In a recent decision, the S.C. Supreme Court held that the“Opt-out” class action and notification procedure is the exclusive method of lass action litigation in South Carolina.  See Salmonsen v. CGD, Inc., 377 S.C. 442, 661 S.E.2d 81 (2008). 
 
    Several homeowners instituted a class action suit seeking damages arising from the application of defective synthetic stucco Exterior Insulation and Finish System ("EIFS") to residential homes in the Charleston area. On appeal the South Carolina Supreme Court addressed procedural questions concerning the certification of the class and whether certification orders were immediately appealable.

    The trial court originally established an "opt-in" notification procedure, requiring potential members of the class to "opt-in" to the suit in order to be certified as a member of the class. The Court concluded this procedure improperly excluded individuals who should be members of the class. The court adopted an "opt-out" procedure which included all potential members except those who specifically "opt-out." The Court established the "opt-out" method for all future class actions suits in South Carolina.

    The Court further held that because the certification orders affected the mode of trial, specifically limiting the availability of a jury trial, the certification orders were immediately appealable.

    This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

    A community association’s board of directors owes a fiduciary duty to the community association to make sure that the financial condition of the community association is protected. This duty requires community association’s boards to diligently pursue assessments to protect the financial integrity of the community association. Failing to collect assessments can also lead to a breach of its fiduciary duty to maintain community association property. Additionally, the directors are required to act fairly in the treatment of the community association and owners.

    Boards of directors should develop a written policy and should abide by that policy to ensure that all owners are treated fairly and equally. The policy should recognize that it is best to take quick and decisive action on the collection of delinquent assessments. A good policy consists of sending at least two letters after the deadline for paying annual assessment. In the case of monthly assessments, the first letter should be sent after the first monthly assessment is not timely paid, and the second letter after the second month’s assessment is not timely paid. Of course, this policy will need to be tailored to the circumstances of a particular community association as each community association will have different amounts for assessments, payment dates, and other demands unique to the particular community association.

    After the second demand letter is sent and before the matter is referred to an attorney, board of directors of the community association should consider having a candid conversation with the owner and discuss that the community association will foreclose if necessary. If the delinquency is not corrected at this point, it is definitely time to place the delinquency in the hands of an attorney to handle.

    The policy should also include a schedule for filing a Notice of Lien with the Register of Deeds in the county in which the property is located. If the property is for sale or if it is in foreclosure, it is important to file a Notice of Lien in order to protect lien rights.

    News of tolerance for failing to pay assessments spreads rapidly and an isolated problem with collections can become systemic if the board of directors becomes too relaxed and owners believe that the community association will not enforce assessment delinquencies.

    An assessment collection policy should provide ample warning and notice before any delinquency is turned over to an attorney for collection. Remember, the owner will be responsible for paying for any professional services charged for collection and the owner will not be happy about paying an attorney to collect the assessments. Requiring the owner to pay a lawyer to draft a single letter on a matter that could be resolved without attorney involvement may create a contentious situation that could last for many years. Owners need to be reminded that attorney’s fees, interest, late fees, and costs will be sought in the event legal action becomes necessary. An owner who fully appreciates that a $350.00 delinquency can easily cost 10 times that amount in attorney’s fees is not likely to end up in litigation unless he or she is insolvent. Once an owner’s account becomes delinquent and goes through the litigation process, they are not likely to find themselves in that situation again unless they are experiencing serious financial difficulties.

    Many times assessments are not paid in protest to the board of directors of a community association or in opposition to its policies. In these situations, a dialogue between the owner and the board of directors is necessary. Although, personalities and history may make these situations difficult with the obstinate owner, it is most cost effective to try to resolve these disputes without litigation if possible.

    In addition to legal action to collect assessments, a community association may suspend common area enjoyment rights of an owner with an assessment delinquency. The community association may also deny services, such as architectural review of proposed structures.

    If necessary, consider installment plans from owners to collect on past due accounts. Installment plans should only be accepted when an owner has demonstrated financial difficulties. Prior to entering into an installment plan, the community association should file a notice of lien in the Register of Deeds office to protect the community association’s lien rights while installments are being made. Make sure that the installment plan is in writing in the form of a promissory note signed by the owner. The promissory note should specify that the total amount due will be immediately accelerated if the owner defaults on the agreement

    This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

    Liens arising from assessment delinquencies are foreclosed in the same manner as mortgages of real property.

    The filing of a lis pendens and complaint will start the process. The community association may, or may not name any other secured parties in the complaint. It is a good practice to at least send notice to other secured parties. Some lenders will pay the assessment delinquencies and will escrow the payment and future assessments for the owner.

    An action for foreclosure will need to take place in the Circuit Court (possibly in Federal Court if owner lives out of state and debt is more than $75,000). Actions brought in Circuit Court and Federal Court will require representation by an attorney as corporate entities must be represented by an attorney. A community association may represent itself in Magistrate Court and need not retain the services of an attorney. However, a foreclosure action may not be taken in Magistrate Court and the community association will be limited to obtaining a judgment in any action to recover unpaid assessments.

    In the event an owner enters bankruptcy, the community association must discontinue its collection efforts for assessments which accrued during the automatic stay period - this includes continuing to deny use of Common Area amenities and other penalties imposed by the community association.

    Liens arising from assessment are subordinate to mortgagee liens filed prior to filing of the community association’s lien (First Federal Savings and Loan Association of Charleston v. Bailey, 316 S.C. 350, 450 S.E.2d 77 (Ct.App. 1994)). Subordination to the mortgagee in this situation does not excuse the owner of the assessment delinquency. The owner is still personally liable, and all assessments subsequent to foreclosure deed apply to the new owner. Mortgages recorded prior to recording of Notice of Lien for a Lot extinguish the community association lien when foreclosed upon. First Federal Savings and Loan Association of Charleston v. Bailey, held that community association’s lien did not relate back to filing of the Covenants, Conditions, and Restrictions, but rather it arose when the assessments became past due.

    This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

    The S.C. Horizontal Property Act provides measures for collecting delinquent assessments.

S.C. Code Ann. Section 27-31-210 provides in part:

    The Act permits community associations to seek foreclosure and to sue for a judgment. In actions to foreclose on a condominium only, the community association is also permitted to collect rents.

    Additionally, other remedies or procedures may be created through the Covenants, Conditions and Restrictions.

    This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

    Liens for non-payment of assessments to a community association can arise under two different situations. First, the S.C. Horizontal Property Act provides a statutory basis for the creation of liens in the case of condominiums only. Second, liens may arise by contract through the Covenants, Conditions, and Restrictions.

S.C. Code Ann. Section 27-31-190 of the S.C. Horizontal Property Act provides as follows:

    In addition to this code section, the master deed likely creates additional bases for liens and assessments. When dealing with condominiums, always refer to the Covenants, Conditions, and Restrictions of the Master Deed in addition to the S.C. Horizontal Property Act. Both will need to be considered to determine the bases, procedure, and limitations for imposition of assessments.

    This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.