At the risk of overdoing the topic of homeowners'
associations (commonly referred to as "HOAs"),
I feel compelled to come back to it this month
because of the Arizona Legislature's attempts
in its recently concluded session to "fix"
the "problem" of HOAs. I put "problem"
in quotes because whether or not there really
is a problem is a rather subjective judgment,
and whether or not the Legislature can, should,
or did "fix" the problem definitely
remains to be seen.
One area the Legislature tackled that probably
did need some action to rein in the HOAs is
the area of fines. Most HOAs are granted in
their governing documents the power to assess
fines for violations of their rules. If the
fines are not paid, they can become a lien
that under the previous law could be foreclosed
in the same manner as a mortgage. This could,
and occasionally has, led to disputes between
HOAs and homeowners over such mundane things
as parking on the street turning into lawsuits
that could result in the forced sale of the
home of the offender. Although I think such
situations have been very rare and almost
always avoidable, the Legislature in House
Bill 2402 decided, probably correctly, that
HOAs should never have the power to force
a sale of a home for unpaid fines.
House Bill 2402 retained the power of HOAs
to impose liens for unpaid fines, but added
a new requirement that the association obtain
a civil judgment against the homeowner before
imposing the lien, and limits enforcement
of the lien to payment upon a sale or other
transfer of the property. In other words,
the association first must file a lawsuit
against the nonpaying homeowner and convince
a judge that the fines were correctly charged,
and only then will have the ability to collect
the fines from a later sale of the property
if payment is not made.
The new rule that the association must file
a lawsuit to collect unpaid fines sounds good,
but under the old law the association would
have had to file a lawsuit to force a sale
for unpaid fines anyway. What the new rule
really does is prevent the association from
placing a lien for unpaid fines without filing
a lawsuit. With the new rule we could actually
see more lawsuits for unpaid fines, since
the association no longer has the option of
placing a lien without filing a lawsuit and
waiting until the property is sold to collect
the unpaid fines.
House Bill 2402 leaves unchanged the ability
of HOAs to enforce assessments. The distinction
between fines and assessments is an important
one. Assessments are the regular monthly fees
or dues paid by all homeowners in the association,
which are typically used for upkeep of common
areas. They are generally necessary for the
association to carry out its responsibilities
for things like maintaining the landscaping,
maintaining the community pool, and perhaps
even paying the electric bill for the street
lights.
Use of a lien without a lawsuit, which will
now be available only for unpaid assessments,
is actually an efficient method for the association
to collect unpaid charges. If a lien is placed
against the home of a nonpaying member but
no lawsuit is filed, the lien just sits there
until the nonpaying homeowner sells or refinances
the property, at which time the association
is able to collect the unpaid amounts.
Another new legislative requirement that
probably doesn’t do any harm is the adoption
of a statute that says HOAs cannot use the
sign prohibitions contained in many governing
documents to prohibit the placement of political
campaign signs on lots within the subdivision.
This follows the Legislature’s adoption
last year of a law that says HOAs cannot enforce
prohibitions against flags to prohibit displaying
the American flag. I find it a little surprising
that HOAs would attempt to enforce these prohibitions
in such contexts. On the other hand, one thing
I have learned in dealing with the enforcement
of governing documents of HOAs is: never underestimate
the desire of some people to argue with their
neighbors.
The Legislature also decided to impose a
blanket requirement that all HOAs file an
annual financial audit. This seems like overkill
to me. Most modern governing documents require
periodic audits anyway. The Legislature’s
action in this area also makes it appear that
our lawmakers think that most associations
have their own members collecting all the
dues and paying all the bills. In reality
those functions are usually carried out by
management companies who are in the business
of running the books of HOAs. Any association
board of directors that is not requiring periodic
audits of its management company is asking
for trouble.
One proposed new requirement that was not
adopted would have made HOAs subject to the
Arizona “open meeting law.” This
may sound good, but consider that (1) current
law already requires HOAs to hold annual meetings
that are open to all members, and (2) our
city councils, school boards, and other such
public bodies spend tremendous amounts of
time trying to ensure compliance with (and
defending themselves against accusations that
they have violated) the “open meeting
law”, so imagine what would happen if
every homeowners’ association in Arizona
had to go through the same thing.
As usual with the Legislature, some of the
new requirements seem good, while some seem
not so good. And while at least some additional
complexity was avoided, some new complexity,
apparently not all of it intentional, will
result. We’ll just have to wait and see
whether the added complexity turns out to
be worth the cost.
