[altotyler35]

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Our HOA is located in North Carolina. When we were formed 10 years ago after the declarant went bankrupt, the first HOA board naively filed to create our HOA as a for-profit LLC. However, North Carolina law clearly states that an HOA must be a nonprofit corporation. Years later, when we looked to hire a management company, all the companies we consulted with said we need to become a nonprofit corporation before they would represent us. They had us talk to a couple of lawyers, who all advised us that as a for-profit corporation, we were not a mandatory HOA but rather a voluntary one.

Unfortunately, we were told that the conversion from a voluntary to a mandatory HOA would require 100% of the vote from every property owner, and any one of those owners could hold the process hostage. You hire a lawyer who tracks down all the owners and works with them to get them to agree, and that can cost many thousands of dollars and take quite a bit of time. Our HOA does have typical community resources, including a community septic system, so that seemed like the ticket to get people to sign. However, there are many undeveloped lots, and maybe those owners wouldn’t be so eager to pay dues if they didn’t have to.

Despite being a voluntary HOA, none of the property owners besides board members ever knew this was the situation. We’ve been operating like a typical HOA, collecting dues, electing officers, running a budget, etc. We’ve also filed liens on properties for nonpayment of dues and have assessed fines for late fees and various neighborhood violations.

Fast forward. The current board went ahead and signed us up with a management company that didn’t mind our legal LLC status. One of the things they did was have us dissolve the previous LLC and create a new nonprofit North Carolina corporation. Very few property owners, limited to only former board members, realize what was done. No vote was taken; it was just done.

Does anyone else have experience with this and what the long-term ramifications might be? I feel like if a neighbor had a beef with the HOA, they could fight it legally in court and accuse board members of some nasty legal violations. Unfortunately, if that happened, it could wreak havoc in the neighborhood, and everyone could ignore the CCRs and do what they want. For those of us aware of the situation, it seems best to keep this under wraps. This was done recently, but maybe there is a statute of limitations that will apply in the future?

[melcenaryx]

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I recommend talking to a competent lawyer who understands HOAs, LLCs, and contract law.

I agree that the board at the time messed up, but your current status may complicate efforts to undo it since the laws governing an LLC will differ from those governing HOAs. You may have additional issues that need to be unwound (e.g., have you been filing incorrect tax returns all this time). It would be easy to mess things up further if you’re not working with someone who knows what they’re doing.

[melinda_s]

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If I were researching this situation, and based on my extensive legal experience with HOAs and land use law over the last 15 years, the first thing I would want to see is what the Declaration of CC&Rs says. This document will identify whether this is a mandatory or voluntary HOA. The Declaration of CC&Rs legally binds one owner to another. Legally and at this forum: “Covenant” is another word for “contractual term.” Covenants are normally recorded with the county. Such recording serves as “public notice” to all that this “contract” exists. Meaning if one buys a lot in the community to which the covenants apply, one has agreed to abide by the covenants.

Your focus on whether this is a corporation or LLC, or converted from one to the other, is, in my opinion, misplaced.

I have doubts the attorneys said what you claim. It is possible that instead, these attorneys meant this association (call it an HOA; call it a company with members; call it a corporation; whatever) might not be subject to the NC HOA statute on account of xyz.

[spockman63]

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You have two posts asking people what I consider to be legal questions. If you are curious, it is time to hire your own lawyer and ask them the questions.

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