ARIZONA VIEW OBSTRUCTION LITIGATION
Pima County Superior Court Case: C2004 4596
An Editorial
PRETRIAL DISCOVERY
WHERE IT ALL BEGAN…
The Plaintiffs were traveling in Canada between 6-17-03 and 7-01-03. During that time, a neighbor took down four sections of 5 foot high wrought iron fencing and replaced it with concrete masonry unit (CMU) wall panels. Upon their return home, plaintiffs expressed concerns to the Homeowner’s Association about the view obstruction.
Additional investigation revealed the following construction defects:
(1) The wall sections required a town building permit prior to construction due to the height. No permit was obtained before construction was completed.
(2) The neighbor / contractor failed to comply with the 2000 International Residential Code requiring metal reinforcing to be installed during construction. A metal scan revealed none was installed during construction.
(3) A licensed contractor was required by the Registrar of Contractors (ROC) to construct the wall panels and the contractor failed to meet ROC workmanship standards.
(4) The masonry wall was out-of-plumb and out-of level. The wall was 1/2 inch out of vertical plumb (twice the allowed deviation) and leaning in the direction of the plaintiff’s property.
(5) The mortar joints were not straight and plumb – and within the required 3/16 inch in adjacent courses. The deviation error progressively increased from bottom to top until it became 2 inches at the top course. The CMU wall panels were 2 inches higher than the existing CMU posts.
(6) There were no interlocking or metal connections between the block wall panels and the existing block posts. The wall panels were, in essence, free standing.
THE GOVERNING DOCUMENT…
CC&R’s SECTION 11.23 View Obstruction:
Pertinent statements of Section 11.23:
(1) "No walls, fences, trees, shrubs, or other structure or landscaping, shall be placed, located, or constructed on any Lot if the Architectural Committee, as the sole and final judge of the matter, determines that such improvements would reasonable interfere with or impede a material view available on another Lot and that other more reasonable alternatives exist in design and construction with causing undue hardship or expense to the Resident Owner requesting the approval in question".
Comments:
The Architectural Committee was required to make a determination that such improvements would not interfere or impede a material view available on another Lot… The plaintiffs stated for the record that no person from the Architectural Committee, staff person, or Board member ever made such a determination from the plaintiff’s lot. The CC&R’s did not define what constituted a material view and the Judge required the HOA to defend that statement.
The Mission, Vision and Goals / Objectives of the Architectural Committee distributed to the homeowners at a town meeting stated:
"The committee must be sensitive to all concerns. Committee members must follow the CC&R’s and Design Guidelines, not just personal preferences".
"The committee must consider all views of a property, including views from the golf course".
(2) "Each Owner shall indemnify the Architectural Committee against any action or complaint arising out of or related to such Owner’s construction or placement of any landscaping or structures approved by the Architectural Committee pursuant to its powers under that Declaration."
Comments:
The HOA Board of Directors did not comply with the provisions of this section by failing to require the lot owner to indemnify the HOA. (The lot owner was the neighbor and also a member of the Board of Directors).
ATTEMPTS TO DISCUSS AND RESOLVE THE ISSUE…
For three months, the Plaintiff made several verbal and written attempts to discuss and resolve the issue with the Architectural Committee, the HOA General Manager, Board of Directors President and other officers of the Declarant. None of those attempts produced a movement toward resolution.
(1) The HOA General Manager responded with one letter that, for the most part, contained false, inaccurate, immaterial statements and offered no settlement interest or options.
(2) The HOA Attorney responded with one letter that, again for the most part, contained no substantive comments and offered no settlement interest or options.
(3) There was no response from the Architectural Committee, the Board President or the other Board officers of the Declarant.
Finally, the Plaintiffs advised the Board of Directors they would file a lawsuit if they were unwilling to discuss and resolve this issue. There was no response.
LAWSUIT C 20044596 WAS FILED IN PIMA SUPERIOR COURT IN DECEMBER 2004
(1) The following information was reported in court petitions, exhibits and depositions.
(2) The Board of Directors (Board) referred to was the Declarant Board.
(3) The General Manager (GM) referred to was the first General Manager.
DISFUNCTIONAL GOVERNANCE…
Testimony presented to the court disclosed numerous governance irregularities.
