The Arizona Court of Appeals, in a recently-published decision, clarified the circumstances under which an HOA was allowed to collect attorneys' fees from a homeowner. In Bocchino v. Fountain Shadows Homeowners Association, the Court of Appeals held that an HOA was not entitled to collect attorneys' fees that it purportedly incurred in obtaining an Injunction Against Harassment against a homeowner when it did not seek an award of attorney fees from the court and no fees were awarded by the court. Dessaules Law Group represented the successful homeowner.

The HOA in Bocchino sought and obtained an ex parte Injunction Against Harassment on behalf of several board members claiming that the homeowner was harassing them. The homeowner did not challenge the Injunction, did not request a hearing, and instead decided to sell her home and move out of the community. The HOA never requested fees from the court issuing the Injunction but simply added fees to the homeowner's account that is collected at closing. Although the HOA never mentioned the Declaration in the Injunction Against Harassment action, it argued that the Declaration allowed it to obtain its fees from the homeowner.

The Superior Court ruled that the HOA was not allowed to collect the fees it incurred. The Court of Appeals affirmed on two grounds. First, it held that a party seeking attorneys' fees relating to an Injunction Against Harassment had to request fees in that action or waived any claim to its fees. Second, the Court of Appeals held that the HOA's Declaration "does not expressly provide that the Association may assess, directly against a homeowner, attorney fees incurred in a judicial proceeding that has not been awarded by a qualified tribunal. "

It is a common practice among HOAs in Arizona to collect attorneys' fees from homeowners without obtaining an award from a court. Once an HOA has obtained a money judgment, for example, it will seek to collect additional attorneys' fees not specifically awarded in the judgment that it incurs post-judgment. Although the Court of Appeals in Bocchino did not expressly address this practice, it made several comments suggesting that this practice is unlawful. For example, the Bocchino court rejected on "sound policy" reasons the Association's argument that judicial approval of an HOA's fees was not necessary because the fee provision in the Declaration allowed the Association to recover “all” the fees incurred.

The Court further observed:

[T]he Association has cited no authority for the proposition that it was permissible to simply charge Bocchino’s Association account for attorney fees it incurred without first receiving an award from the court. Requiring the tribunal that resolves the litigation to evaluate attorney fee claims – as generally required by our statutes and rules – constitutes sound policy. Courts play a significant role in assessing and awarding attorney fees incurred in judicial proceedings. 

Finally, in a footnote, the Court of Appeals observed that "[w]hether the fees the Association incurred were prima facie reasonable (or clearly excessive) was a question for the court that issued the injunction." There is no reason to believe that this "sound policy," however, is limited to Injunctions Against Harassment and there is nothing in the opinion that suggests it should be narrowly construed. 

While we do not believe that the Bocchino opinion will end the practice of HOAs collecting unawarded attorneys' fees without any judicial oversight, Bocchino provides clear direction that the practice is improper and should end.

The case is Bocchino v. Fountain Shadows Homeowners Association.

Find out more about your rights on our HOA Defense and Consumer Rights page. You may also like to read about Post-judgment Collections.

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The failure to maintain and repair can cost an HOA. In this case, the failure to repair a known faulty swing set will cost an HOA $20,000,000.00.

The swingset in question failed on four previous occasions. Despite spending over $100,000 per year on landscaping, repairs, and maintenance, the HOA refused to pay just $150.00 per month for a monthly inspection and maintenance plan repeatedly recommended by the swingset’s manufacturer. The plaintiff suffered a crushed skull and other permanent injuries.

An HOA's duty to maintain and repair common areas is its central function. 

Read the full article here:

 https://www.reviewjournal.com/local/jury-awards-20m-in-las-vegas-case-involving-playground-injury/

Or you can read my recap and takeaways:

The civil suit was filed by a teenager, Carl Thompson, who suffered a traumatic brain injury in a playground accident in 2013. Thompson, then 15, was using a swingset at Lamplight Village at Centennial Springs when the 42-pound metal crossbar broke, landing on his head and causing severe injuries.

The jury held the Lamplight Village at Centennial Springs Homeowners Association (HOA) responsible, awarding $10 million in compensatory damages for pain and suffering and $10 million in punitive damages.

Thompson, now 20, experiences headaches, memory loss, movement problems, and an increased risk of dementia.

The HOA had reportedly ignored warnings and declined inspection plans, despite previous incidents with the swingset.

This incident underscores the importance of proactive safety measures within homeowners' associations.

HOAs should prioritize regular inspections and maintenance of communal facilities to prevent accidents and injuries. The case highlights the potentially severe consequences of neglecting safety warnings and failing to invest in necessary repairs.

HOA members, you CAN advocate for thorough safety protocols, ensuring proper funding for maintenance, and holding the association accountable for negligence. This accident emphasizes the need for HOAs to prioritize the safety of community amenities and allocate resources responsibly, not only to protect residents but also to avoid legal consequences that can result from inadequate care of shared spaces.

If you feel like your HOA is ignoring their duties to keep you safe, make sure to reach out!

If you liked this article, you might also like to read about Kevin Payne and HOA President Accused of Embezzlement.

For more information about HOA Laws, check out our HOA Law page or schedule a consultation with one of our attorneys.

This is a question we hear all the time. And here’s the short answer: “Nothing.”

You get served with or receive a copy of a lawsuit. Maybe it’s a small amount. Or maybe you think they have the wrong party because you’ve read through the complaint and none of it sounds familiar. Or maybe you think, “well, they can’t get blood from a turnip so who cares if they get a judgment against me?!” Or here’s a classic line we hear all the time: “But I didn’t do anything wrong, so there’s no way a judge will let them get a judgment against me. Wrong, wrong, wrong, and (in case you didn’t know where I’m going with this)....wrong!

The worst thing you can possibly do is Nothing. Small judgments have a way of turning into big judgments through interest, attorneys’ fees, costs, or perhaps additional damages added later. Even that $500.00 judgment could come back to haunt you years later as a judgment for thousands of dollars. That complaint you chose to ignore also might have asked for injunctive relief, which can turn into contempt proceedings that include the possibility of fines or even jail time!

