AZ HOA bills address foreclosure, voting, conflicts of interest and more

By Deborah Goonan, Independent American Communities

Public domain image
Public domain image

Legislative season is in full gear across the U.S. And while some state advocate groups are proposing omnibus bills – bills that address multiple amendments to current HOA, condo or cooperative association statute – one Arizona homeowner advocacy group is taking a different approach.

Arizona Homeowners Coalition is working with state Legislators to amend or sponsor up to 16 different bills, each one addressing a specific issue or problem. You can read about these bills at the Arizona HOA Blogspot.

And, no surprise, Arizona’s association management companies are also tracking these bills, as well as proposing a few amendments of their own.

Here are a few highlights from the state of Arizona.

Minor change to HOA foreclosure process

SB 1400 raises the threshold of unpaid assessments for HOA foreclosure from $1,200 to $2,500. There is an amendment stating that the association must offer a “reasonable” payment plan before filing for foreclosure or money judgment, but critics ar skeptical. How will the courts define “reasonable?” More billable hours for attorneys to dispute in civil court.

Most importantly, HB 1400 fails to prohibit non-judicial foreclosure, and does not stipulate a minimum bid on the property. As a result, the status quo would be maintained. Your property could still be sold for a few thousand dollars to a real estate investor or speculator, far below its assessed or fair market value.

In the following report, homeowner rights advocates express frustration that the bill just doesn’t go far enough to protect consumer rights.

Senate Bill 1400 to raise foreclosure threshold for homeowner associations

Courtney Holmes, Joe Ducey (ABC15)
7:37 PM, Jan 31, 2017
7:39 PM, Jan 31, 2017

If you live in Arizona and are part of a homeowner association, your home can be taken away even if you make every mortgage payment on time.

Arizona Revised Statute 33.1256 allows an HOA to put a lien on your home and begin foreclosure proceedings once the assessment reaches $1,200 or is delinquent for one year.

Introduced on Monday, Senate Bill 1400 would more than double the foreclosure threshold to $2,500 and give an additional year that homeowners could catch up on payments before the HOA could begin the foreclosure process.

Read more (VIDEO):
http://www.abc15.com/news/let-joe-know/senate-bill-1400-to-raise-foreclosure-threshold-for-homeowner-associations

 

Prohibiting Cumulative Voting

HB 2321 would apply to both condominiums and single family homes in planned communities. The amended language currently reads as follows:

…AN ASSOCIATION MAY NOT USE A PROCESS WHEREBY UNIT OWNERS CUMULATE THEIR VOTES BY MULTIPLYING THE NUMBER OF VOTES THEY ARE ENTITLED TO CAST BY THE NUMBER OF DIRECTORS FOR WHOM THEY ARE ENTITLED TO VOTE AND CAST THE PRODUCT FOR A SINGLE CANDIDATE OR DISTRIBUTE THE PRODUCT AMONG TWO OR MORE CANDIDATES, OTHERWISE KNOWN AS CUMULATIVE VOTING. THIS SUBSECTION DOES NOT PROHIBIT A PERSON WHO OWNS MORE THAN ONE UNIT FROM CASTING A BALLOT FOR EACH UNIT OWNED.

Some would argue that cumulative voting may be the only viable option for owners attempting to oust one or two rogue board members. By accumulating their votes on one or two homeowner friendly board candidates, it may be possible to override the voting interests of developer or investor owned units.

The biggest flaw with voting in any Association Governed Community is the fact that the voting interests attach to the property, not to the owner of the property. Therefore, the more units one owns, the more votes one controls, and the more power one has over the affairs of the association. And when a developer still controls the association and appoints a majority of the board of directors, he or she usually has weighted voting interests – often 3 to 7 votes per parcel, but I have seen ByLaws providing for 9 votes per parcel.

As usual, that fundamental flaw is not addressed. In the industry, it is taboo to even mention this obviously undemocratic approach to governance.

Prohibition on ban of artificial grass

SB 1113 is a single issue amendment that would prohibit an HOA from banning installation of artificial grass. However, it still allows the association to set limitations and standards for installation.

