South Carolina BAR Journal
SC Lawyer, January 2012, #3.
Homeowners' Associations in South Carolina
South Carolina LawyerJanuary 2012Homeowners' Associations in South CarolinaBy Joseph L.V. Johnson Anyone who practices real estate law regularly knows the common pitfalls when he or she steps up to the closing table. Is the HUD-1 filled out correctly? Does the exhibit page for the mortgage actually show the property that is being mortgaged? Has the wire come through prior to disbursement? These are the common tasks that come in any given closing situation, and inevitably there will be issues with any or all of these. In the last few decades, as real estate transactions become more and more complicated, a different question has been added to the checklist: Have the homeowners' dues been paid?
Usually, the failure to pay the dues (or to figure out who is to pay the dues beforehand) is not going to be a deal-breaker when it comes to closing on a piece of property. For the most part, when people are exchanging in excess of $200,000 worth of funds or property, a few hundred dollars at most won't put the brakes on the whole deal. But the implications that come along with those funds can be far-reaching and lead to some complicated legal situations. This article will explore those circumstances and how to avoid putting yourself or your client in an uncomfortable situation.
Homeowners' associations generally
Homeowners' associations are not a novel concept in South Carolina, but in recent years they certainly have gained popularity. In the most general terms, a homeowners' association is an entity, which may or may not be incorporated, that collects funds from its individual members to help benefit all the members. The benefits bestowed upon the members may include road improvements and security, but most likely, improvements to the "common elements." The South Carolina Horizontal Property Act (discussed in more detail infra) contains a laundry list of potential "common elements" such as elevators, garbage incinerators, basements, flat roofs, yards, main walls, roofs, halls, lobbies and stairways. S.C. Code Ann. 27-31-10 to -440 (2005 and Supp. 2010). Basically, anything that anyone who is a member of the homeowners' association may use in common with other members is a "common element."
As stated above, homeowners' associations do not have to be incorporated, but frequently are as non-profit corporations. Regardless if they are incorporated or not, they typically are run like a business. Every member has a specific amount to pay, their "dues" or "assessments," either on a monthly or annual basis. These funds are collected by the homeowners' association and placed in either an operating account or a reserve account. Thereafter, the funds are used to pave new roads, make repairs, build new pools, etc.
Homeowners' associations normally are operated pursuant to some sort of declaration of conditions and restrictions (declaration) or, if incorporated, through its own set of bylaws. For property falling under the South Carolina Horizontal Property Act, the declaration is found in the recorded master deed. Within the declaration, the specific guidelines as they pertain to assessments and restrictions are outlined, as well as the enumeration of the authority of the homeowners' association. Essentially the relationship between the homeowners' association and its members is contractual in nature. Therefore, if either party violates the terms of the declaration, there may be grounds for legal action under basic contract law. Quite often, the declarations, or restrictive covenants, are recorded separately and in fact do not have to be stated within the deed for a prospective buyer. Harbison Cmty. Ass'n v. Mueller, 319 S.C. 99, 459 S.E.2d 860 (Ct. App. 1995). The idea of homeowners' associations seems entrenched under a simple premise, but as referenced earlier, there can always be obstacles. Most conflicts that arise under a homeowners' association regime are normally derived from one of two sources: assessments or restrictions.
Every property owner within the specific geographical area that falls under the purview of the homeowners' association, whether it is a condominium, subdivision, single-family home or any other real property scheme, must be a member of the homeowners' association. The duty to join the association comes along with acquiring the piece of property. To some buyers this may seem off-putting, but quite literally, it comes with the territory.
The fees that are due from the property owners vary depending on the property itself. Naturally, the more luxurious and expansive the common elements are, the more expensive the fees will be. As stated above, the actual amount due will be enumerated within the declaration. Inevitably there will be a situation in which the property owner disputes the fees due or simply...