(1) Approval Process Step 1. The original request for approval of the block wall construction to the Member Architectural Review Committee from the neighbor was in form of a letter to the HOA General Manager. The required Change Request Form was then filled out by the HOA staff and later signed by the neighbor.
(2) The form contained a signature block for the Committee members to sign and indicate approval (or disapproval). There were no signatures in the block and no indication of approval.
(3) The Plaintiffs testified in a petition that construction of the block wall was complete by the date on the form that was submitted for approval.
(4) Approval Process Step 2. The minutes submitted in court filings, and offered as evidence of approval by the Advisory Council, showed no submittal or disposition for the neighbor’s construction request.
(5) No disposition of the construction request was shown in subsequent Council minutes granting approval for the project, in documents submitted to the Court.
(6) Approval Process Step 3. The minutes submitted in court filings showed the neighbor’s construction request to the Board Architectural Review Committee was put on hold pending further discussion.
(7) No disposition of the request was shown in subsequent Board Committee meeting minutes granting approval for the project.
(8) The HOA General Manager wrote a letter to the neighbor granting approval for the construction project. The height of the block wall was not to exceed 5 feet. It measured 5.5 feet and was never challenged by the HOA.
DEFENDANT TESTIMONY UNDER OATH…
The HOA General Manager testimony disclosed:
(1) Falsified Evidence. The former GM took existing evidence – the Board minutes and changed them without Board consent. At the bottom of the disclosed document, a section was added favorable to the Plaintiff’s position. The Judge pro tem who conducted the later mediation sessions told the Plaintiffs’ the GM's action was a felony.
Noticing the change in font, Plaintiff’s counsel demanded the GM appear at deposition with the original file. The added language was not present on the original documentation, only on the copies turned over as disclosure. The Board President later testified that the changes to the minutes were not authorized.
(2) The ‘blinder test’. The ‘blinder test’ considered only a view directly out of the back of a person’s house without glancing to the left or the right. The first time this test was mentioned was during the GM’s deposition. There was nothing disclosed that set forth the ‘blinder’ test. There was nothing disclosed which showed the blinder test being used on any other property. There were no written rules setting forth the test.
One of the duties requires a homeowner’s association "to act reasonably in the exercise of its discretionary powers including rulemaking, enforcement and design-control powers". Here, when it benefits a Board member in a dispute with the Plaintiffs, the ARC decided to ignore its own written guidelines calling for the ARC to respect and protect "all views of a property".
THE PROCESSION OF DEFENSE ATTORNEYS…
During the course of discovery, the Board hired three different law firms to try to defend their actions:
(1) The beginning law firm was terminated several months into the process - after representing the GM and the Board President at their depositions.
(2) A second law firm was engaged and implications surfaced that they did not want to defend the case at trial.
(3) The Board then engaged a third law firm to act as chief defense counsel.
RESIGNATION OF THE DECLARANT BOARD…
In a rather unprecedented move and nearing a projected trial date, the Declarant Board resigned in total and turned over the Board duties to over to the appointed Advisory Council. This was more than a year prior to the projected build-out by the Declarant and 7 months until a member board could be elected at the next Annual Meeting.
ATTEMPTS TO REACH A SETTLEMENT…
Two years after the lawsuit was filed, the Plaintiffs made a settlement offer that was rejected by the Defendants. During subsequent mandatory Court supervised Settlement Conference, the Plaintiffs made a second settlement offer that was rejected by the Defendants. During a second mandatory Court supervised Settlement Conference requested by the Plaintiffs, and with the new Board in place, the parties reached a settlement agreement.
THE SETTLEMENT AGREEMENT…
The Settlement Agreement provided for the following:
(1) One of four sections of the CMU wall sections was to be removed and replaced with wrought iron fencing, as originally constructed.
(2) The remaining three wall sections were to be reduced in height (to return some of the Plaintiff’s view) and the remainder of the 5 foot required height to be wrought iron.
(3) The Defendant was required to pay the Plaintiffs a five figure sum of money.
(4) The neighbor received an additional bonus - all of their wrought iron fencing was repainted, at no cost to the neighbor.
THE COSTS TO LITIGATE…
The Defendants have never provided a written breakdown of costs to the Association members. Based on the known costs to the Plaintiffs and a projection of both direct and indirect costs to the Defendant, the total costs to both parties is estimated to approach, if not exceed, $100,000. The Defense costs include modifying the neighbor’s block wall, all costs being voluntarily borne, not by the neighbor, but by the HOA Defendant.
