By Deborah Goonan, Independent American Communities deborahgoonan@gmail.com
Arizona homeowners have several new HOA laws for 2024. Four of these new laws are summarized in this post. Learn about several new consumer protections — or lack thereof.
New AZ law allows condo unit owners more control over interior renovations
Signed by Governor Hobbs on March 29, 2024, HB 2141 allows condo owners to renovate or redecorate the interior of their units. This law permits condo owners, for example, to tear out old wall-to-wall carpet and install hard surface floors, so long as the owner also installs an underlayment that prevents noise disturbances to downstairs neighbors.
In addition, unit owners are relatively free to decorate their interior to their tastes, without having to get approval from a condo board. The intent behind this provision is to prevent condo associations from dictating interior window coverings and other decorative elements that could be viewable from passersby outside.
IN MY OPINION, the language used in this legislation is unfortunately vague and confusing, creating the possibility of opposing interpretations.
New for 2024: Condo and homeowner association laws in AZ now distinguish between assessment liens and liens for unpaid fines
The main point of HB 2648 is to create two different definitions for two different types of HOA liens. The “common expense lien” is for assessments and fees that are collected for maintenance and repair of common property. Member or unit owner “expense liens” are filed for unpaid fines imposed by the HOA for violations to the covenants, restrictions and rules of the association.
Common expense liens are foreclosable as a last resort, subject to certain restrictions and notification requirements. But individual expense liens for fines are NOT foreclosable because of this new law.
The new AZ statute also requires that the association apply all partial payments in the following order:
- First to any lien for HOA assessments that are past due, then
- to any currently due assessments, followed by
- late fees, but only as authorized by HOA documents,
- collection costs applied by the HOA, and lastly,
- Attorney fees IF awarded by a court.
How these reforms can help homeowners
These combined changes to state law will help to prevent HOAs from foreclosing on home and unit owners over disputed violations of aesthetic covenants. In general, it prohibits foreclosure of any lien that is not directly tied to nonpayment of common expense assessments.
And by ordering the payment of HOA common expense liens first and HOA collection attorney fees last, a property owner has a fighting chance to become current on delinquent payments, thereby avoiding foreclosure. The law vastly reduces the perverse incentives of HOA collection attorneys. It prevents attorneys from generating excessive revenue by charging back legal fees to the delinquent owner. This abusive practice inevitably pushes the homeowner toward foreclosure. No longer can HOA attorneys hold homeowners hostage to avoid losing their home. Instead, HOA attorneys must ask the court to award them reasonable fees before trying to collect them.
But there’s another very important aspect of this new law. It provides protection of a homeowner’s equity for any expense lien related solely to HOA fines. As explained by Dennis Legere of Arizona Homeowners Coalition (AZHOC), Arizona law now prevents predatory collection of liens that originate over disputed fines. HOAs often impose fines for covenant violations. And all too often, owners are slammed with excessive accumulation of collection fees billed by attorneys.
One aspect of HB-2648…is that…the common expense lien is not subject to the protections of the Homestead Act in Arizona, which protects $400,000 of any home’s equity from liens other than consensual liens like mortgages. The Common Expense lien as a statutory lien …is specifically excluded from this protection by existing statute. All of our effort to clearly identify the possible lien for fines and penalties as a judgement lien does in fact subject that specific lien to the homestead act protections.
So, if a homeowner has $300,000 of equity in his home at the time of sale, no matter how large the judgement lien is for fines and penalties, that lien cannot be collected as part of the sale because of the protections of the homestead act. So, if you had a lien on your home for $50,000 of fines and penalties that were not part of the common expense lien when you sell that house that lien is extinguished by the homestead act.
The other aspect of this bill is that the lien for fines and penalties is not automatic and can only be applied if awarded by a judge. This way the homeowner has the ability to challenge the reasonableness of any fine or penalty to the judge. The association has to initiate the lien action and then has the burden of proof to justify the reasonableness of the fines.
Dennis Legere of AZHOC
As usual, trade group Community Associations Institute (CAI) vehemently opposed this legislation. That’s not surprising, given the number of HOA attorneys who are members of CAI. However, state Legislators overwhelmingly approved these much-needed consumer protections, despite CAI’s effort to derail the bill.
Legere sums up CAI’s anti-consumer protection stance as follows:
“The most significant of all these pieces of legislation is HB-2648 relative to assessment liens. This bill won the unanimous approval of every legislator from both houses despite the extensive efforts from CAI to kill this bill. This bill is written to stop the predatory collection practices of HOA attorney and could have significant impact on a major revenue stream for those law firms. With the potential side benefit of many of these law firms choosing to shift their practice to chasing ambulances instead of harassing homeowners.”
Dennis Legere of AZHOC
Even after Legislators unanimously passed this bill, CAI lobbyists didn’t stop there. The Arizona chapter of CAI launched a massive e-mail campaign to get members to call Governor Katie Hobbs and urge her to veto the bill! Thankfully, Hobbs’ office also received plenty of calls from homeowner advocates urging her to sign the bill. That’s why it’s so important for advocates to stay engaged until the very end of the legislative process.
No HOA transfer fees allowed for certain transactions
State law now prohibits HOA transfer fees for real estate transactions between two family members, trusts, or business parties. Only reasonable document fees can be charged, if applicable.
This bill was prompted by complaints of excessive fees charged by HOAs. In particular, owners said HOAs charged transfer fees when properties were conveyed to family members, heirs or business subsidiaries. Reportedly, some transfer fees were in the tens of thousands of dollars!
New statute (barely) addresses Declarant Control of HOAs
As passed, HB 2698 now requires all HOA documents to provide a written process for determining the end of the Declarant Control period for the HOA board of a community association. BUT…the statute provides no deadline date for existing HOAs to amend their governing Declarations (Covenants and Restrictions) to include this information.
(Declarant Control refers to the period of time that the original developer or investment group owns the land parcels and develops, builds, and sells homes to buyers.)
In the absence of any language regarding turnover of Declarant control, the state Legislature has created a default stance. The Declarant can legally control the HOA board (appoint all HOA board members) until the second to last home is sold to a buyer. But obviously this policy allows a Declarant to hold an HOA board hostage indefinitely. All the Declarant must do is retain ownership of two homes.
The new law also states that after the HOA is turned over from the Declarant to homeowners, the HOA must continue to provide at least the same level of maintenance as the Declarant did. Also, the HOA must not impede the Declarant’s access to common areas or ability to develop remaining lots.
Real estate developer lobbyists made this bill useless for homeowners
It’s educational to compare the law as passed to the original draft of this bill as shown here. As introduced, the bill proposed a turnover of Declarant control at the point when 75% of homes were conveyed to buyers OR after 4 years of no selling activity by the Declarant. The legislature amended this bill to change its original intent. See screenshot below.
As you can see, influence of industry lobbyists drastically changed the intent of this bill for 2024. Hopefully, though, this is a starting point for consumer protection amendments next year.
See the website for Arizona Homeowners Coalition for news updates and/or look here for the most current legislative updates.
Arizona Homeowners Coalition | HOA TRUTH. » Legislative Updates and Important News
Arizona state Legislature bill tracking – click here.
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