 

Amendment allowing local government to grant authority for regulation of public roadways in HOAs

This one baffles me. Current statute clearly states that an Association shall have no control over public roadways that have been dedicated to a City or County. SB 1240 adds an amendment to current statute that carves out an exception when “THAT GOVERNMENTAL ENTITY HAS FORMALLY GRANTED THAT AUTHORITY TO THE ASSOCIATION.”

Why should it be legal for a local government to shift regulatory responsibility for public roads to a private HOA corporation? This bill, if enacted, would open the door for all kinds of mischief and HOA gouging of owners with tickets for parking violations, as well as abusive booting and towing of vehicles.

All around, a very bad idea. And, as long time advocate George Staropoli points out, downright unconstitutional.

 

Conflicts of interest in condo and homeowners associations

SB 1288 is a half-hearted attempt to eliminate the corrosive influence of conflicts of interest in HOAs. The amended version would expand the definition of conflicted interests to include employees of the Board of Directors, as well as family members. It would also prohibit a board member with a disclosed conflict of interest from voting on any matter pertaining to any related contract or compensation agreement.

As is usual for HOA statute, the bill does not prohibit conflicts of interest outright. This is another taboo issue in the industry, because real estate developers and management count on affiliated vendors to provide services to Association Governed Communities. After all, this liberal policy substantially increases revenue streams beyond the sale of homes or the basic management contract, generating millions, if not billions of dollars for major real estate industry players and investors.

And when homeowner volunteers take over the board of directors, there are often opportunists that are more than happy to exploit weak or non-existent regulation of conflicts of interest, to their personal benefit.

 

Each party to pay its own attorney fees for Administrative Hearings

SB 1289 would amend current statute to clarify that the prevailing party may not be awarded attorney fees for disputes handled through the Arizona Office of Administrative Hearing. The bill was drafted by Associated Asset Management.

 

Increased accountability for Management Companies

SB 1401 would prohibit various manager-vendor kickback schemes, as well as HOA indemnification of management companies, and these provisions would apply to individual employees of association management organizations. Although it is unclear how this law would be enforced, it would create a legal basis for accountability and award of damages to an Association or homeowner members.

 

Non-HOA options for Arizonans!

SB 1402, if it sees the light of day, would remove the de facto mandate of common interest, Association-Governed  Communities by the majority of Arizona’s local planning commissions. It would require local governments to establish zoning standards for single family residential development that is not part of a common interest community, and allow for publicly administered “improvement districts” for construction and maintenance of public infrastructure.

Excerpt:

The planning agency of a municipality in exercising its authority pursuant to this title shall … PROVIDE as part of a subdivision regulation or zoning ordinance…FOR THE ESTABLISHMENT OF SINGLE-FAMILY RESIDENTIAL PROPERTY DEVELOPMENTS THAT DO NOT INCLUDE PROPERTY HELD IN COMMON OWNERSHIP. THESE SINGLE‑FAMILY RESIDENTIAL PROPERTY DEVELOPMENTS SHALL BE INCLUDED IN AN IMPROVEMENT DISTRICT ESTABLISHED PURSUANT TO SECTION 48-574 ONLY FOR THE LIMITED PURPOSE OF OWNING, OPERATING AND MAINTAINING ANY DETENTION AND RETENTION BASINS, LANDSCAPING, OPEN SPACES, PARKS, ENTRYWAYS, STREET RIGHTS‑OF‑WAY, RECREATIONAL FACILITIES AND OTHER IMPROVEMENTS FOR THE BENEFIT OF THE PRIVATE PROPERTY OWNERS WITHIN THE DEVELOPMENT AND THE IMPROVEMENT DISTRICT.

In my opinion, this is the most useful bill proposal for the 2017 Legislative session.

 

UPDATED 7:40 pm Feb 4,2017:

SB 1240, SB 1288, and SB 1289 have all passed the AZ Senate

See Video:

http://azleg.granicus.com/MediaPlayer.php?view_id=13&clip_id=18554&meta_id=384575


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