BLOGS: North Carolina Land Use Litigator

Wednesday, October 15, 2014, 4:19 PM

Nevada and D.C. Courts Give Priority of Position to HOA Assessment "Superliens" Over First Mortgages

Mortgage lenders beware.

In late August, the D.C. Court of Appeals rendered a decision in Chase Plaza Condominium Association, Inc. v. J.P. Morgan Chase Bank, N.A., CA-5826-10 (August 28, 2014) determining that a homeowner's association's (HOA's) statutory "super-priority" lien, or superlien, for unpaid assessments took priority of position over other liens, including a lender's mortgage lien.  Read that again: not just priority of payment, but priority of position for these HOA assessment superliens.

In jurisdictions (like D.C.) that have adopted these "superliens" -- there are some 20 jurisdictions, in varying definitions -- the HOA assessment superlien has priority over mortgages and deeds of trust, even if senior or preexisting, "to the extent of common expense assessments ... which would have become due in the absence of acceleration during the [six] months immediately preceding institution of an action to enforce the lien."  D.C. Code 42-193.13(a)(2).

Last month, the Nevada Supreme Court followed suit and concluded in SFR Investments Pool 1, LLC v. U.S. Bank, N.A., No. 63078 (Sept. 18, 2014) that the Nevada HOA lien statute is based on the Uniform Common Interest Ownership Act of 1982 (along with at least seven other states: AK, CO, CT, DE, MN, VT and WV; NC is not such a state).  To that extent, the Nevada Court concluded that a portion of an HOA assessment lien was superior in position -- position priority -- to a first deed of trust and rejected the lender's argument that the statute only afforded a payment priority to the HOA and its superlien.

What is the actual impact?  Well, if the HOA forecloses its superlien, not only does it collect its debt, but it eliminates or "wipes away" the first mortgage or first deed of trust, as well as any other junior liens on the property.

What is the practical impact?  Lenders with first position are forced, in most cases, to pay off the HOA's assessment superlien in order to preserve the first position.  If not, and foreclosure is completed, the sale price can sometimes fall "at an amount equal to or slightly above the HOA dues in arrears", as reported by the Wall Street Journal.

The justification for these HOA superliens is quite simple: HOAs are critical to the preservation of the value of the community, and should wield significant authority to ensure that they receive the funds necessary to maintain the community and, so, real estate valuations.

The significance of that ruling for lenders, borrowers and HOAs cannot be understated in states granting these HOA superliens.  For HOAs, these cases cement the power they have to obtain payment for past due assessments.  For lenders, on the other hand, enforcement strategies must change and underwriting and loan documentation practices must evolve.    

The lender in the Nevada case has petitioned the State Supreme Court for reconsideration; we can expect a move to the Supreme Court of the United States if that bid is unsuccessful.  The stakes are just too high, it seems.


Mike Thelen practices in Womble, Carlyle's Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.

Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw and "like" us on Facebook here.

Labels: , ,

Monday, October 13, 2014, 11:46 AM

N.C. Federal Court Dismisses as Unripe a Takings Claim Based on Land Use Issue

Today's blog post comes directly from The Law of the Land blog, from our prolific and brilliant friend Dean Patricia Salkin of the Touro College Jacob D. Fuchsberg Law Center.

Today's piece digests a recent decision from the U.S.D.C. for the Eastern District of North Carolina dismissing as unripe a takings claim against the City of Raleigh.  Plaintiffs claimed the City "forced" them to give a public access right of way "in order to get a building permit", even citing Lanvale Properties LLC v. County of Cabarrus, 366 N.C. 142 (2012) in opposition to the City's dismissal motion.  The City, on the other hand, successfully argued that the plaintiff's did not "obtain[] a final administrative decision" from the City before filing the takings, due process and equal protection claims against the City, rendering the lawsuit unripe.

We're always excited when a land use issue -- here, the dispute over a building permit and the conditions thereto -- is the basis for a takings claim against a local government.

To Professor Salkin:

CarSpa Automotive, LLC, Marjorie Putnam, and Carl Deny (collectively, “plaintiffs”) filed a complaint against the City of Raleigh, North Carolina (“City”), claiming that the City had taken their property without paying just compensation, deprived them of property without due process of law, and denied them equal protection. Plaintiffs contended that the City “forced Plaintiffs to give a public access right of way in order to get a building permit for their property and as a result, their business had not been profitable".

The City contended that plaintiffs’ claims were unripe because the plaintiffs had not obtained a final, reviewable decision from the City or sought compensation through state-law procedures for obtaining just compensation.

The federal district court noted that a takings claim is not ripe for adjudication in federal court unless the plaintiff has obtained a final administrative decision regarding the application of the challenged regulations to the property, and has sought and been denied just compensation through the available and adequate state procedures. Williamson Cnty. Regional Planning Comm'n v. Hamilton Bank of Johnson City, 473 U.S. 172, 186 (1985). Here, plaintiffs had not obtained a final administrative decision or been denied just compensation.

As for finality, where the regulatory regime offers the possibility of a variance from its facial requirements, a landowner must go beyond submitting a plan for development and actually seek such a variance to ripen his claim. Here, property owner could have appealed to the Board of
Adjustment for a variance from the City’s ordinances but they did not. Accordingly, the court held the plaintiffs had not obtained a final administrative decision. This failure also barred their due process and equal protection claims.

Plaintiffs argued under Sherman v. Town of Chester. 752 F.3d 554 (2d Cir.2014), the finality requirement should not apply because the City had behaved badly throughout the permit process. In Sherman, the court held that a takings claimant was not required to satisfy Williamson County’s finality requirement because the defendant Town had used “repetitive and unfair procedures” to avoid issuing a final decision. Here, plaintiffs’ conclusory allegations of the City’s “bad behavior,” were insufficient to exempt them from obtaining a final administrative decision.

