Solutions Today newsbreak.

(08:42) Newsbreak:  HOAs are grappling with significant financial burdens due to new regulations. Earlier this year, New Jersey became the second state, following Florida, to enact legislation aimed at protecting the structural integrity of condominiums and cooperative buildings. This move was in response to the tragic collapse of the Champlain Towers South condominium in Surfside, Florida, in June 2021. New York City's stricter environmental laws and New Jersey's updated structural safety standards are prime examples of city and state mandates that can have serious financial impacts on associations, whether they comply or not.  Concurrently, the federal Corporate Transparency Act's stringent reporting requirements and hefty financial penalties have led the Community Associations Institute (CAI) to advocate for exemptions for community associations.  Let us know your thoughts by leaving a comment at HOACommunityleaders.com.

(09:33) Paul K. Mengert:    Well, thank you everybody. We're back. I'm Paul K. Mengert and I'm here with Harmony Taylor from Law Firm Carolinas discussing fines and the fining process in the state of North Carolina. Harmony, again, thank you for being here. Tell some of our listeners about extreme cases that they may just find interesting, or particularly if you can point out pitfalls of how they got to be extreme cases. And of course, we believe that if associations are following a good, due process, that the chances of getting to an extreme case are relatively minor.

(10:09) Harmony Taylor:  Certainly. Well, I think it's important to note that perception is often not reality when it comes to community associations. The vast majority of community associations have never been involved in any legal disputes at all because, as we talked about before, enforcement issues tend to get resolved before court, and we certainly consider that a positive outcome.  In extreme cases, however, you have the parties so entrenched and so unwilling to compromise that litigation is necessary. And when that occurs, both the Planned Community Act, the Condominium Act and governing documents tend to have mechanisms in place for that to happen. Thinking about some specific examples where litigation has been necessary, we have seen that where, for example, someone was making a commercial use of their property and absolutely refused to stop, for example, running a party venue out of a residential community that interfered substantially with the ability of the other owners to use their own property. We've also seen situations where owners refuse to comply with architectural restrictions and constructed items within the community that were blatantly in violation of the covenants, not subject to approval by the Architectural Committee, in which interfered with the use and rights of others as well. In those circumstances, all of them, documentation is essential. Documentation of the violation of all of the community action attempts that were made to the owners, and their lack of response or their responses to that. In addition, we always want to see clear authority in governing documents. Our firm and good managers always say to the association before any enforcement action is undertaken, how do we very carefully identify the basis for violation that would give us legal grounds to move forward? And of course, boards need to understand that they are a representative body of the association. They act by and at the direction of their members, and they are held to a higher standard in their conduct toward their members. We all know that owners who are in violation or in legal disputes with associations may be rude, condescending, or really difficult to work with, but the boards of directors and their managers have to stay above that fray to be courteous and to be careful with their communications. Snide comments aren't helpful. We always want to make sure that we are treating people respectfully, even when they're not providing the same courtesy to the board, so that at all times, the board and its manager can be proud of what they have done, even if the owner should not be proud of their own actions.

(12:38) Paul K. Mengert:  Harmony, that is, uh, you great guidance, I, I believe, and it brings to my mind, a situation I personally had. I own a rental property that's in a condominium association, and I have a very good tenant that's very respectful person, that's, uh, been a long-term tenant. And I got a notice from the, uh, manager, not AMG, but from the manager of the condominium association saying that they were storing junk and unsightly items on the balcony, and I, which is against that association's rules and for understandable reasons. But my first reaction was, there is no way this person would be doing that, until I opened the picture that was attached to the violation warning. Um, once I had the picture, it changed my mind about how I felt about the situation. So, documentation is key not only for you, like going to court kind of enforcement, but just by gaining compliance because, uh, sitting in the manager's chair, I've had many times when we've brought in an absentee owner who genuinely wasn't aware of the problem or didn't believe it existed until we kind of showed them the evidence. But by the way, I want to mention that a few years ago, AMG did a bit of a survey. It was somewhat informal, but I think it, uh, did, I think the results, uh, gave a fairly good indication. We went back through a couple years of data of where fine, not fine, but hearing notices had been issued looking for what percentage were absentee owners versus owner occupants and then kind of comparing that to the overall. And one of the things that we found that I think was very interesting is there was not a disproportionate number of violations in properties that were rented. So, I know a lot of times boards are concerned about the renters will be in violation of the association rules. But when AMG did that study, we did not find that to be the case.

