From: The Wake Forest Law Review
by David Darr
Today, in Kingston at Wakefield Homeowners Association, Inc. v. Castell, an unpublished per curium opinion, the Fourth Circuit affirmed the decisions of the Eastern District of North Carolina and a North Carolina bankruptcy court finding Kim Castell, the debtor, did not have to pay $678.75 to Kingston at Wakefield Homeowners Association (HOA).
Was There a Lien on the Debtor’s House?
The only issue on appeal was whether the bankruptcy court erred in deciding that there was no lien on Castell’s real property making it unsecured debt because the HOA did not follow proper lien procedures.
Filing for Bankruptcy
On June 20, 2012, Castell filed for Chapter 13 bankruptcy. At that time, she owned the HOA $678.75 in dues associated with her ownership of real property in Kingston at Wakefield Plantation. This property was subject to the Declaration of Covenants, Conditions, and Restriction for Kingston at Wakefield Plantation (Declaration). The HOA claimed that the $678.75 was secured debt by a lien on Castell’s real property, thus not dischargeable in the bankruptcy proceeding. However, the HOA did not follow the statutory procedure of filing this lien with the county. The HOA’s claim was that the Declaration provided that the lien did not have to be filed to be effective, thus forming a valid lien without following the statutory provisions. The bankruptcy court found that there was no lien on Castell’s property. The HOA appealed and the Eastern District of North Carolina affirmed from which the HOA again appealed.
The Statutory Procedure vs. Declaration’s Procedure for Filing a Lien
North Carolina General Statute § 47F-3-116(a) states that a claim of lien must be “filed of record in the office of the clerk of superior court of the county in which the lot is located” and when filed “a claim of lien secures all sums due to the association.” However, it “does not prohibit other actions to recover sums.” In contrast the Declaration, states that unpaid dues shall become a lien on the real property, but also says that notice shall be given and recorded with the county.
No Common Law Procedure for Liens
The HOA argued on appeal that the language in the statute that allows “other actions to recover sums” points to a common law ability of a HOA to place liens on its real property and that the Declaration does not require the HOA to file a lien with the county. The Fourth Circuit disagreed with the HOA on both points. There is no common procedure way to file a lien because the statutory procedure is very specific and extensive and would preempt any common law rights. Secondly, the Fourth Circuit decided that even if there was a common law procedure for liens, the Declaration says to do the exact same thing as the statute. Both the statute and Declaration required filing with the county by their plain language. The HOA did not file with the county so no lien existed.
The Fourth Circuit Affirms
For the reasons stated above, the Fourth Circuit affirmed the decisions of the Eastern District of North Carolina and the bankruptcy court.
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Association Management Group, Inc. (AMG) encourages association to (after reasonable notice) promptly file liens to protect the association's rights, even when the debt is relatively small.