Alternatively, even if the final-decision requirement were waived, plaintiffs’ takings claim would still not be ripe because plaintiffs had not been denied just compensation. To satisfy Williamson County’s state-procedures requirement, plaintiffs “must not only file a state law inverse condemnation claim they must also be denied just compensation through a final adjudication in state court.” Town of Nags Head v. Toloczko, 728 F.3d 391 (4th Cir.2013). Here, the plaintiffs had not pursued the available and adequate procedures North Carolina provides for seeking just compensation. Accordingly, their takings claim was not ripe.

The case is CarSpa Automotive, LLC v. City of Raleigh, No. 5:14-CV-21-D (E.D.N.C.).  The Order dismissing the lawsuit for lack of subject matter jurisdiction can be viewed here.


Mike Thelen practices in Womble, Carlyle's Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.

Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw and "like" us on Facebook here.

Labels: , , , ,

Friday, October 10, 2014, 2:45 PM

Asheville City Hall's Celebratory "Rainbow Flag" Challenged on Basis of Local Government Powers

All are presumed to know about the recent activity around the legal issue -- not the human issue, the legal issue -- of same-sex marriage.

In Asheville, in response to the coming legal change, the City Council earlier this week placed a rainbow flag on City Hall.  You can read about the decision here.  The image below is of that flag.

Well, today, Carl Mumpower, a former member of the Asheville City Council, and Chad Nesbitt, the former chair of the Buncombe County (in which Asheville sits) G.O.P. party, jointly and publicly expressed disagreement with the City's decision to fly the rainbow.

You can read about the criticism here.

The reason we find this interesting is not at all because of political predilections, and even less so because of the moral, religious and philosophical disagreements that come to bear on the topic of same-sex marriage. Rather, we find this interesting because Messrs. Mumpower and Nesbitt challenge the act of flying the rainbow flag on the basis of local government powers.  Specifically, they take aim at (1) the City Council's decision to instruct the City Manager to fly the flag, which they allege violates the City Charter provisions separating the legislative powers held by the Council from the operational powers held by the City Manager; and (2) the City Council cannot, either arbitrarily or on an emotional whim, instruct the City Manager on operational issues unless the Council goes through the proper legislative process, including advertisement and public hearing.

Local government powers are constantly at the fore.

  "A little to the left.  A little more to the left.  A little bit more to the left.  There!  Perfect."

Mike Thelen practices in Womble, Carlyle's Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.

Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw and "like" us on Facebook here.

Thursday, October 9, 2014, 5:10 PM

Raleigh and Wake County Websites Recognized Among Best, Nationwide

As any good business knows, a good website is critical.  A good website provides an impression, serves at a repository for information, functions as a means of communication and works as a vehicle for a transaction, among other important uses.

A local government website is no exception.  The municipal laws?  The address of the parks department?  The baseball field's hours?  The next meeting of the board of adjustment?  Paying a water bill?  All can be found or achieved through a good website.

What does this have to do with land use or litigation, you ask?  Well, tons and tons.

In the land use space, a good local government website is critical.  The zoning map?  The next agenda for the upcoming meeting of the governing board?  The minutes from the last meeting of the planning board?  The geographic information system (GIS), or other means of gathering property information? All of this is available at the local government offices, sure, but efficiency and even accuracy can be enhanced when the information goes digital and can be accessed on a website.  We spend a great deal of time researching local government websites for information whether we are working with, for or against a local government in the land use space.  Better information leads to better government, better development and better communities.  And a good website can provide and deliver that better information.

The City of Raleigh, where the Land Use Litigator is based, was recently recognized as one of the 10 Best Local Government Websites for 2014 by Government Technology and eRepublic's Center for Digital Government.  For its part, Wake County, in which Raleigh sits, is named in the top 5 of the best county government websites.  The rankings for the Digital Government Achievement Awards can be seen here.



Mike Thelen practices in Womble, Carlyle's Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.

Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw and "like" us on Facebook here.

Wednesday, October 8, 2014, 1:44 PM

Land Use By Another Name?: Local Governments Seek to Tax Softdrinks By Ballot Measure

Our regular readers will know that this blog is as much about land use, specifically, as it is about local government powers, generally, and the direct and indirect impacts on land use.

Voters in two California cities -- San Francisco and Berkeley -- will go to the polls next month to consider a city tax on soft drinks.  Specifically, San Francisco voters will consider a "more aggressive" $.02 tax per ounce, with the tax proceeds going to the City and channeling into health and wellness programs.  Berkeley voters will consider a "taker" $.01 tax per ounce, with the taxes going into the City's general fund.  Such voter measures have not had much success in the U.S., with a measure recent failing in Telluride, Colorado, for example.   We don't know of successful or unsuccessful legal challenges.

These taxes are interesting to us insofar as it represents another means by which a local government could endeavor to control land uses, though with a different power.  For example, we've seen in the past the efforts by local governments in North Carolina to control the existence or location of the promotional sweepstakes industry within municipal borders through the use of the privilege license tax powers.  Could this paradigm we're seeing in California replace the since-repealed privilege license taxing power?

We have not reviewed whether such ballot measures would be legal in North Carolina, but it is worth noting that one of the players in the polling used to support California tax measure is our own flagship University in Chapel Hill, as reported by The New York Times.


"If we tax this an additional $.02, that would double its cost of production."

Mike Thelen practices in Womble, Carlyle's Real Estate Litigation and Land Use practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.

Follow the North Carolina Land Use Litigator on Twitter at @nclanduselaw and "like" us on Facebook here.

Labels: ,

back to top