(14:43) Harmony Taylor:  That's an interesting point. I will say that's generally consistent with my own experience as well. And I do think that often associations have something of a knee jerk reaction out of concern about renters. I do think there's also an important distinction between an individual who rents out their property, like you, or a large multi-state company that comes in and perhaps has less direct interest and involvement in their rental property. Um, whenever we are looking at rental issues and enforcement, we always talk to the board about it, focusing on the substantive violation, not the nature of the tenant, of course.

(15:19) Paul K. Mengert:  Absolutely, and, uh, for our listeners who may rent property, whether it be in a community association or otherwise, I think using good procedures and screening your tenants and making sure you're doing your due diligence and homework, just like with the fines, I mean, it's really business concept that's important in many areas. Make sure you check out the tenant before you let them move in, because a lot of problems I have seen over the years could have been resolved with just a little bit of due diligence upfront and similarly with fines. I just want to emphasize, when you call people to hearings or send them a violation notice, make sure you've got documented evidence. We would never want to send a fine or hearing notice out based on somebody told us this was the case. I mean, we need to go out and have a photograph or some kind of indication beyond just she told me. And in some cases, I know it's difficult, you know, like loud noise late at night. In that case, you may have to ask a couple owners to send you an email documenting the problem so that you do have some kind of documentation, not just she told me that.

(16:32) Harmony Taylor:  Paul, I think that's a really important point, because we frequently hear from, uh, residents who want the board to take action, but they are unwilling to provide statements or any evidence, and the board simply can't do that and should not do that. And that does mean that a neighbor may have to put their name to a complaint. I understand that's uncomfortable. And often people would much rather stand behind the board and ask them to take action. But the board is simply a representative body. It can't proceed without evidence, and it shouldn't. And we always encourage people to come forward and provide a statement, and we will do what we can to handle that in an appropriate way.

(17:10) Paul K. Mengert:  By the way, one of the workarounds that I have found people don't want to put their name to something is and it's probably the right thing to do to begin with. But I'm particularly thinking about like a noise complaint. Because if you on that, you can get your documentation by calling the police and having them document it. Right. Um, and frankly, that's an interesting point that we kind of wandered into that area, because if I was going to use a decision tree on how to handle a alleged violation, I might start with one of my very early questions would be, is this also a violation of a city ordinance or a law,  and if it is a violation of an ordinance or law, I always encourage our clients to go down that branch before you go down the fining process, or at least to do them contemporaneously. Because if it is something that can be turned over to law enforcement, community associations don't carry guns. And, you know, it's a good thing and the police do. So, I'm just saying that to kind of illustrate that they've got a lot more power than the community association, but moreover, the legal process from law enforcement doesn't cost the association anything, whereas the fining process, if it gets contentious, can be a big number. Now, it's very rare in my experience that that happens. But it can be. And that's why I would go down the legal path with the police, if that is an option for you.

(18:35) Harmony Taylor:  Absolutely.

(18:36) Paul K. Mengert:  So, we have another newsbreak. Again, I'm Paul Mengert, and I'll be right back with the Community Leaders Series after this newsbreak.

(18:44) Speaker:  And here’s another HOA Solutions Today newsbreak.

(18:46) Newsbreak: Despite concerns over the absence of on-site affordable housing, a 23-story, 240-unit condo development project in Fairfax County, Va., has been given the green light with an 8-1-1 vote. However, some supervisors conceded that county staff were justified in recommending the denial of the application, primarily due to the prospective developer's proposal to offer cash or off-site workforce housing in place of on-site affordable units. In a bid to address the issue, the developer has agreed to contribute approximately $4.8 million to the county, arguing that significant increases in condo fees could render affordable housing unattainable for owners, potentially forcing them to sell. This move has ignited discussions about the best approach to balancing upscale development with affordable housing in the area.  To read the full story visit HOACommunityleaders.com.

(19:39) Paul K. Mengert:  Welcome back folks. I'm Paul K. Mengert. I'm here discussing association fines with Charlotte attorney, Harmony Taylor, who is a partner at Law Firm Carolinas. Harmony, this has been an interesting discussion. I know as an attorney you often see extreme cases, but could you share some tips for board members on successful everyday covenant enforcement, particularly regarding education and communication and, you know, kind of drill down into what should boards be doing on the very front end to avoid having one of these extreme cases we’ve kind of been getting everybody understanding that they don't want to be part of.