Oh, and if you’re banking on the judge acting as the gatekeeper to make sure the claims against you are valid, your money is better spent buying a Powerball ticket. Judges do not represent you. Without someone there to defend your interests, the odds are very good that you will lose. In a one-horse race, even a lame pony finishes first.

If you do nothing in response to a lawsuit, you generally lose the right to challenge the allegations against you. Yes, as with all things, there are exceptions. But if you have been served with the lawsuit and made the conscious decision not to respond, it will definitely be harder to try to reopen the case months or even years later. 

We get it. Lawyers cost money and lawsuits can be expensive. But the cost of doing nothing could cost you a lot more in the long run! At a minimum, go talk to a lawyer and get a better understanding of your rights, options, and responsibilities. 

Getting sued can be extremely stressful, another similar situation is being sued in a foreign court, click here to learn more about foreign court descriptions.

 If you’re not sure about what to do, or if you have any questions regarding this, feel free to read more on our Civil Litigation and Appeals page or schedule a consultation today to speak with one of our attorneys.

Many people when they think about their homes or families, they think about the family pet or pets. Dogs, cats, birds, hamsters, chickens... Many people who live in homeowners associations or condominiums, however, are told that they are not allowed to have pets or that they are only allowed to have certain pets or that their pets are only allowed if they fall within certain size and weight restrictions. We recently met with a gentleman whose dog had gained weight and it went from being "allowed" to "not allowed" due to his added girth. "Sorry, Cooper is no longer welcome here at the condominium. We look forward to seeing him back here when he loses the extra five pounds."

The questions we most common encounter with pets is whether an association has the right to ban pets altogether and whether the association has the right to ban a particular pet. 

Generally, if the CC&Rs do not prohibit the right to restrict pets or animals, the HOA is probably barred from attempting to create a new rule without unanimous consent. If a declaration expressly allows pets is silent, a board of directors lacks the power to adopt rules banning them. This is not to say that associations cannot impose reasonable restrictions (they can). Of course, what constitutes reasonable restrictions is, as with beauty, often in the eye of the beholder.

However, associations generally cannot prohibit support animals (such as the emotional support pig shown in the photo above). Both the Arizona and Federal Fair Housing Act require HOAs and condominiums to make reasonable accommodations to ensure that homeowners are afforded equal opportunities to use and enjoy their property and the common areas. An association that refuses a reasonable accommodation can face a lawsuit, damages, and attorneys' fees. Both the state and federal versions of the FHA exist to ensure that individuals with disabilities, whether obvious or not, receive the same rights, benefits, and privileges as their neighbors.

Keep in mind that a homeowner cannot simply declare any animal to be an emotional support animal. You can't just grab any bird out of the air and call it your emotional support pigeon. There are rules and requirements as to what constitutes such an animal and there is usually a certification process that is required.

Associations need to tread lightly when it comes to emotional support animals, in general, and the state and federal Fair Housing Acts, in particular. Please give us a call at 602-274-5400 if you have any questions about your emotional support dogs, pigs, chickens, or other animals.

Do you want to find out more about your rights for an emotional support animal? You can talk to our attorneys today, schedule a consultation now. Or, continue reading to our next blogs about getting sued and Arizona Legislators.

Always get a lawyer involved early and often. Why? Because if you do it incorrectly you’ll likely make things a lot worse for you and your neighbors. More importantly, a board member generally does not have to face more than one removal petition during his or her term of office. So, an improper removal could prevent your neighbors from doing it correctly.

Assuming your community is not under declarant control (or the declarant has not appointed the board member in question), there are three different numbers that generally determine the success or failure to a removal petition. The first you’ll need to remember is an either-or: 25% or 100. In a community with one thousand or fewer members, a petition for the removal of one or more board members must be signed by either at least 25% of the votes or by 100 (whichever is less). If your association has more than one thousand members, however, you only need ten percent. Keep in mind that these are the thresholds. You have to assume that the board, its property managers, and its attorneys are going to scrutinize your petition to try to invalidate it. If you have signatures of exactly 25%, you’re making their job easier for them.

The next number to remember is 20%. This is the percentage of owners necessary to establish a quorum for purposes of a special meeting called for the purpose of removing a board member. Submitting a petition was just the first step. You need to mobilize your troops and keep them invested in the process. If you get 40% of the owners to sign a removal petition but only 10% show up at the special meeting, the process is over and you’ve lost. 

You’ve gotten your 25%+ signatures, you’ve submitted a removal petition, and you’ve mustered your allies to show up at the board meeting so you pass the 20% threshold. You’re still not done. For the removal to be effective, a majority of those voting (either in person or by absentee ballot) must vote in favor of removal. So, the third number to remember is 51%. Obviously, if the board members subject to removal show up with more votes, then they will successfully defeat the removal petition.

These are the basics. Removing a board member can often be a complicated process. The statute, for example, imposes rigid timelines to be enforced. The law also says that a petition calling for the removal of a board member “shall not be submitted more than once during each term of office for that member.” It also entitles the prevailing party in any civil action filed regarding a removal to be awarded reasonable attorneys’ fees and costs. 

There are a number of nuances in any removal petition and follow up questions, such as who fills the vacancies if successful? What happens if the board does not honor or challenges the petition? We highly recommend hiring a lawyer to walk you through the process to make sure it is done correctly. We cannot guarantee success in the removal process, but our professionals can guide you to avoid making mistakes that could continue to haunt you for months or even years.

To learn more about HOA law, click on HOA Law and read more. Or read more HOA related articles such as HOA Codes of Conduct or SB-1531.

The 2018 Arizona Legislative session has gotten off to a fairly unremarkable start for homeowners that potentially promises to make some really bad law for homeowners and fails to fix any of the real problems that homeowners, individuals, and consumers face on a daily basis. 

