Arizona Legislative updates: Assessments, HOA foreclosure, Condominium Association termination (2019)

By Deborah Goonan, Independent American Communities

Updated May 16, 2019

End of session summary of several bills impacting HOA-governed communities, tracked by Arizona Homeowners Coalition (AZHOC). Subjects: Applicability of Planned Community Act, HOA foreclosure, Condominium Association termination

HB2374 and SB1094

HB2374 Planned Communities; applicability; recreation center

Sun Cities Recreation Centers heavily promoted HB2374, and then SB1094, for the express purpose of exempting themselves from compliance with Arizona Planned Communities Act.

As of March 23, according to Dennis Legere of  AZHOC, HB2374 had not been placed on the Senate Government Committee agenda, effectively killing the bill for this legislative session.

But the proponents of HB 2374 didn’t give up easily. The entire text of HB2374 was added to SB 1094. As introduced, SB 1094 was a totally unrelated telecommunications bill. (Read it here)

On March 28, 2019, by way of a strike-everything amendment in the House, SB1094 morphed into the Senate version of HB 2374, a pure political play by its backers, to ensure its passage.

 

SB1094: telecommunications fund; report; posting
S/E: planned communities; applicability; recreational center

(PRIME SPONSOR: Senator Borrelli, LD 5)

Status of SB1094: Signed by Governor on May 7, 2019 

Senate votes 33-25, House votes 17-11 Full text of SB1094

 

This legislation was drafted after Recreation Centers of Sun City (RCSC) lost twice in court. Viewpoint Lake homeowners sued RCSC, challenging the association for not meeting open meetings and transparency standards as required by state law.

Note: RCSC charges mandatory fees to lot owners for various recreational amenities and event planning. Homeowners cannot opt out of membership in RCSC.

The new legislation creates two exemptions to the Planned Communities Act:

  • Any planned community or “association” incorporated or organized prior to 1974
  • Any association organized for the “sole purpose of supporting recreational activities in a real estate development.”

The bill redefines a planned community as a real estate development that is responsible for maintaining roads or easements, and that meets BOTH of the following criteria:

“owners of separately owned lots, parcels or units are mandatory members,” and

“the owners are required to pay assessments to the association for these purposes.”

 

Effects of SB1094

If you’re a homeowner paying mandatory assessments, fees, or “dues” to maintain recreational and entertainment facilities, and to plan community social activities, you no longer have the right to attend Association meetings and to examine financial records upon request.

Should it matter that your mandatory-membership association does not maintain the roads in your community?

This legislation opens the doors for any HOA or POA to avoid the Planned Community Act’s transparency and accountability standards by creating two separate entities: one to collect fees to maintain infrastructure, and a second entity to manage recreational services.

If RCSC wants to operate as a private business, with no obligation to disclose its financial records, or hold open meetings, then it should convert to a voluntary membership club.

Unfortunately, members of SCRC cannot opt out or paying assessments or dues, even if they don’t use the recreational facilities or attend social events.

Sun City Arizona property owners, and owners in other Associations that are now exempt from the Planned Community Act, have lost their right to monitor how their HOA, POA, or recreation association spends their mandatory fees.

Definitely not a step forward for consumer rights.

 


SB1531 HOAs; assessments; cost

Status of SB1531: signed by Governor on May 8, 2019

Senate votes 28-0, House votes 46-13 Full text of SB1531

Back in February, the Senate passed this HOA assessments and foreclosure bill, with the promise of amendments in the House.

Recall that, 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 SB1531. Several Senators voted “yes,” with Senator Farnsworth’s promise of making several floor amendments to removed the offending provisions, and make the bill more homeowner friendly.

But the end result is a mixed bag for Arizona homeowners of common interest communities.

 

Effects of SB1531

Senate committee members did make several amendments.

Thankfully, the following language changing priority of payments has been removed:

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.

Therefore, each homeowner payment received by the HOA must still be applied first to current and past due assessments, as required by the current statute.

However, the law still allows a loophole for third party collection agents to demand payment of their legal fees before they can reduce or pay off the balance of the actual HOA assessment delinquency. That policy is likely to lead to more HOA foreclosures, rather than preventing them.

Dennis Legere of AZHOC points to a fundamental flaws in the legislations: A provision added to the foreclosure threshold “AS DETERMINED ON THE DATE THE ACTION IS FILED.” Legere says that the effect of this amendment (added by CAI and AACM), is to prevent a homeowner from stopping an HOA foreclosure by paying all delinquent assessments, after a legal action to foreclose the lien is filed.

See Attorney Jonathan Dessaules’ well-written explanation of why SB1531 is bad for homeowners:

SB1531: Bad for HOAs. But Really, Really Bad for Homeowners
March 5, 2019 Attorney Jonathan Dessaules

The Senate did add a common sense amendment requiring certified mail and 30-day advance notice of collections and lien notifications.

The legislation also creates an obligation for all associations with more than 50 units to send monthly account statements to each member by postal mail, or electronic delivery, at the choice of the member-homeowner.

Third-party collection agents are responsible  for providing regular statements of account to the homeowner, but they can also collect their fees and HOA assessments directly from the homeowner.

Management agents or third-party collection agents can add a “convenience fee” for any payment that is not made by cash or check.

 


HB2687 Condominium; terminations; appraisals

Status of HB2687 – signed by Governor on May 14, 2019

Unanimous approval votes, both House and Senate Read full text of HB2687

These amendments to the Condominium Act create additional responsibilities for the association, when at least 80% of voting interests favor of terminating the association.

First, the condo association is now required to conduct an open meeting and present written proof that is has gathered sufficient votes in favor of termination.

Second, if a condo owner who disagrees with the association’s appraised value of a unit is entitled to pay for a second appraisal. If the two appraisal amounts differ by more than 5%, an Arbitrator will decide on fair market value for the unit. If the appraisal amounts differ by 5% or less, the unit owner would be compensated the higher amount.

The legislation also adds 5% of the sale price of the unit for relocation expenses.

These amendments won’t prevent condominium terminations, and cannot stop 80% of voting interests from forcing the remaining 20% of voting interests to give up their ownership rights. However, they do better ensure that each condo unit owner receives fair market value and extra money toward relocation costs. ♦