By Deborah Goonan, Independent American Communities
A few weeks ago, in Part 1 of the February legislative updates, I told you about a controversial foreclosure bill sponsored by Arizona Senator David Farnsworth. As currently drafted, homeowner rights advocates agree: homeowners with past due HOA assessments, on payment plans the HOA, would end up paying collection attorneys fees first, ahead of their HOAs.
SB 1531, was originally proposed by AACM, Arizona Association of Community Managers. It would change the priority of payment terms for both condominium and planned communities, to the advantage of HOA management companies, attorneys, and collection firms.
Currently, Arizona statute applies unit owner payments to past due assessments first, then late fees, attorney and collection fees, and, finally, other monetary penalties (fines), in that order.
This bill proposes that the HOA would apply payments to…
Any unpaid amounts in the order debt was accrued if those charges, costs, fees, or other amounts are specifically authorized in the Declaration to be charged to the unit owner.
In plain English, this means the HOA can collect attorney fees, collection costs, management fees, and fines ahead of its past due assessments. This consumer-unfriendly, HOA-dead-last priority of payment scheme is becoming the norm in states across the U.S.
In practice, when attorneys and management agents get paid before the HOA, it can create perverse incentives to pile on excessive collection fees, making it nearly impossible for a homeowner to catch up and repay the common expense assessments it owes to the HOA. And when HOA assessments go unpaid for more than 90 days, an HOA can move to foreclose on the property to collect their lien.
Arizona Homeowners Coalition (AZHOC) opposes the bill as currently drafted. Dennis Legere explains SB 1531 in a recent report on ABC15:
Could late HOA payments go to attorneys, service fees first?
Posted: 8:14 AM, Feb 26, 2019 Updated: 11:53 AM, Feb 26, 2019
By: Courtney Holmes , Joe Ducey
PHOENIX — Right now homeowners who are behind on HOA assessments must have any payments applied to the delinquent assessment first.
Other charges and attorney fees get paid once you’re caught up.
But homeowner advocate Dennis Legere says that may not be the case for much longer if Senate Bill 1531 passes as written.
Legere’s group, Arizona Homeowners Coalition advocates for homeowners rights. They oppose the bill.
He says the bill would give HOA attorneys and management companies first dibs on money meant for your assessment.
“This bill goes backwards; actually will artificially generate delinquencies,” Legere says he fears those delinquencies will increase foreclosures. Under current law, HOAs are only given that right for unpaid assessments — not late charges, service fees and attorney fees unrelated to the original debt.
The bill would also allow management agents to collect unnecessary junk fees, which the crafters of the bill call “payment plan establishment fees,” “reasonable satisfaction of judgment fees,” and “convenience fees.”
SB 1531, as currently drafted, would also allow HOA management companies to include a notice of late payment, fine, lien, or foreclosure in regular Association correspondence, such as a periodic newsletter. Opponents of the bill say that homeowners could easily overlook important notices, perhaps even throwing them out with junk mail.
Worst of all, SB 1531 would allow third-party collection agents to set up unit owner payment plans, solely for their fee recovery. This would only further encourage the abusive practice of collection firms engaging in “no-cost” collection contracts with HOAs, where a collection agent bills costs directly to the alleged delinquent unit owner.
The main problem with this approach is that HOA boards have absolutely no motivation to keep collection costs low. At the same time, the collection agent may be motivated to rack up virtually unlimited fees and costs to be paid by the unit owner.
For example, informed Arizona homeowners know that stakeholders for the HOA industry (management companies and law firms) drafted provisions (in SB1531) that would, among other things, reverse the current order of applying homeowner payments to past-due accounts.
Amendments to SB 1531 promised by Farnsworth at hearing
On February 18th, the Senate Government Committee held a public hearing. AZHOC advocates Dennis Legere and homeowner advocate Theresa Fogle offered testimony in opposition to the bill. Legere answered several questions from Committee members, explaining why the bill is harmful to homeowners.
In addition, dozens of other involved Arizona homeowner citizens wrote to their Senators, leading several Senators of the Government Committee to press AACM managers on the issues of:
- “no-cost” collection firms,
- insufficient written notice to homeowner of HOA debt, lien, and pending foreclosure,
- Applying payment of fines, attorney fees, and collection costs ahead of unpaid assessments.
After lengthy committee discussion, the committee agreed (5-2) to pass SB 1531. Several Senators voted “yes,” with Farnsworth’s promise of making several floor amendments to removed the offending provisions, and make the bill more homeowner friendly.
The general consensus was that SB 1531 should only pass the Senate if it will actually help prevent HOA foreclosures.
You can watch the video of the hearing on Feb. 18th hearing here.
So far, AZHOC has not been made aware of any pending floor amendments to SB 1531. The bill has passed through both the majority and minority Senate Caucuses. (View current status of the bill here.)
Read the current adopted version of SB 1531.
In the meantime, ABC15 also reports that Arizona Legislative Action Committee of Community Associations Institute has now come out in opposition to the bill, citing increased collection costs for HOAs. At the time of this post, AZ CAI LAC had not published a formal statement clarifying their stance on SB 1531.