Let’s start with  a bill so bad that its own sponsor pulled it after less than one week. Senator John Kavanaugh, R-Fountain Hills, proposed amending legislation to HOA laws that would speed up the foreclosure process. Although the current laws allow homeowners associations and condominiums to foreclose if the homeowner is either one year or $1,200.00 past due, Senator Kavanaugh's proposed legislation (SB-1080) would have shortened that period to just six months. Apparently, he tried to package this nonsense as friendly for homeowners. This was literally the only change to the existing law that Senator Kavanaugh proposed. Fortunately, he withdrew the proposed bill just days later. With HOAs already foreclosing thousands of homes in Arizona (yes, I said thousands), do we really need to speed up this process?

But homeowners are not out of danger yet. A new bill seeking to amend the same laws has recently dropped in the House: HB-2609. While this might seem like another feel-good measure that, on its face, might be beneficial homeowners, it is a wolf in sheep's clothing. 

Why? It requires an association, before filing for foreclosure, to first seek and obtain a money judgment against the homeowner.  If the HOA cannot recover "the full amount of the assessments owed by execution or garnishment," then it is free to proceed with foreclosure. Sounds great; right? Homeowners cannot lose their home right away because the HOA or condominium association must first take you to court, get a money judgment, and then try to collect that money judgment. 

So what's the problem with this? Fees, for starters. Those money judgments come at a substantial cost and, you, the homeowner, are the one who is expected to pay for them. All of them. Then there's the ambiguity that the new statute creates. If your HOA gets a money judgment against you for $1,000.00 in assessments and $2,500.00 in fees and costs, that's $3,500.00 that you have to pay. If you don't have $3,500.00, does this mean that the HOA can proceed to foreclosure? 

There's also a problem with the amounts. The lawyers who prepare these money judgments for the HOA often contain "blank check" language purporting to award the HOAs with all future costs and fees incurred collecting the money judgment. This means that the $3,500.00 judgment easily could become $5,000.00 or more. Sadly, this is often done without a court ever looking at any of these additional fees or the HOA even asking for permission to collect them. Quite simply, it becomes impossible to pay off the money judgment.

Then there's the biggest question of all -- what is the amount that you have to pay to avoid foreclosure? Is it the $1,000.00? Is if the $3,500.00? What if you paid $500? What is the new amount you have to pay? You can bet the bank (and you may have to) that the HOA will argue that, to avoid foreclosure, you have to pay not just the $1,000.00 but the entire amount of the prior judgment. They'll wrap the money judgment into the new foreclosure lawsuit.

The bottom line is that this new legislation benefits the HOA lawyers. It gives them the power to charge virtually unlimited fees. At best, this proposed bill creates further ambiguities and problems. At worst, it codifies a system that is already in place designed to run up attorneys' fees on behalf of an HOA to make it difficult, if not impossible, for Arizona homeowners to catch up once they fall behind.

If Legislators wanted to fix the problem, one solution is an easy one -- clarify that homeowners can avoid foreclosure, at any time (before or after a lawsuit is filed), simply by paying the amount of the unpaid assessments. All too often, homeowners are paying thousands of dollars to pay these unpaid assessments only to find that the attorneys representing the HOAs refuse to dismiss the foreclosure lawsuits because the homeowners won't pay the attorneys' fees and costs that have not yet been (and may not be) awarded.

 
If you have any questions or concerns with your HOA, our attorneys will be more than willing to help you out. Schedule a consultation today and speak with our experienced attorneys directly. Or, continue reading another HOA law-related blog by clicking here.

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The Fair Debt Collection Practices Act ("FDCPA") expressly prohibits a debt collector from bringing a legal action in a "foreign" venue. See 15 U.S.C. § 1692i. "Foreign" does not mean account on another country or even another state. For purposes of the FDCPA, a "foreign" court is any court that is not located in q judicial district in which you reside or in which you signed the contract that is at issue in the lawsuit.

This statute explicitly provides for just two proper forums:

1. in the case of an action to enforce an interest in real property securing the consumer’s obligation, bring such action only in a judicial district or similar legal entity in which such real property is located; or

2. in the case of an action not described in paragraph (1), bring such action only in the judicial district or similar legal entity—

(A) in which such consumer signed the contract sued upon; or

(B) In which such consumer resides at the commencement of the action.

A legal action for purposes of this section is not limited to a lawsuit, but it can also include a garnishment action, other types of collection actions, and generally encompasses "all judicial proceedings."

Call us at 602-274-5400 If you have questions on whether you're being sued in the correct court. You are not being sued in the right court, you may be entitled to damages, attorneys' fees, and court costs (even if you owe the debt).

It pays to know your rights. If you want to learn more, you can check out or civil litigation and appeals and HOA defense and consumer rights page. Or click here to read more about FDCPA.

The Fair Debt Collection Practices Act (“FDCPA”) was adopted to “eliminate abusive debt collection practices by debt collectors….” 15 U.S.C. § 1692(e). Debt collectors include lawyers and law firms regularly engaged in the collection of debts through litigation constitute debt collectors for purposes of the law. Heintz v. Jenkins, 514 U.S. 291, 299, 115 S.Ct. 1489, 1493, 131 L.Ed.2d 395 (1995).

A debt collector’s behavior is measured according to a “least sophisticated debtor” standard, which “ensure[s] that the FDCPA protects all consumers, the gullible as well as the shrewd… the ignorant, the unthinking, and the credulous.’” McCollough v. Johnson, Rodenburg & Lauinger, LLC, 637 F.3d 939, 952 (quoting Clark v. Capital Credit & Collection Serv., Inc., 460 F.3d 1162, 1171 (9th Cir. 2006)). The FDCPA is a strict liability statute that “makes debt collectors liable for violations that are not knowing or intentional.” Reichert v. National Credit Systems, Inc., 531 F.3d 1002, 1005 (9th Cir. 2008).

Absent evidence of a bona fide error, courts have held that a debt collector violates the Fair Debt Collection Practices Act as a matter of law where it misstates the balance owed, misrepresents the legal status of a debt, pursues a non-existent debt, or collects or garnishes more than the amount owed. 

Although a debt collector can violate the FDCPA in numerous ways, most violations fall into one of the following two categories. We will address additional FDCPA violations in subsequent blog posts.

False and Misleading Misrepresentations.

