The North Carolina Supreme Court Reaffirms 2021 Decision Which Extinguished Land Use Restrictions

As some of our readers will recall, the HOA world entered a collective state of fear in the middle of May 2021 when C Investments 2, LLC vs. Auger bore into the public view. North Carolina has a longstanding law, the Marketable Title Act (MTA), which is intended to extinguish old land restrictions that limit what an owner can do with its property.

The MTA’s purpose is to extinguish ancient land use restrictions, because according to the legislature, land restrictions “are prolific producers of litigation . . . which cause delays in real property transactions and fetter the marketability of real property.” 

Country Colony is a Charlotte neighborhood which is subject to 1952 restrictions that limit the use of lots to single-family dwellings, which must be a minimum of 1,200 square feet, with a height restriction of two and one-half stories, and which must be used for residential purposes only.

C Investments bought seven lots in Country Colony. The 1952 restrictions do not appear in the chain of title of C Investments’ lots for more than 30 years. C Investments sued to ask a court to declare that the 1952 restrictions were extinguished by the MTA as to C Investments’ lots. In the 2021 Auger decision, the Court of Appeals ruled that the 1952 restrictions, other than the residential-use restriction, were stricken as to C Investments’ lots because of the 30-plus year gap in the chain of title for C Investments’ lots.

HOAs and condos were justifiably concerned that the 2021 Auger decision may cause older Declarations of Covenants, Conditions and Restrictions to be extinguished. The legislature in 2022 intervened and created a carveout for condominiums, for co-ops (which are extremely rare in North Carolina), and for HOAs. The Declarations for all condos, co-ops, and HOAs, if an HOA was in existence as of July 1, 2022, are not affected by the MTA.  While there is a possibility that a small number of older, unincorporated HOAs may have their Declarations extinguished, most HOAs are spared from the extinguishment of their Declarations.

The 2021 Auger decision was appealed to the Supreme Court, which affirmed the Court of Appeals’ earlier decision in mid-December. The North Carolina Supreme Court held that as to C Investments’ property, other than the residential-use restriction, the entirety of the 1952 restrictions were extinguished. The Supreme Court based its decision on its interpretation of the MTA, and I will not attempt to summarize the court’s dissection of the statutes.

Simply put, if a land use restriction does not appear in an owner’s chain of title for over 30 years, and subject to certain exceptions in the MTA, the land use restriction is extinguished as to that property.

This decision will have important ramifications for property owners throughout the state, and we may not know its full impact for years. Although it should not be confused with anything other than this author’s suspicion, my guess is that the legislature will again intervene and create more carveouts to protect older North Carolina neighborhoods.

In Country Colony, as I suspect in other older neighborhoods throughout the state, many influential citizens were likely making calls to their legislators the day the Supreme Court’s opinion was published.  Some of those legislators are probably grappling with the same extinguishment of land restrictions in their own neighborhoods.

Despite the MTA’s goal of minimizing prolific litigation, I suspect that the lawsuits have only just begun.

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