June 26, 2015
by Lanée Borsman
Hutchens Law Firm
USFN Member (North Carolina)
Chapter 47 of the North Carolina General Statutes, which deals with the lien of homeowner and condominium association (HOA and COA) dues, was amended in 2013. [House Bill 331/Session Law 2013-202.]
North Carolina is not a “super lien” state. When the holder of a first mortgage forecloses, the purchaser at the foreclosure sale has, historically, been liable only for dues incurred from the date of the “acquisition of title” to the property. Until this legislative amendment, the recording date of the trustee’s deed has been used to determine the date of “acquisition of title.” This was true even on an FHA loan where the assignment of the bid to HUD could mean a delay in the recording of the trustee’s foreclosure deed for a long period of time. The purchaser at the foreclosure sale was not liable for any dues until the trustee’s deed was recorded, and the liability for any past-due amount prior to that date was pro-rated among all of the property owners.
Homeowners associations across the state rallied against the burdens being placed on the rest of the property owners as a result of delays in recording the trustee’s deed. The change came via clarification of the definition of “acquisition of title.” The amendment provides that the date used to determine this is the day the “rights of the parties become fixed,” otherwise known as the end of the upset-bid period, or confirmation of the sale, which is typically 10 days after the sale date. So, whether or not a trustee’s deed is immediately recorded, the liability for dues shifts to the purchaser at confirmation.
North Carolina is a one-deed state, so an assignment of the bid is all that is needed to record the foreclosure deed directly into HUD. The dilemma for servicers of FHA loans is whether to elect to move to a two-deed process rather than wait for conveyance instructions to record a deed. If record title is vested in the servicer, notification of delinquent HOA dues or any foreclosure of those dues would be required. Without a recorded deed, it is unclear whether the purchaser at foreclosure would be entitled to such notice. While more expensive, recording a pre-HUD-conveyance deed may be the best protection for servicers (who don’t want to risk losing the property to unpaid HOA dues) after they have gone through the process of completing a foreclosure.
Copyright © 2015 USFN. All rights reserved.
Summer USFN Report