Tug of war in Arizona over condo, HOA bills that would impact owners’ property rights

By Deborah Goonan, Independent American Communities deborahgoonan@gmail.com

Each year brings new condo and HOA bills, some of which have the potential to protect homeowners, others which may further limit property rights. This post discusses several bills under consideration for the 2022 legislative session.

HB 2275 As introduced by Reps. Weninger and Toma —

Track HB 2275 here.

In order to protect the property rights of all unit owners, this bill would require 100% of all voting interests in a residential condominium association to approve a termination of the association. Current state law allows unit owners holding 80% of voting interests to terminate the condominium association, even if the remaining unit owners don’t agree to a termination plan.

The intent of the legislation is to prevent hostile condo board takeovers by investors and/or developers and/or bulk buyers that accumulate an 80% interest in the corporation, then force the remaining unit owners to sell their units against their will.

This bill is a follow up of legislation that I worked with sponsors in prior years to get more appropriate compensation for homeowners that were forced out of their units against their will by the termination and sale of the condominium. With those earlier bills I informed the sponsors that they were solving the issue they intended to address (better compensation for displaced homeowner) they were not addressing the true issue and problem with the statute, and that was that, with a vote to terminate the Condominium, the association was granted — by law — title to all the property of the condominium private and common property. This resulted in the State granting the power of eminent domain to a private corporation, which, in fact, violates the constitution for Arizona, that limits the power of eminent domain to government bodies and only for the good of the general public.

This bill simply makes the vote to terminate 100% instead of 80%. Thereby requiring any investment company seeking to buy out and convert a condo complex to negotiate purchase agreements with all the homeowners that will at least satisfy the compensation requirements required after the sale.

Dennis Legere, AZHOC

Opponents of requiring 100% of unit owners to approve a termination plan are primarily investors, who benefit from their current ability to exploit unit owners by offering lowball compensation to the minority of owners who don’t want to sell.

In virtually all cases, the investors in favor of termination already control the condominium board of directors. Therefore, they also have the opportunity to make life miserable for holdouts, by increasing condo fees, approving huge special assessments, changing governing documents to allow a high percentage of rental properties (including short term rentals). Therefore, sooner or later, a hostile investor group will succeed in terminating the condominium association.

The main expected outcome of requiring unanimous approval of a termination plan is that owner occupants would gain additional leverage to negotiate full compensation for their property, which would allow them to afford to secure similar replacement housing, plus their relocation expenses.

As previously proposed here on IAC, the best way to prevent a hostile takeover of a condominium or HOA board is to amend the governing documents, soon after turnover from the developer/sponsor to the homeowners. The amendment should limit the total share of ownership in the association. In other words, no single owner (or corporate entity) should be permitted to acquire ownership of more than 5 or maybe 10% of the properties in the community. This alone would prevent predatory investment in a condo association.

For more information see: Lawmakers pushing for change to AZ law that forces condo owners to sell to investors

HB 2158 As introduced by Rep Kavanagh

Passed by House Government committee as amended (13-0)

Track HB 2158 here. As of the date of this post, the bill has passed in the House unanimously.

In a bid to clarify rights of property owners in HOA-governed communities, this bill would require condominium and homeowners associations to allow unit and home owners to display political signs relevant to community association elections for board members, for recall efforts, and for ballot measures as required by the governing documents. It would also require condo and homeowners associations to provide unit owners access to freely assemble on or within the common elements, including community meeting spaces, to discuss community issues.

It is my belief that the greatest power homeowners have is the power to elect and remove board members and to approve any changes to the CC&Rs. The problem is, the [limited] ability of the homeowners to communicate with each other on these issues or to organize any opposition to the positions of the board on these issues.  The association has the power of communication and can control what information any homeowner receives on any issue. The [board members] also have the power to attack any dissenting homeowner that opposes their position on any issue.

Every association CC&R prevents the use of signs on private or common property, and that is weaponized to silence any opposition to their selected board candidates or any dissent on their proposed governing document changes. They also have control of the use of any community property and have used that power to prevent any group of homeowners to meet and generate an organization in opposition to board positions or community issues, as well as any attempt to recall board members. This bill has always been about establishing the homeowner’s fundamental right to free speech and assembly particularly relative to community issues. I also want to encourage homeowners to get involved in the governance of their communities for everyone’s good. 

Dennis Legere, AZHOC

Now you see it, now you don’t: the incredible disappearing Homestead Exemptions bill for owner-occupants of HOA-governed property

HB 2730 Introduced by Dalessandro
Track HB 2730 here.

