Here’s why HOA statutory power to fine must be outlawed

Do we really need or want HOAs to be The Enforcers?

Arizona Constitutional Rights advocate George K. Staropoli recently published a few posts on an important appellate court opinion in Turtle Rock III HOA vs. Lynne Fisher, involving a homeowners,’ condominium, or cooperative association‘s statutory right to impose monetary fines upon members who violate covenants, restrictions, rules, and regulations.

In brief, the homeowner, Fisher, appealed a lower court’s ruling that Turtle Rock HOA was entitled to collect fines and penalties of more than $3,800. Fisher argued that the fines were excessive, that her rule violation did not result in any measurable damage to the associations, and that she was denied due process in the form of proper notice by way of a written schedule of fines to be imposed for specific violations.

While the appellate court upheld the lower court’s order for Fisher to clean up the interior of her property — some of the clutter was visible through a window of her home — the court reversed the fines and the award of attorney fees to the HOA. The three judge panel agreed that Turtle Rock HOA had the obligation to fully inform its members, in writing, of penalties for violation of certain rules, and that, furthermore, an association must be able to document real damages to the corporation in order to justify its monetary fines.

In case you missed it, I wrote a post a few months ago opining if the appellate court opinion in Turtle Rock might be a game-changer. In that post I wrote:

To be clear, the recent appeals court ruling does not prevent an HOA from imposing fines. It merely creates a requirement for HOAs to inform all residents of the association’s right to fine — and the amount of those fines — for certain violations. The HOA must create a written schedule of fines for that purpose. And, in court, the HOA must show how the association or one of its members is damaged by the alleged violation.

Apparently, [Attorney Beth] Mulcahy finds the minimal requirement of communicating rules and penalties to members of the association to be unreasonable and burdensome.

Furthermore, Mulcahy laments the fact that an association must provide real testimony and documentation of actual damages that result from a resident’s alleged violation of restrictive covenants or rules. Gone are the good old days, she says, when it was “easy” to fine a resident for not following the rules.

The fact that an industry-certified attorney objects to the Turtle Rock ruling should make it abundantly clear to housing consumers and policy makers that she does not advocate for the rights of individual homeowners.

See: AZ court ruling on HOA power to fine: a game changer in the industry?

A few months later, something unusual happened. Arizona Supreme Court chose to depublish the appellate court opinion in Turtle Rock v. Fisher. And it appears the Supreme Court was influenced by an Amicus Brief (Friend of the Court brief) filed by attorneys who are prominent members of Community Associations Institute. (CAI)

See the following posts by Staropoli:

AZ Supreme Court Prohibits publication of decision on HOA notice of fines

AZ SC ‘improvident’ decision in Turtle Rock HOA petition

Turtle Rock CAI brief urged depublication

When a court opinion is not published, it cannot be used as precedent to justify similar rulings in future cases. In other words, the next time a homeowner sues an HOA for unreasonable fines imposed for breaking rules that owners didn’t even know about, the Turtle Rock appellate opinion cannot be used as justification for reaching a similar conclusion in the homeowner’s favor.

It’s rather obvious why lawyers working for the industry trade group do not want Turtle Rock to be published. That might limit the power to fine for the HOAs they serve, thereby also eliminating a substantial revenue stream created when some attorneys attempt to collect those fines, and  tack on their unlimited attorney fees.

What’s quite disturbing is that Arizona Supreme Court went along with the request for depublication, and without providing any written explanation for doing so.

In light of CAI interference in the judicial process, what can be done?

It appears the best course would be for advocates to promote legislation to entirely repeal and prohibit the right of HOAs to impose fines.

The only way to restore true due process is to require HOAs and/or (preferably) individual homeowners to seek to enforce the terms of the CC&Rs contract through normal judicial process (small claims court, civil court) or via regulatory agencies.

The truth is, an HOA is not necessary to enforce the CC&Rs. Any individual homeowner can file a legal complaint against a neighbor who has violated covenants or restrictions.

CAI has pushed the association-governance model for more than 4 decades, playing upon homeowners’ reluctance to confront a neighbor in the relatively rare instance when a property rights disagreement arises.

And, starting in the mid 1990s, CAI pushed states to enact enabling legislation that gave board members the right to fine homeowners and residents in HOA-ville, under the assumption of cutting out the expensive and time-consuming judicial process entirely.

Abuse of power

While some association members opt to pay a fine, in hopes that their HOA will then leave them alone, most will dispute a fine that they believe is unjustifiable. And where does that lead? Right back to the courts. It’s the only recourse for members fighting the HOA’s attempts to garish their wages, ruin their credit, or take their home in foreclosure. It’s the only way an aggrieved HOA member can attempt to avoid paying unlimited, extortionary attorney fees tacked on as part of the HOA collections process.

Let’s face it. In almost all cases, it’s unlikely that a board or even a covenants committee can be neutral in deciding whether or not a neighbor deserves to be penalized for an alleged violation of the rules. As untrained volunteers, homeowners cannot objectively evaluate, let alone document, any actual harm to the association when a member, for example, paints his door red, or displays colored Christmas lights instead of white lights.

Nearly all board and committee members are ignorant of the law, and most have never read their governing documents. Others choose to ignore both state law and the unbalanced CC&Rs contract.

Personal agendas, even vendettas, tend to influence the internal affairs of association-governed communities. And, because the HOA has the collective contributions of all members to pay its insurance premiums and legal fees, the court battle is unbalanced, tilted very far in favor of the association.

In this environment, granting an HOA the right to fine its members is often abused. And if the courts continue their reluctance to hold HOAs accountable, and to rein in abuse when it happens, then state law must simply remove all unchecked power of HOAs, including the industry’s cash cow — the power to fine.

 

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