Who is in Charge Here?

07
Jul 2014
Who is in Charge Here?

The legislature recently cleaned up a longstanding issue in the North Carolina Planned Community Act when it passed HB 330 (text).  This act, which is awaiting the Governor's signature, clarifies issues involving successor declarants.

 

When the Legislature enacted the North Carolina Planned Community Act in 1998 (Chapter 47F), it did so by adopting significant portions of the Uniform Planned Community Act. However, the Legislature did not adopt the Uniform Act in its entirety and one of the provisions originally omitted from the North Carolina Legislation has proven to be particularly problematic since the economic downturn in 2008.

 

Section 47F-3-104 of the North Carolina General Statutes relates to the transfer of special declarant rights, and for the most part, provides very little guidance. As it was adopted in 1998, it states only that; “Except for transfer of declarant rights pursuant to foreclosure, no special declarant right (G.S. 47F-1-103(28)) may be transferred except by an instrument evidencing the transfer recorded in every county in which any portion of the planned community is located. The instrument is not effective unless executed by the transferee.” The Uniform Act, in contrast, has extensive provisions that govern special declarant rights, and the liabilities that go along with them, in the event of foreclosure.

 

With the wave of foreclosure beginning in 2008, the Legislature’s omission proved to be rather significant. Many homeowners’ associations and banks were left in a lurch when the developer/declarant of a planned community went “belly up” and the bank foreclosed. Often the special declarant rights were omitted from the Notice of Sale document, which under North Carolina Law necessarily means that those rights were not transferred by the transaction. In the end, banks bought up tracts of planned communities, but the special declarant rights remained unclaimed.

 

The good news is, after all of the uncertainty surrounding special declarant rights, it seems the Legislature has thought better of its earlier omission and decided to adopt an amendment to Section 47F-3-104. The newly adopted language will resolve these issues and applies to deeds of trust and tax liens filed since 1999.

UPDATE: Governor McCrory signed HB 330 into law on July 7, 2014 at 4:15pm (SL 2014-57)