Condo Act Mandates Uniform Assessment Procedure
Chris Burti, Vice President and Senior Legal Counsel

The North Carolina Supreme Court's opinion in the matter of In Re Johnson, 268A11, (2012) resulted from an appeal of the decision of a divided panel of the Court of Appeals, ___ N.C. App. ___, 714 S.E.2d 169 (2011). The Court of Appeals determined that the trial court was correct in granting a judgment and dismissal in favor of the respondents in a Homeowners Association (HOA) assessment foreclosure proceeding but remanded to correct other errors. The Supreme Court agreed with the Court of Appeals and the trial court that the petitioner's lien and foreclosure claim were based upon an improperly administered assessment, not a valid debt and affirmed the Court of Appeals' ruling in favor of the respondents. While the decision may have resolved the litigation, it is not at all clear that it necessarily resolved the case.

The HOA Board entered into a contract to renovate all the buildings in the older condominium development except for the newer building containing the respondents' unit. The Board levied a special assessment against the unit owners of all the buildings except the owners of units in the respondents' building. This phase of the project involved extensive repairs to the exteriors of the affected buildings including replacement of: siding, windows, and sliding glass doors; new stairways, landings, decks, and wiring; and other repairs. Subsequently, the respondents and the other unit owners in their building requested similar renovations to their building as well. The Board then entered into a contract to renovate that building including: "(1) new vinyl siding, windows, and doors; (2) renovation of the stairways and decks; (3) pylon repairs; and (4) other capital repairs and renovations." The Board approved a special assessment for the renovations in the amount of $54,000.00 per unit for all unit owners in the building. When the respondents failed to pay the full amount of the assessment, the HOA filed a notice of lien against respondents' unit and initiated foreclosure proceedings. The respondents filed an "Objection to Foreclosure of Claim of Lien", contested the petitioner's right to proceed with foreclosure proceedings and objected to the validity of the debt forming the basis of the proceeding. The respondents asserted that the assessment against them was not uniform and was not included in any annual budget or special assessment budget ratified by the Association as required by law and the condominium documents.

The original trial court transferred the matter from Brunswick County to Superior Court, Mecklenburg County "due to the complexity of the issues. "After an evidentiary hearing there, the trial court concluded that the assessment violated the North Carolina Unit Ownership Act and the Condominium's Declaration. The trial court found that the assessment was not computed in accordance with the respondents' percentage undivided interest in the common areas and facilities, concluded that it was unlawful, that there was no lawful debt as alleged and petitioner's claim of lien and resulting foreclosure of respondents' unit were invalid. The trial court dismissed the petitioner's action with prejudice and awarded a attorney's fees in the amount of $19,780.83. The petitioner appealed.

As noted, the Court of Appeals in a divided opinion vacated and remanded this matter to the trial court. ( In re Foreclosure against Johnson, ___ N.C. App. ___, ___, 714 S.E.2d 169, 170, 176 (2011). The Court of Appeals majority held that the trial court correctly concluded that petitioner's assessment against respondents' unit was unlawful because it was not uniform and was not calculated according to the respondents' pro rata interest in the common elements. The Court of Appeals also concluded that the Board did have authority to assess respondents with the costs of those renovations "exclusively" for the benefit of the unit in question. The Court of Appeals vacated the award of attorney's holding that the trial court lacked jurisdiction on the issue. The dissenting member deemed that the trial court incorrectly concluded that the assessment was "unlawful". No party objected to the trial court's findings of fact which were deemed binding on appeal.

The Supreme Court sets forth an unremarkable review of the pertinent provisions of the North Carolina Unit Ownership Act as set forth in Chapter 47A of the General Statutes and the pertinent provisions of the Bylaws and Declaration of the Condominium as amended. The Court unsurprisingly concludes that "both the Unit Ownership Act and Article XXIII of the amended Declaration require unit owners to uniformly contribute, pro rata, based on the percentage of their respective undivided interests in the common area and facilities, towards the expenses of the administration and maintenance and repair of the general common areas and facilities, and, in proper cases, of the limited common areas and facilities."