A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. This includes, but is not limited to false representations as to:

(A) the character, amount, or legal status of any debt; or

(B) any services rendered or compensation which may be lawfully received by any debt collector for the collection of a debt.

(3) The false representation or implication that any individual is an attorney or that any communication is from an attorney.

It also prohibits debt collectors from representing or implying: that nonpayment of a debt will result in arrest or imprisonment or the seizure, garnishment, attachment, or sale of any property or wages of any person (unless such action is lawful and the debt collector or creditor intends to take such action); threats to take actions that cannot legally be taken or that are not intended rot be taken; false representations or implications that the consumer committed any crime or other conduct in order to disgrace the consumer; and falsifying documents to make it appear they are authorized, issued, or approved by courts, officials, or the U.S. or state agencies.

This section of the FDCPA generally prohibits using false representations or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer. 

Unfair or Unconscionable Means.

A debt collector may not use unfair or unconscionable means to collect or attempt to collect any debt. This includes:

1. Collecting amounts (including any interest, fee, charge, or expense incidental to the principal obligation) that are not expressly authorized by the agreement creating the debt or permitted by law.

2. Accepting a check or other payment instrument postdated by more than five days (unless such person is notified in writing of the debt collector's intent to deposit such check or instrument not more than ten nor less than three business days prior to such deposit).

3. Soliciting postdated checks or other postdated payment instruments for the purpose of threatening or instituting criminal prosecution.

4. Depositing or threatening to deposit any postdated check or other postdated payment instrument prior to the date on such check or instrument.

5. Taking or threatening to take any nonjudicial action to effect dispossession or disablement of property if (a) there is no present right to possession of the property claimed as collateral through an enforceable security interest; (b) there is n present intention to take possession of the property; or (c) the property is exempt by law from such dispossession or disablement.

6. Communicating with a consumer regarding a debt by postcard.

Violations of the FDCPA carry penalties, including statutory and actual damages as well as attorneys' fees and court costs.

 If you like this article, you may also find these topics interesting: HOA Law, HOA Defense and Consumer Rights, Civil Litigation and Appeals, Bankruptcy. Or, continue reading to our next blog about how HOA codes of conduct are impossible to enforce.

HOA boards cannot exclude or prohibit board members from executive sessions or other meetings. In McNally v. Sun Lakes Homeowners Association #1, Inc., 241 Ariz. 1, 382 P.3d 1216 (October 13, 2016), the Court of Appeals rejected an association's argument to exclude a board member from all executive sessions, holding that "bypassing the motion, the Board prevented [her] from performing her duties and responsibilities as a director."

The Court wrote:

Participating in executive sessions was critical to McNally performing her duties as a director. Pursuant to A.R.S. §§ 33–1804(A)(1)–(5), directors of a homeowners' association are permitted to discuss a wide variety of important matters in executive session, including: legal advice from an attorney; pending or possible future litigation involving the association; personal, health, or financial information about association members, employees, or contractors; and job performance, compensation, health, and complaints regarding association employees. Indeed, during McNally's term, the Board frequently held executive sessions to discuss important matters such as the Association's budget, members' code of conduct, remodeling projects, creation/elimination of staff positions, and hiring a general manager. However, based on the Board's motion, McNally was not allowed to participate in any of these discussions.

When members are elected to serve as board members, "it is contemplated that the corporation shall have the benefit of the judgment, counsel, and influence of all of those directors.” Id. (quoting 2 William Meade Fletcher et al., Fletcher Cyclopedia of Law of Corporations § 406 (perm. Ed., rev. vol. 2014)). The Court of Appeals held that a meeting held in the absence of some of the directors and without notice to them is most likely illegal.

If you are an HOA board member and this happened to you or if you feel you need legal service regarding this matter, schedule a consultation with one of our attorneys or read more about your rights on our HOA law page.

Wondering how to fight your HOA fines and win? You can find that here.

The Arizona Court of Appeals recently imposed significant restrictions on homeowners' associations' rights to impose fines and penalties against homeowners.

In Turtle Rock III Homeowners Association v. Fisher, 243 Ariz. 294, 406 P.3d 824 (October 26, 2017), Division One of the Arizona Court of Appeals held that homeowners associations are prohibited from imposing and collecting fines or penalties if the HOA did not have a valid, published written fine penalty policy. The absence of such a policy was per se unreasonable and, as such, the fines were unenforceable.

HOA Penalties

Arizona law generally allows HOAs to charge reasonable monetary penalties. See, e.g., A.R.S. § 33-1803(B). However, the Court held in a previous case that it was unreasonable to impose late fees based on a retroactively adopted fee schedule. In Turtle Rock III, the Court of Appeals considered whether daily or weekly fines were reasonable or "akin to a punitive damages award." The Turtle Rock homeowner faced "escalating monetary penalties for her failure to cure" certain maintenance violations. 

The Turtle Rock III court rejected the fines on several grounds. First, it held that "[a]d hoc fines," that is fines that are imposed seemingly out of thin air, "are per se unreasonable." This is true "even where the HOA has the authority to levy fines." In addition, any fines must be promulgated pursuant to a prior published schedule of fines. In other words, secret fine policies are just as prohibited as no fine policies at all. The absence of a fine policy in the Turtle Rock case was a significant factor in the Court of Appeals' ruling for the homeowner. "The trial court did not make a finding that a promulgated fee schedule existed."

Finally, and perhaps most significantly, the Court of Appeals held that it was the Association's burden to prove that the fines imposed were reasonable. In Turtle Rock, the fees were $25.00 per day. The homeowner "was not required to present evidence controverting the existence of the fee schedule." That burden fell squarely on the Association suing to collect the fines. The Court of Appeals held that there was "no support in the record for a determination that a fine of $25 per day, for any violation, is reasonable. A stipulated damages provision made in advance of a breach is a penalty, and is generally unenforceable." 