HB 2730 was introduced in the House just two days before the deadline. It survived long enough to complete two readings, then apparently died when the Speaker of the House failed to put the bill back on the calendar for a third reading. However, it’s important for homeowners to understand the basic concepts of this bill, which will hopefully be reintroduced earlier in the next Legislative session.

HB 2730 clarifies, once and for all, that an HOA is only permitted to place a lien for unpaid COMMON EXPENSES, which, by definition, excludes liens arising from fines and monetary penalties. The bill also clarifies that, in collection of payments, the homeowner’s money must be applied first to common expenses (assessments), then to late fees and interest, then to attorney fees and collection costs, and — last in line — to other fees, to include unpaid fines.

A key provision of this bill: state law would no longer exclude owner-occupants of HOA-governed properties from their Homestead Exemption protection. For readers who aren’t familiar with the Homestead Exemption, here’s a short summary. Currently, in Arizona, homeowners of non-HOA property can exempt the first $250,000 in equity from collections and loss in a foreclosure. Arizona homeowner advocates and IAC believe that all homeowners should be entitled to the same protection of their property rights. There’s no valid reason for denying owners of homes in HOA-governed communities the right to retain the first $250,000 of equity in their homestead.

Here’s why bills that address HOA liens are so important.

For many years, homeowner advocates have called attention to the pervasive problem of HOA collection abuse and unjust foreclosures.

The all-too-common scenario goes something like this: (and not just in Arizona, by the way)
A homeowner is targeted by the HOA board or management agent for violations of the covenants. These may be minor violations, such as painting their front door an unapproved color, unauthorized parking of a vehicle, or placing a political sign in the window or on the balcony rails of a condominium (See HB 2158). Quite often, the owner cannot pay the fine, or simply refuses to pay under protest.

The condo or homeowners association misapplies the owner’s regular assessment payments to “unpaid fees” to include the disputed fine. However, that results in an assessment payment delinquency, triggering late fees and interest. All of a sudden, the property owner is facing hundreds of dollars of ”surprise” fees, and late notices from the HOA.

If the owner is not able to pay all of the unjust or unfair penalty fees, the account is sent to collections. And in some cases, HOA collection law firms buy the Association’s debt outright, then aggressively pursue the homeowner for past due amounts. Typically, these collections agents then tack on exorbitant attorney fees — which can accrue to nearly ten times the amount of the actual past due assessment balance.

The collections attorney threatens to foreclose on the HOA lien, unless the owner pays the entire debt, to include all legal costs and attorney fees, before the matter goes to court, where a judge may or may not award excessive attorney fees. This is how some unfortunate homeowners can be scammed into paying fees they cannot afford, or being evicted from their homes after they sell for a bargain price on the HOA auction block.

On the last day for new bills to be introduced we finally got our HOA assessment bill HB-2730 See Bill Text Here . For a detailed explanation of why this bill is so important and summary of the details of the bill see this document  Talking Points Document . This bill simply clarifies the language of statutes to end the illegal and predatory collection practices of HOA attorneys. This bill will also end the inappropriate exclusion of common interest community homeowners from the protections afforded from the Homestead Exemption. For those of you that do not know about the Homestead Exemption it is a section of law that except for first mortgages, protects up to $250,000 of equity in your home from liens. This protection is afforded to all primary residence homes in the state but for 30 years now based on one simple statement in these statutes all 2 million Arizona homes in these communities were excluded from this protection based on the lies presented to the legislature by the HOA industry trade groups of CAI and AACM.

Dennis Legere, AZHOC

A quick check of the Right to Speak roster for the ORIGINAL version of this bill shows 40 Arizona constituents in favor of the HOA lien reform bill, and only one person opposed. That’s why it’s both puzzling and frustrating that the bill is not progressing this session.

AZHOC members object to harmful bill that would change HOA amendment process

HB 2700 As Introduced by several House Representatives, including Neal K. Carter, Esq.
HB 2700 Strike All and Amendment, by Rep. Carter

Track HB 2700 here.

Sometimes, a legislator introduces an HOA bill that would harm property owner rights. HB 2700 is one such bill. The original draft proposes that most amendments to condominium of planned community HOA governing documents (CC&Rs or Bylaws), with few exceptions, could be made by a simple majority of total membership voting interests, or, even worse, by unanimous consent of the Association’s board of directors.

That would almost certainly result in a true HOA Tyranny of the Majority, and the possibility that a handful of owners on the HOA board would have the power to dictate important rules, fundamentally changing the nature of communal living.