(20:20) Harmony Taylor:  Certainly. And we talk about extreme cases, but you and I both know that in the vast majority of circumstances, issues are resolved well before court, often even before a hearing and based upon good work done by boards of directors. And I want to give a shout out to the many boards that are doing everything they can to follow procedures and have good relationships with their members to avoid enforcement issues in the first place. Successful boards working with their communities clearly communicate the rules of the road. They make the governing documents readily available through a management website. They have any rules and regulations accessible and communicate early and often to members. They send out updates, things such as recommendations for spring cleaning to refresh mulch to keep your yard mowed, things like that. And they provide an ability for someone to contact either the association directly or through a manager when they have any questions about what the rules are. They also adopt a clear communication strategy when there are alleged violations, often starting out with a friendly warning letter, letting the person know what the issue is and sending that in a tone of cooperation approaching that as, we have a beautiful community, we want to maintain it, these are the rules we all agreed to, and let's help get this back on track. When that is done, in many, many circumstances, people are able to get the information they need, understand that they're in violation without feeling personally attacked. And that's what's so important, because we never know how a letter will find an owner. They may have lost their job; they may have just had a terrible day. So, we always want to make sure that those communications are professional, are as kind as possible, and are ultimately designed to tell the person exactly what they need to do to resolve the issue.

(22:10) Paul K. Mengert:  I think that's really a key element. I've seen that many times, where when you ultimately talk to somebody, whether it be on the phone or in person, they often they say, just tell me what it is you want me to do to fix this. And in many cases, they're really willing to do it if you just explain to them what it is that needs to be done to resolve it. I think it's often important to also, to really be able to explain to them the why of the rule.  I remember particularly when, we don't so much anymore, but we used to have a lot of, uh, kind of concerns about the placement of satellite dishes and clearly the best way to communicate to somebody the reason we didn't want the satellite dish in front of the house was to explain to them that that decreases property values. We're not, we're not telling you we don't want it in front of the house because we just don't like to see it. We know it decreases property values, and not only does it decrease yours, it decreases your neighbors. And often the satellite dish companies just wanted to put them in the easiest place for them. There was usually no additional charge to put it in the back or on the side, or somewhere that was less visible. And often when you explained it to the homeowner that way, they came back and said, wow, thank you very much because it does look better to have it in the back. I hadn't really thought of that, and I didn't know that the company wouldn't charge me more you know, just because they had to do a little bit more work to get it in the back. So, I really like to see the manager and the community leaders almost being ombudsmen for the homeowner, and you're not necessarily just advocating for them to get whatever they want, but you're advocating for them to get what they want within the rules. And I think that's really important and for people to understand that the rules weren't put there just to be a jerk, the rules were put there really for their benefit. And explaining that, I think is, uh, is really super helpful.

(24:08) Harmony Taylor:  That's absolutely the case. You know, boards come and go over time. We like to see a consistent approach to enforcement. That's why it's always great when you've got a long-term manager relationship, so that you have that cohesion there. And people know that they have a resource to reach out to. To your point, those covenants were put in place by a developer. The boards don't have broad discretion to enforce them or not. They're a contract, and they are obligated to enforce those for the benefit of all of the owners. From time to time if rules and regulations need to be revised, they can always be amended. But everyone needs to work together to enforce and follow the rules that are in place unless and until they're changed.

(24:47) Paul K. Mengert:  Harmony, unfortunately, we're about out of time for our episode today. We're going to take our final break today, and we'll be right back and ask you to give a summary, a quick three-point takeaway of what people should remember from this episode, and I'll try to give my opinion on that also. Ladies and gentlemen, we'll be right back after this important newsbreak, talking about a battle against an HOA that's going on down in the state of Florida.

(25:13) Speaker:  And now our final HOA Solutions Today newsbreak.

(25:15) Newsbreak: Following two years of delays due to the buyer's financing challenges, an agreement to sell a 467-unit property in River North has fallen through. The collapse of the deal comes after the condo board's decision in July to terminate the $190 million sale. A board member described the process of working with the developer as "hell for the past three years." The failure of the deconversion deal has put an end to the conflict among owners, with some initially eager to sell to capitalize on favorable interest rates, while some preferred to wait until nearby office space for Google workers opened.  For more information visit HOAComuunityleaders.com.

(25:55) Paul K. Mengert:  Welcome back everyone. And as we close out today's episode with Harmony Taylor, I want to ask her to please give us three takeaways, kind of from this topic of what she thinks is most memorable or most important to remember from today's topic. Harmony.

(26:11) Harmony Taylor:  Thanks, Paul. I always love the three takeaways. First, I think it's important for associations to communicate early and clearly about what rules and regulations need to be followed and how someone can come into compliance. This is going to eliminate a lot of the concern and disconnect later on. In addition, be fair. Of course, associations need to enforce their rules and regulations fairly, and it's very helpful for us to dispel any bad feelings among the members when we are able to demonstrate that that's the case. And of course, last but not least, remember the goal. Boards should remember that the ultimate goal here is to secure compliance, not to punish someone. If we've got a situation where someone has come into compliance, remember that and to consider whether it's appropriate to waive some or all of the fines once the person has come back into compliance.