The Court's central holding is worth repeating: 

Although the HOA had the authority under state statutes and the CC&Rs to promulgate a fine schedule for monetary penalties, there is no competent evidence in the record before us that it did so. Without competent evidence of a fee schedule timely promulgated demonstrating the fine amounts and the appropriateness of such amounts, monetary penalties are per se unreasonable. Even if a fee schedule existed, the HOA had the burden to prove its damages. Given our resolution of this matter, we need not address Fisher's due process claim related to the required thirty-day notice of a penalty. The trial court's award of monetary penalties is reversed and the attorneys' fees award below is reversed.

The last part of this ruling will continue to resonate: "Even if a fee schedule existed, the HOA had the burden to prove its damages." While an HOA may have the right to impose fees or penalties for CC&R violations, Turtle Rock suggests that any such fines, in addition to being set forth in a published fine policy, must relate to some damage that the HOA might suffer. 

Most HOAs that have fine policies charge a minimum of $25.00 for an initial violation. These fines often escalate quickly. $25.00 becomes $50.00, which becomes $100.00, and so on. But if these fines bear no relation to any actual damages that an HOA actually suffers, it raises serious questions whether the HOA can even enforce such fines in the first place.

Have you been fined? Did you pay the fines or are you contesting them? 

Call us today to discuss your legal rights

Learn more about how to fight hoa fines and win!

Arizona law prohibits a lender from filing a lawsuit to collect on a home loan where the loan represents “purchase money,” that is, money used to purchase the property. This includes purchase money loans that are technically denominated as “home equity lines of credit” taken out at the time of the original purchase of the home. It also includes first, second, and even third mortgages where the money was borrowed as part of the purchase of the property.

Consider the following illustration: You buy a $300,000.00 house. It is structured as two loans in what is commonly called an “80-20” transaction, meaning that the first loan is 80% of the purchase price, or $240,000.00, and the second loan is 20% of the purchase price, or $60,000. Because both of these loans are considered purchase money loans, the lenders cannot sue the borrower to recover the money in the event the borrower defaults. This is true even if the borrower has refinanced the original loan to get a better interest rate or other terms (note: the same may not be true, however, if the borrower has refinanced in order to withdraw some equity). This is also true even if the lender calls the second loan a “home equity line of credit.”

A common scenario in today’s real estate market is that the first mortgage forecloses. Ordinarily, this leaves the second lender without any remedy because they cannot file a lawsuit seeking to recover the difference. A number of lenders, however, are either unaware of, or deliberately ignoring, this prohibition by filing improper lawsuits. In many cases, the original loan has been sold to a different bank and the new bank fails to do its due diligence to determine whether the loan is a purchase money loan before filing a lawsuit. Because borrowers are unaware of the rules, in many cases they do nothing and let the lenders obtain substantial default judgments against them. Judgments to which the lenders otherwise would not be entitled except the borrower has forfeited his or her right to defend the lawsuit! In many cases, you may be entitled to recover your attorneys’ fees and costs if you are forced to defend such a lawsuit.

Don’t become a victim of predatory collection practices on the part of unscrupulous or unknowledgeable banks. If a bank has sued you on a second loan, we strongly advise you to consult with a lawyer to determine your legal rights. Contact the lawyers at the Dessaules Law Group today at 602-274-5400 to schedule a consultation.

The prevalence of foreclosures in the real estate market has had several unexpected repercussions to distressed homeowners who have made the decision to walk away from their home.  Banks appear to be unable, incapable, or unwilling to handle the volume of foreclosures, so a distressed homeowner may continue to own his or her home for months, and occasionally even years, after receiving a Notice of Trustee’s Sale (rather than the 90-days stated in the Notice).

Because you are legally responsible for payment of assessments until you are no longer the owner, it is important that you continue to pay your HOA assessments until you have received confirmation that there is a new owner (most commonly in the form of a Trustee’s Deed Upon Sale).  Many people who make the mistake of thinking that they can simply return the keys to the bank or that the Notice of Trustee’s Sale means they no longer own the property get a rude awakening after a few months: A hefty bill for unpaid assessments from the HOA that in all likelihood includes collection costs such as attorneys’ fees.  The HOA also may file a lawsuit to collect those assessments.  Because such collection actions almost always increase the amount you are obligated to pay, it is important to make sure that you continue to pay your assessments until the trustee’s sale is completed.

Many distressed homeowners are turning to bankruptcy as a solution, logically thinking that it simultaneously eliminates their personal obligation to pay HOA assessments and creates the vehicle for walking away from their home.  Ordinarily, the bank will seek, and obtain, permission from the bankruptcy court to conduct the trustee’s sale and notice the trustee’s sale.  Then, the homeowner is discharged from bankruptcy and is able to start fresh without being weighed down by the debts.  At least this is how it is supposed to happen.

But what happens if the bank postpones that trustee’s sale or, as we are commonly seeing, simply cancels it for whatever reason.  One possible reason for the bank to postpone or cancel the sale is that it has too many foreclosures and does not want to take on the added cost of HOA assessments, so it decides to hold off on the foreclosure, thus leaving you responsible for assessments.  The HOA does not care that the bank is dragging its feet, but you should—you remain obligated to the HOA until you are no longer the owner!  So while the discharge may have eliminated your personal liability for past assessments, the HOA can, and will, begin to charge you for assessments that accrue after you have been discharged from your bankruptcy.  So it is important for a distressed homeowner who has filed for bankruptcy to stay abreast of the trustee’s sale and not simply assume that the bank has followed through with its stated intention of foreclosing.

The distressed homeowner is not without possible remedies against the bank.  Call us to schedule a consultation with an attorney to discuss these possible remedies or read more about it on our Bankruptcy page.

Homeowner and condominium associations are increasingly adopting policies for shutting off water or other utilities where an owner has fallen behind in his or her assessments, owes fines or penalties for violating the governing documents, or is supposedly refusing to follow rules.  Although people who own in a homeowner association generally are obligated to pay assessments, associations commonly use these water shut-off policies in order to force members to pay assessments, fines, penalties or other charges that they may not owe.  These owners often face an unfair choice: Pay what we tell you to pay or live without water. 