The petitioner argued that both assessments "were actually just piecemeal phases of a single larger assessment that took place over two years...levied uniformly... against...the owners ...". The majority of the Supreme Court opined that the uncontested findings of fact determined that "there were two assessments here, rather than one, and the assessments were conducted a few years apart (2005 and 2007, respectively). The 2007 special assessment, which was levied against only owners in Building 33, was not uniformly assessed against all members of the Association according to their pro rata share as required by the Unit Ownership Act and Article XXIII of the amended Declaration." The dissent took issue with this interpretation of the findings of the trial court, stating:

"Finally, the facts of this case do not require the result reached by the majority, which heavily rests on its reading of the trial court's findings of fact. Contrary to the majority assertion that the trial court found "there were two assessments here, rather than one," the trial court made no such explicit finding. Instead, the trial court found:

20. Following the annual meeting, the Board of Directors entered into a contract for the renovations of all the buildings except Building 33, and levied a special assessment against the unit owners of all the buildings except Building 33 unit owners.

. . . .

23. Sometime in the fall of 2007, the Board of Directors of Starboard approved a construction contract . . . for renovation of Building 33 . . . . The Board also approved a special assessment to be levied against the owners of the three units in Building 33 . . . .

The trial court did not find, as the majority suggests, that there were two discrete and unrelated assessments. The renovations to be made under both contracts were substantially similar: new siding, new windows and doors, new stairways and decks, and other improvements. The $54,000.00 charged to respondents was the amount Starboard would have billed them if Starboard had charged all owners for the entire project at the outset, though with a .25 percent discrepancy. These facts tend to show that the assessment levied against the Building 33 unit owners, including respondents, was indeed part of one larger transaction, and that Starboard merely waited to charge the respondents until work began on their building. The facts do not lead to the conclusion that Starboard wrongfully charged respondents, particularly to such an extent that they should be excused from their statutory duty to contribute pro rata under section 47A-12."

The majority concluded that the remaining issues addressed by the Court of Appeals were not properly before this Court those matters remained undisturbed. Three Justices joined in a dissenting opinion. They concluded: "In addition to not providing a specific assessment procedure, the Act does not provide a remedy for an improperly calculated assessment. Allowing respondents to avoid paying the correct amount of $53,865.54, as the majority does here, allows them to avoid their statutory duty to contribute pro rata for common area expenses under section 47A-12. This result defies the "'simple logic and obvious fairness that owner-members should not be permitted to demand services for which they can refuse to make payment.'" (citation omitted).

This dissent leaves us to speculate as to whether the HOA has really been foreclosed from recovery by the majority opinion...or not. The Court relied heavily on the Association Board's failure to procedurally impose a 'uniform assessment'. Clearly, the legal mandate to the Board is to impose a uniform assessment. As observed by the majority, this is a statutory requirement, one encompassed in the Declaration and incorporated into the Bylaws. It seems that irrespective of the Dissent's observation that that though the Act does not prove a specific assessment procedure and the Act does not provide a remedy for an improperly calculated assessment, that where the law imposes a duty, it implicitly authorizes all necessary powers to reasonably carry out that duty. It would seem, therefore, that the Board should be empowered at any reasonable time impose a uniform assessment against all unit owners to correct 'both' erroneous assessments and simply apply a credit for all sums actually paid by unit owners previously toward the improvements so assessed.

The trail court, the Court of Appeals and the Supreme Court never suggested that an assessment wasn't owed by the respondents. Nor does the decision (in spite of assertions to the contrary in the dissenting opinion) state that the Board has no authority to correct their mistakes. The points made in the dissenting opinion can be said to militate for an argument that the Board may even be obligated to correct its errors and adopt a uniform assessment with appropriate credit for sums paid.