(26:59) Paul K. Mengert:  Great points, Harmony. I can't possibly top that. I will just add my two cents to it, which CAI has this saying of communicate constantly with candor and control. Remember, some of your residents moved in yesterday, so the beautiful booklet that was sent out five years ago with all the rules may not help them. It's constantly an ongoing process to keep everybody in the loop. Um, number two, explain the why to people. Don't forget the why. Keep your eye on the ball as to what you're really trying to accomplish. The third thing I'm going to add that you didn't mention in your closing, but I do think is important if things look like it's beginning to go ugly, don't wait to involve your legal counsel, because making sure that we build the foundation of an enforcement process correctly is really, really important. I've seen problems with enforcement because the original notice didn't cite the right provision in the documents, so they were fining them for really the wrong thing and an easy fix to that problem. If you'd had a little bit of legal guidance up front. I know the boards are all resistant to having to pay legal fees, but my experience is getting that guidance early is often less expensive than getting it late.

(28:17) Harmony Taylor:  That's absolutely the case, Paul.

(28:20) Paul K. Mengert:  Well, I know, I know, it's never something you want when you end up having to deal with the Court of Appeals on one of these cases. And if you do have to do that, you certainly want to make sure all the i's were dotted, and t's crossed early on. I really want to thank you for being here. This has been a great episode. I think it's very helpful to community leaders across the state of North Carolina and of course, a lot of, uh, the practical guidance, even though the law is a little different in South Carolina, the practical guidance from this certainly applies in jurisdictions other than in North Carolina. So, in closing out, Harmony, you have a final word.

(28:59) Harmony Taylor:  Just remember that enforcement exists where we need to have it. Ideally, we won't get to an enforcement strategy, but once we undertake that process, let's follow the rules. Let's be communicative and open, and hopefully we'll be able to get things resolved quickly.

(29:13) Paul K. Mengert:  I'm going to leave it with that. I'm Paul K Mengert, your host of the 2024 Community Leaders Series Podcast Edition. If you'd like to explore more episodes or access additional 2024 CLS content, please visit HOACommunityleaders.com. Again, thanks, Harmony.

(29:32) Harmony Taylor:  Thanks, Paul.

(29:34) Speaker: Thanks for listening to 2024 AMG's Community Leaders Series Podcast Edition. To find out more information on this episode, please visit HOACommunityleaders.com. This podcast is a production of BG Ad Group. All rights reserved.

• As per CAI, communicate constantly with candor and control.

• Explain the why to people. Don't forget the ‘why’. Keep your eye on the ball as to what you're really trying to accomplish.

• If things look like it's beginning to go ugly, don't wait to involve your legal counsel, because making sure that we build the foundation of an enforcement process correctly is really important.

New Laws Can Prove Financially Challenging for HOA’s

1.     HOAs are grappling with significant financial burdens due to new regulations. Earlier this year, New Jersey became the second state, following Florida, to enact legislation aimed at protecting the structural integrity of condominiums and cooperative buildings. This move was in response to the tragic collapse of the Champlain Towers South condominium in Surfside, Florida, in June 2021. New York City's stricter environmental laws and New Jersey's updated structural safety standards are prime examples of city and state mandates that can have serious financial impacts on associations, whether they comply or not.  Concurrently, the federal Corporate Transparency Act's stringent reporting requirements and hefty financial penalties have led the Community Associations Institute (CAI) to advocate for exemptions for community associations.

Va. Condo Project Advances Despite Affordability Issue

2.     Despite concerns over the absence of on-site affordable housing, a 23-story, 240-unit condo development project in Fairfax County, Va., has been given the green light with an 8-1-1 vote. However, some supervisors conceded that county staff were justified in recommending the denial of the application, primarily due to the prospective developer's proposal to offer cash or off-site workforce housing in place of on-site affordable units. In a bid to address the issue, the developer has agreed to contribute approximately $4.8 million to the county, arguing that significant increases in condo fees could render affordable housing unattainable for owners, potentially forcing them to sell. This move has ignited discussions about the best approach to balancing upscale development with affordable housing in the area.

$95M Deconversion Condo Deal in Chicago Falls Apart

3.     Following two years of delays due to the buyer's financing challenges, an agreement to sell a 467-unit property in River North has fallen through. The collapse of the deal comes after the condo board's decision in July to terminate the $190 million sale. A board member described the process of working with the developer as "hell for the past three years." The failure of the deconversion deal has put an end to the conflict among owners, with some initially eager to sell to capitalize on favorable interest rates, while others preferred to wait until nearby office space for Google workers opened.