What many homeowners do not know is that such policies in many cases may be unenforceable. There is no reported case in Arizona that authorizes a homeowners association to shut off water or other utilities. The determination of whether the policy is enforceable depends on several factors, including (a) an association’s governing documents, (b) Arizona’s planned community and condominium laws, (c) the history of the policy and its enforcement, and (d) whether the association is seeking to collect assessments or fines and penalties.  In many cases, the water shut off policy is not enforceable and can be successfully challenged in court.

In most cases, we find that the application of these factors provides fertile ground for challenging a shut-off policy.  While this is especially true where the association does not pay for the utility that is the subject of the shut-off policy, the association does not necessarily gain the right to shut off essential services even if it pays for the utilities.

Please understand that we are not advocating you to refuse to pay assessments.  Assessments have been called the “lifeblood” of a homeowners association and an association has every right to collect assessments…provided that the assessments are valid and it does so within the law.  If you believe that assessments are invalid, we strongly encourage you to seek legal representation to learn about your rights and obligations.  We recommend you seek legal counsel before taking any action.  Although many people believe that they can simply stop paying assessments, it is our experience that this is not the wisest course of action and many people who stop paying assessments quickly regret it.

Courts cannot, and should not, condone a homeowner who has refused to pay valid assessments.  But the courts also should not condone a homeowners association that has exceeded its lawful powers and seeks to use unlawful collection tactics.  And, in many cases, the association is using the threat of water shut off to force a homeowner to pay disputed fines or penalties. 

An Association’s Governing Documents Rarely Permit the Disconnection of Water of Other Utilities.

Although many associations will argue that their governing documents (CC&Rs and Bylaws) in general provide sufficient authority for shutting off utilities, this is rarely the case. Unless an association’s CC&Rs explicitly creates the right to shut off utilities as a collections tactic, then no such right exists.   Even if the CC&R’s provide such an explicit right, that provision may be found to be unlawful.

The CC&R’s constitute a contract between the Association and the homeowners. In most cases, the governing documents spell out the rights and remedies of the association.  Rarely do these enumerated rights include the ability to shut off water or other utilities for non-payment.  Rather, they generally permit an association to commence legal action for damages or foreclosure (if applicable) and on occasion may also allow the association to suspend certain rights and privileges, such as the right to vote.  If the right to shut off water is not expressly spelled out in the CC&Rs, then it is not part of your contract with the association.

Nor can the right be inferred or implied from a general right to collect assessments or charge fines. One court addressing this question has decried this “extra-legal means of enforcement,” holding that the association, in that case, lacked the legal right to shut off a homeowner’s water.  See Western v. Chardonnay Village Condominium Ass’n, 519 So.2d 243 (1988).  In general, the absence of express language authorizing utility shut off, and the inclusion of specific language spelling out the methods for collection of unpaid assessments, as if often the case, defeats any argument that such an implied right exists.

The association’s CC&R’s generally do not give it the right to employ collection tactics such as shutting off the water, disconnecting utilities, or prohibiting parking any more than the association could threaten to change the locks on your house or condominium.  And an association does not have the right to change the locks on your house or condominium.

Arizona Law Does Not Permit the Disconnection of Utilities.

Arizona law also does not authorize the disconnection of water or other utilities.  Arizona’s statutes governing condominiums and planned communities generally restrict exclusive an association’s remedy for non-payment of assessments to commencement of a civil action for damages and/or foreclosure of its lien (where applicable).  Nothing in Arizona’s Planned Communities Act or Condominium Act allows an association to disconnect these essential services any more than it could change the locks on your home.  Simply put, an association does not have the authority under Arizona law to deny water or other utilities as a means of collecting for past due assessments or penalties.

Arizona courts have analogized homeowners associations to landlords in many respects.  See Martinez v. Woodmar IV Condominiums Homeowners Ass’n, Inc., 189 Ariz. 206, 941 P.2d 218 (1997).  A homeowners association has no greater right to shut off water or other utilities than a landlord.  And a landlord generally cannot shut off essential utilities in Arizona—even where the landlord pays for those utilities—as a means of compelling payment of rent.  See A.R.S. § 33-1364.  Thus, the fact that the homeowners association might pay the utility bill as a common expense does not necessarily create the right to shut off that utility to a non-paying homeowner.

The disconnection of essential services also arguably raises serious due process concerns.  The Condominium Act and Planned Community Act both require commencement of legal process in order to collect past due assessments or fines.  Where an association has received a specific grant of power under the statute, a collection policy that circumvents the legal process provided, and avoids the judicial oversight inherent in the legal means set forth in the statute, offends basic concepts of due process.

The History and Application of the Policy Is a Crucial Question.

Even if state laws and an association’s governing documents permit shutting off utilities, one should examine the history of the policy and how it is being enforced.  Consider the following questions:  Was the policy adopted in a properly noticed, open meeting? Was the policy communicated to the homeowners?  Is the policy uniformly enforced? Unless you can answer, “yes,” to each of these questions, the homeowner may have valid grounds for challenging the policy.

Policies that are discussed and adopted in closed, private meetings by a select handful of homeowners subvert Arizona’s open meeting statutes (A.R.S. §§ 33-1248 and 33-1804), and are invalid and unenforceable. Although the open meeting statutes do not explicitly spell out the remedies for their violation, the statutes would be meaningless if actions taken during a closed or secret meeting are valid. Even if the policy was adopted in a properly noticed, open meeting, the failure of the association to disseminate the policy to homeowners could render the policy otherwise unenforceable.

Such policies, however, are almost never enforced uniformly or objectively.  The policy is often enforced only against those designated as troublemakers or outsiders, or delinquent board members may exempt themselves or their friends from the harsh application of the policy; or the policy may be enforced arbitrarily or capriciously.  Any evidence that the policy is not enforced on a uniform and non-preferential basis renders the policy enforceable.  It also violates an association’s duty to treat all homeowners equally and fairly.

Is the Association Shutting Off Water as a Fine or Penalty?

The non-payment of assessments, as discussed above, should not be condoned and Arizona law provides remedies for the non-payment of those assessments.  In many cases, an association has threatened to shut off water or other utilities as a means of forcing a homeowner to pay disputed fines, penalties, or fees.  The nature of the monetary amount that is the subject of the collection effort is a crucial factor that must be considered in challenging the water shut off policy.

