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.
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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.
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.
S.C. Code Ann. Section 27-31-210 provides in part:
"(a) All sums assessed by the administrator, or the board of administration, or other form of administration specified in the bylaws, but unpaid, for the share of common expenses chargeable to any apartment shall constitute a lien on such apartment prior to all other liens except only (i) tax liens on the apartment in favor of any assessing unit, and (ii) mortgage and other liens, duly recorded, encumbering the apartment. Such lien may be foreclosed by suit by the administrator, or the board of administration, or other form of administration specified in the bylaws, acting on behalf of the council of co-owners, in like manner as a mortgage of real property. In any such foreclosure the apartment owner shall be required to pay a reasonable rental for the apartment after the commencement of the foreclosure action and the plaintiff in such foreclosure shall be entitled to the appointment of a receiver to collect such rents. The administrator, or the board of administration, or other form of administration specified in the bylaws, acting on behalf of the council of co-owners, shall have the power to bid in the apartment at foreclosure sale and to acquire and hold, lease, mortgage and convey the same. Suit to recover a money judgment for unpaid common expenses may be maintainable without instituting foreclosure proceedings."
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.
S.C. Code Ann. Section 27-31-190 of the S.C. Horizontal Property Act provides as follows:
"The co-owners of the apartments are bound to contribute pro rata in the percentages computed according to Section 27-31-60 toward the expenses of administration and of maintenance and repair of the general common elements and, in the proper case, of the limited common elements of the property and toward any other expense lawfully agreed upon.
No co-owner may exempt himself from contributing toward such expenses by waiver of the use or enjoyment of the common elements or by abandonment of the apartment belonging to him."
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.
The appellants’ claim for negligence was also denied. The Court held that since the respondent built the home for himself he did not owe a duty to any future purchaser when no such sale was reasonably expected.
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The buyer subsequently sued the seller for intentional infliction of emotional distress, defamation, and violation of S.C. Code Ann. §16-17-430 (unlawful communication). The seller moved to compel arbitration as was stated in the contract. Both the trial court and the South Carolina Court of Appeals ruled that the motion to compel arbitration be denied. The South Carolina Supreme Court affirmed the lower courts’ decision based on the buyer’s inability to foresee the seller’s actions associated with the tort of outrage. This reasoning along with the similar very recent South Carolina Supreme Court ruling in Aiken v. World Fin. Corp. of S.C., 644 S.E.2d 705 (S.C. 2007),led the court rule in favor of the buyer by rejecting the motion to compel arbitration. The court wrote that when "...uncivilized acts ... arise in the course of performance of contracts containing arbitration clauses, South Carolina courts will not interpret arbitration clauses to apply to such acts which are outrageous and unforeseen."
The court quoted the following language from its opinion in the Aiken case which summarizes the rule applied in this case: "Because even the most broadly-worded arbitration agreements still have limits founded in general principles of contract law, this Court will refuse to interpret any arbitration agreement as applying to outrageous torts that are unforeseeable to a reasonable consumer in the context of normal business dealings.
Many declarations forming community associations contain arbitration clauses. It is important to understand that an arbitration clause may not cover every dispute that might arise.
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.
In Concerned Dunes West Residents, Inc. v. Georgia-Pacific Corporation, 349 S.C. 251, 562 S.E.2d 633 (2002),the South Carolina Supreme Court held that a developer has a duty to ensure that the roads and other common areas are in good repair at the time ownership of the common areas are transferred to a property owner’s association or to provide the association with sufficient funds to bring those common areas up to standard as of the date of the transfer. The court also held that the developer was responsible for making up all shortfalls in the POA’s operating budget up to an amount equal to the assessments which would have been generated by property owned by the developer during the period that the developer exerted de facto control over the POA.
The basis for the decision in Dunes West derives from a Court of Appeals decision from 1993. In Goddard v. Fairways Dev. Gen. Partn., 310 S.C. 408, 426 S.E.2d 828 (Ct. App. 1993), the court held "that the developer of a planned unit development owes a fiduciary duty to the property owners association and its members, much like that owed by promoters of a corporation to investors." The Supreme Court in Dunes West found that both developers and promoters "are entrusted by interested investors to bring about a viable organization to serve a specific function." Dunes West, at 257, 562 S.E.2d at 636. The court also found that "[b]oth should be expected to use good judgment and act in utmost good faith to complete the formation of their organizations."
In conclusion, these decisions from South Carolina’s court show that a developer has a fiduciary duty to the property owners association and its members. The developer will be responsible for transferring roads and common areas in good condition or to provide the association with sufficient funds to bring them up to standards by the date of transfer. A developer who breaches this duty will be liable to the association "for all damages proximately flowing from the breach, including damages for the continued deterioration of these areas."
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