After dozens of AZHOC members expressed their grave concerns with the original draft of this bill, Rep. Carter, the primary sponsor, has re-written HB-2700 with more reasonable terms. The amended version now sets the statewide threshold for approving amendments to governing documents at 67% of total ownership in a condominium or planned community association — with some exceptions.

Parking restrictions, aesthetic standards, and ”administrative changes to the organizational or operational provisions” of the Declaration (CC&Rs) or Bylaws would only require a simple majority approval of membership. All other amendments wold require a two-thirds majority in favor of proposed changes to the HOA “contract.”

Importantly, in the amended version, the HOA board of directors would NOT have the authority to enact changes to the governing documents by unanimous vote.

It’s important to note, however, that both versions of the bill still allow for a lower threshold to approve amendments, if so specified in the Declarations. Therefore, it’s possible that a takeover of the HOA board by hostile investors could change the voting requirements for amendments, and then basically rewrite the rules to their their advantage. And that explains why the protections of HB 2275 are so critical to protecting property rights, particularly for owners who reside in an HOA-governed community as their primary homestead.

HOA industry stakeholder groups seek greater control over property owners with rewrite of Artificial Turf bill

HB 2131 as Introduced by Re. Kavanagh
HB 2131 as Amended

Track HB 2131 here.

HB 2131 is a bill that attempts to expand rights of homeowners in planned communities to modify the exterior appearance or landscape or their home. Specifically, this bill addresses the right of owners to install artificial turf to replace grassy lawns.

In Arizona, where desert-like conditions make maintaining a lawn difficult and expensive, artificial turf would appear to be a common sense alternative.

However, many HOAs ban artificial turf. Therefore, this bill was originally drafted to prohibit HOA artificial turf bans, while still allowing the HOA some to enact ”reasonable rules” over the appearance of the turf.

However, HOA industry trade groups convinced the bill’s sponsor to entirely rewrite the bill, and their proposed amendment has already been approved in the House Government and Elections Committee. The amended version of HB 2131 gives the HOA greater control over the ”quality” of the turf to be installed, as well as where it may be installed, and how well the homeowner maintains the turf. These provisions add enough implied control by the HOA to effectively prevent an owner from using artificial turf. Frankly, it would be too much of a hassle to get the HOA to approve the ”right” kind of artificial turf in the first place.

Furthermore, the amended version contains a general provisions that could adversely affect the rights of homeowners to make any other modifications to the home’s exterior or landscape. Here are the relevant provisions:

THIS SECTION DOES NOT:
1. AFFECT AN ASSOCIATION’S RESPONSIBILITY TO CARRY OUT BOTH THE EXPRESS AND THE REASONABLY IMPLIED INTENT OF A DECLARATION THAT PROVIDES THAT THE DESIGN STANDARDS OF THE PLANNED COMMUNITY ARE REQUIRED TO BE FOLLOWED TO PROTECT THE NATURAL ENVIRONMENT IN WHICH THE PLANNED COMMUNITY IS DEVELOPED.
2. APPLY TO A PLANNED COMMUNITY THAT HAS UNIQUE VEGETATION AND
GEOLOGIC CHARACTERISTICS THAT REQUIRE PRESERVATION BY THE ASSOCIATION AND IN WHICH THE VIABILITY OF THOSE CHARACTERISTICS IS PROTECTED, SUPPORTED AND ENHANCED AS A RESULT OT THE CONTINUED EXISTENCE OF NATURAL LANDSCAPING MATERIALS.”

Strike All amendment of HB 2131 (2022)

It’s not hard to imagine an HOA rejecting a property owner’s architectural modification request, by claiming that the HOA has a duty to ‘protect the natural environment’ from the alleged adverse effects of the proposed changes. This provision could apply not only to installation of artificial turf, but also to installation of a fence, a swimming pool, or a play structure for children.

A homeowner who disagrees with the HOA’s interpretation of their duties to uphold the Declaration (governing documents) under state law would have two choices: sue the HOA in an attempt to uphold their property rights, or drop the matter entirely to avoid a long, expensive legal battle that may prove to be futile.

The tug of war between homeowners and the HOA industry continues

Looking at all of the above bills, it’s important for homeowner and property rights advocates to understand how all five of these bills would work together in real-life HOA settings. Given the fact that property owners and HOA trade groups hold opposing views, Arizona homeowners could very well end up with state laws that contradict one another, causing more confusion and leading to ever more conflict between homeowners and the HOA boards and management agents. Worst of all, if advocates do not remain vigilant in monitoring these bills, legislative committee could ultimately approve harmful amendments that would reduce a homeowner’s property rights — the exact opposite of the bill’s original intent.