Although it is our position that water shut-off policies are almost always unenforceable, the challenge to the policy is strengthened where the alleged delinquent balance includes disputed fines, penalties, and charges other than just assessments. The rationale common employed by an association defending a water shut-off policy is that assessments are used to pay the utilities.  This rationale is absent where the balance consists, in part or whole, of fines or penalties for alleged (and unproven) CC&R violations.

Arizona law distinguishes between assessments and fines.  For example, a homeowners association has the statutory right to foreclose where the unpaid assessments exceed $1,200.00 or have not been paid for more than one year, the association generally does not have the right to foreclose for violation fines or penalties.  If an association cannot foreclose if you paint your house the wrong color or leave your trashcan out overnight, why should they be allowed to shut off your water in order to force you to pay fines and penalties that you dispute and may not even be valid!

Conclusion.

In many cases, a policy that allows the association to deny essential utilities or access to your unit is subject to challenge.  Because every case is unique, you should not rely on this article as legal advice specific to your situation.  But if you are faced with threats of having your water shut off, you should immediately consult a lawyer.

Don’t be a victim or abusive practices. Seek legal assistance and learn more about your legal rights on consumer fraud.

If you live in a homeowners association and have ever fallen behind on your assessments, chances are good you received one or more letters threatening legal action. If you have been unlucky enough to be sued by your homeowners' association and lost, chances are very good that your homeowner association has added court costs and attorneys’ fees to the amount of the unpaid assessments. Arizona law and homeowners association’s governing documents generally permit a homeowners association, if successful in court, to include its costs and attorneys’ fees in addition to the unpaid assessments in any judgment it obtains against you.

The next step would be for the homeowners association to try to collect its judgment. This might include demand letters, wage garnishments, or other collection methods. A common scenario that we see is that the homeowners association never limits its collection to the amount of the judgment and in most cases seeks to collect several thousand dollars, sometimes three or four times, or more, greater than the amount of the actual judgment, as part of its collection efforts. So that small judgment against you of $1,200.00, which you ignored, has suddenly turned into a wage garnishment of $6,000. And the amount continues to grow.

The homeowners association will defend the increase as part of its perceived right to collect costs and fees in connection with the original lawsuit. But whereas the fees and costs incurred getting the judgment may be recoverable, it is our position that a homeowners association and its lawyers do not have the unilaterally right to increases a judgment in order to collect such additional amounts.

Generally, “judgment must be a clear, ascertainable debt” that does not have prospective application. Reeb v. Interchange Resources, Inc. of Phoenix, 106 Ariz. 458, 459 (1971). A party seeking to collect such a judgment should not have the right to decide how much you owe—after all, isn’t that the purpose of the judgment? A judgment is a piece of paper that you should be able to determine, at any given time, exactly how much you owe. Let’s say you want to pay off that judgment, so you call up the association’s lawyer. It is not fair that the lawyer can give you one number in the morning when you call and another number later that afternoon when you call back to give your credit card. When the party trying to collect the judgment is increasing that amount in random amounts, without seeking court approval, it is in our opinion an abuse of the legal process and the judgment itself bordering on extortion.

Where the homeowners association or its lawyers has threatened to garnish wages, or garnished wages, in excess of the amount of the judgment, you are not without legal rights. In addition to challenging the garnishment, the federal Fair Debt Collection Practices Act also may afford a remedy to you to recover damages for misrepresenting the amount of the judgment, collecting more than the amount of the judgment, and other unfair collection tactics.

If you believe you are a victim of an over-aggressive homeowners association that is threatening to collect, collecting, or has collected more than its judgment against you, you should seek legal representation to determine whether you have a case.

Arizona law is clear on the subject of your HOA's records -- as a member of the HOA, you have the right to inspect and copy any and all association records. Meeting minutes, financial records, bank statements, vendor's contracts, bills, invoices, checks, voting records...just about anything!

The statutes say that "all financial and other records of the association shall be made reasonably available for examination by any member or any person designated by the member in writing as the member's representative." Although the association can charge you "not more than fifteen cents per page," the statutes make it clear that it cannot charge you "for making material available for review." The association "shall have ten business days to fulfill a request for examination" or "to provide copies of the requested records."

There are just five limited exceptions to your right to inspect:

1.    Privileged communications between an attorney for the association and the association (note: engagement letters and attorney invoices are rarely considered by courts to be "privileged");

2.    Pending litigation;

3.    Meeting minutes from closed, executive sessions (note: many boards improperly hold closed meetings to discuss matters that should be discussed in open meetings);

4.    Personal, health or financial records of a member or employee; and

5.    Records relating to job performance, compensation of, health records of or specific complaints against an employee.

So why do so many boards of directors refuse to turn over documents? What are they hiding and why?

If you want to learn more about your rights regarding HOA related records inpection. Check out our HOA Law page for more information or schedule a consultation to speak with one of our attorneys.

Arizona law gives homeowners the right to record all open board meetings.

Persons attending may tape record or videoptape those portions of the meetings of the board and meetings of the members that are open. The board of directors of the association may adopt reasonable rules governing the taping of open portions of the meetings of the board and the membership, but such rules shall not preclude such tape recording or videotaping by those attending.

A common tactic employed by numerous boards is to require a homeowner to give advance notice of their desire to record a meeting at least 24 hours before the meeting. Another common ploy is to require anyone who records or videos a meeting to give a copy to the board or face stiff fines. In our opinion, these are not the "reasonable rules" that the statute has in mind. Do you know for sure you are going to attend the next board meeting? Do you know for certain that you want to record or video that meeting? Very often the need to record does not arise until at the board meeting.

In this day and age of the iPhone and recording devices that can fit in a small pocket, it is not uncommon for someone to make a decision whether to record until sitting in a board meeting and watching a board member or manager act improperly. 

You have every right to record the meeting. Do not let the board or its management company bully you with unreasonable rules. Know more about rights, read our HOA law page.

Is your HOA or condominium suing you?

Maybe you think -- or even know -- that you're current on your assessments. Or maybe you might be a little behind in your payments...but certainly not by that much! So why is your HOA suing you -- or threatening to sue you -- for so much more?

The association's lawyers will tell you they are entitled to late charges, collection costs, attorneys' fees, and court costs, but the real answer is far more complicated. While an HOA might be entitled to some of these charges and costs if it proves them in court, they first need to prove them. Far too often we find that the HOA, its management company, or its attorneys have simply added these amounts to your ledger. In some cases, these additional charges are multiples of the actual assessments that you owe. Then they tell the judge that you are responsible for the total amount. Period. They present the total balance to the judge and say that you owe it because it is on there.

But the law is not supposed to work this way. Imagine if you went into a store and the owner just started adding on various charges to your bill. A billing fee. A stocking surcharge. A customer charge. You'd want to know what each of these charges is, where the right to charge them comes from, and whether those amounts are reasonable. We do not expect you to pay them simply because they are listed on an invoice. Why should these rules by any different for your HOA? 

They shouldn't be but all too often homeowner associations seem to play by their own set of rules. This is why we strongly recommend hiring, or at least consulting with, a lawyer the very first minute you learn about a dispute with your HOA. Early intervention in some cases can prevent a lawsuit or prevent the association from obtaining an excessive judgment against you.

If you feel your HOA is guilty of this or doing other similar malpractices. Consult with a professional to find out if you have a case.

Arizona Open Meeting Law HOA

It is really quite a simple and easy concept to understand: The board of directors generally must operate in open meetings. They cannot act in secret or transact business in closed meetings (except in very narrow circumstances).

The statute states:

[All meetings] are open to all members of the association or any person designated by a member in writing as the member's representative and all members or designated representatives so desiring shall be permitted to attend and speak at an appropriate time during the deliberations and proceedings. The board may place reasonable time restrictions on those persons speaking during the meeting but shall permit a member or member's designated representative to speak once after the board has discussed a specific agenda item but before the board takes formal action on that item in addition to any other opportunities to speak.

HOA Board Votes

You read that correctly. Not only does not the board have to deliberate and vote in an open meeting about any action it wishes to take, but you have the absolute right to speak before the board votes. Now, the board may impose reasonable time restrictions on you, but they cannot prevent you from speaking or only give members a chance to speak at the end of a meeting. Again, every member or member's designated representative has the right to speak before the board takes formal action. This includes voting on any action.

Both the Arizona Condominium Act ("ACA") and the Planned Community Act ("PCA") contain the following provision:

It is the policy of this state as reflected in this section that all meetings of a condominium, whether meetings of the unit owners' association or meetings of the board of directors of the association, be conducted openly and that notices and agendas be provided for those meetings that contain the information that is reasonably necessary to inform the unit owners of the matters to be discussed or decided and to ensure that unit owners have the ability to speak after discussion of agenda items, but before a vote of the board of directors or members is taken.  Toward this end, any person or entity that is charged with the interpretation of these provisions, including members of the board or directors and any community manager, shall take into account this declaration of policy and shall construe any provision of this section in favor of open meetings.

A.R.S. § 33-1248(F); A.R.S. § 33-1804(F).

Both the ACA and PCA further explicitly provide that all meetings, not just board meetings, just be conducted in an open forum with limited exceptions. "[A]ll meetings of the unit owners' association and the board of directors, and any regularly scheduled committee meetings, are open to all members of the association or any person designated by a member in writing as the member's representative and all members or designated representatives so desiring shall be permitted to attend and speak at an appropriate time during the deliberations and proceedings."

In fact, the Legislature recently amended both the ACA and PCA to require boards to publicly announce the specific circumstances in which a board may go into a closed meeting: "Before entering into any closed portion of a meeting of the board of directors, or on notice of a meeting under subsection D of this section that will be closed, the board shall identify the paragraph under subsection A of this section that authorizes the board to close the meeting."

In other words, HOA meetings generally must be conducted openly and transparently. Why then do so many boards and board members ignore these rules? Why do property managers actively encourage going into closed or executive session to discuss mundane business or non-privileged matters?

As members of homeowners, condominium, or planned community association, you have the right to demand openness and transparency. You have the right to insist that your association comply with the law.

Contact us today if you have questions about your legal rights as a homeowner in an HOA. Our HOA attorneys are here to serve you.

So you find yourself behind in your HOA assessments. The HOA lawyers are circling. Maybe they've threatened a lawsuit or already filed it? You call the HOA to try to find out how much you owe, but they just send you to the attorneys. You call the attorneys and leave countless messages. Or maybe they speak to you, but the amount they tell you that you owe is a lot more than you owed...because the HOA has added late fees, collection fees, and a ton of attorneys' fees to your account. It feels like an excessive amount to charge for a letter or two. You want to bring your account current, if only to avoid foreclosure, but you don't have the outrageous amount they're demanding that you pay. So what do you do?

Pay your assessments. Sit down, calculate the unpaid assessments that you owe, and send in a check for the full amount of the unpaid assessments. If you cannot afford to pay, in full, the assessments that you owe, pay what you can. Write "Assessments" on the memo line of the check. Then, deliver the check in person (and get a receipt) or send it by certified mail so you have a record of the check being sent. It sounds silly, but also make a copy of the check and, if possible, video yourself putting the check into the envelope and sealing the envelope (it is amazing how many times the HOA has claimed it never received a check). 

If they refuse to accept the check, send it back to them. If they tell they cannot accept "partial payments," resend the check to them and instruct them, in writing, to apply your payments to unpaid assessments. Document and keep everything. Make them accept your assessments. If they keep rejecting it, keep sending it back in, keeping or taking photographs every time of the envelopes come to you.

Your payment -- or attempted payment -- of assessments is a valuable defense if your HOA decides to file a foreclosure lawsuit. You might not be able to avoid a lawsuit, but at least you can prepare to defend the lawsuit. Imagine yourself in court six months or a year later when the HOA wants to sell your home at a sheriff's sale to collect unpaid assessments. If you have records showing every time you paid or attempted to pay those assessments, it very well may be the difference between losing and saving your home!

Check out HOA Law, Real Estate to know more about your legal rights.