None of these costs could be capitalized by the Defendant to increase the asset values of the Association. The litigation expenses provided no year end tax benefit to the Association because of depreciation write offs. If the costs were allocated to the block wall, the cost per lineal foot increases from approximately $20.00 to an estimated $2,000.00 per lineal foot.
In the final analysis, did the Board of Directors breach their fiduciary duties to the members by not trying to settle this matter before it developed into an expensive lawsuit? You be the judge.
Monday, November 19, 2007
Thursday, August 9, 2007
Tax Filing Alternatives & Reserve Fund Guidance
This document discusses recommendations for establishing and maintaining a reserve fund for a homeowners association (HOA). With proper establishment of this fund, income taxes can be reduced and the association can assure that every present and future homeowner pays a fair share of required future capital expenditures.
The governing documents of the HOA may require the establishment of a reserve fund. Many HOAs do this by collecting more money than is spent each year. However to take advantage of available tax savings opportunities, recommended procedures regarding reserves need to be implemented and followed.
These recommendations require that all common area elements of the HOA needing future capital expenditures be identified. A reserve fund for these expenditures needs to be established and a reserve fund budget developed. A portion of each yearly assessment needs to be designated for this reserve fund. Finally, specific accounting procedures need to be followed. These accounting procedures are based on requirements of the IRS, state law, and guidelines of the American Institute of Certified Public Accountants.
An in-depth discussion follows that explains these recommended procedures and how they should be implemented. These procedures, which should be adopted before the year begins in order to take advantage of tax savings opportunities for the year, may at first seem complicated. However, once fully implemented, they are quite simple to comply with. To understand the justification of these procedures, it is first necessary to understand tax filing alternatives.
A. Tax Filing Alternatives
Generally, HOAs have the option of selecting one of two alternatives for filing their annual federal income tax returns. They can file as a corporation (Form 1120) or as an exempt homeowners association (Form 1120-H). Filing as a corporation (Form 1120) can result in less federal tax liability than filing as an exempt association; however additional record keeping is necessary and certain methods of handling funds are required. To better understand how certain record keeping and financial procedures related to corporate filing can result in less tax liability, a brief description of both types of filing--together with their advantages and disadvantages- -is provided below.
1. Form 1120H: Filing Form 1120H constitutes an election by the organization to be taxed as an exempt homeowners association. An election made for a past year cannot be revoked without the consent of the Commissioner of IRS, and special circumstances must exist before the Commissioner will revoke this election. To file an 1120H, certain income and expense requirements must first be satisfied. Most homeowners associations meet these requirements. The advantage of this election is that no special record keeping requirements are necessary to prevent "over" or "excess" assessments- -the amount by which total assessments exceed total expenses--from being taxed. The disadvantage of the election is that association taxable income is taxed at a 30 percent rate. For many associations, taxable income is basically interest income.
2. Form 1120: To effectively file a tax return using Form 1120, an HOA must also comply with IRS regulations regarding membership organizations. As a corporation, the first $50,000 of the organization' s corporate taxable income is taxed at a 15 percent rate. For a homeowners association, corporate taxable income includes "excess" assessments as well as interest income. However, by following certain procedures explained later, it is possible to reduce corporate taxable income even while increasing total assessments collected. The net effect of these procedures is to have only interest income taxed at a 15 percent rate. Thus, the advantage of filing Form 1120 in lieu of Form 1120H is a 50 percent reduction in income taxes. The disadvantage- -and it is a minor one--is that to reduce corporate taxable income in this manner requires additional bookkeeping.
B. Definitions
By following procedures outlined below, many HOAs can file using Form 1120 and have its corporate taxable income be comprised of only interest earned. To understand the logic of these procedures, the following brief definitions are provided:
1. Capital Expenditure - As it concerns most HOAs, a capital expenditure is the cost of making improvements or replacements which add to the value or useful life of the property the organization owns or is responsible for maintaining. Unlike non-capital expenditures, capital expenditures are not made every year. An example of a capital expenditure is the cost of replacing and repairing private roads.
2. Non-capital (Operating) Expenditure - These are ordinary and necessary expenses incurred each year by the organization in providing the services for which it was formed. Examples of non-capital (i.e. operating) expenditures include ordinary maintenance of the community entrance, snow removal, insurance, electricity, administrative expenses, etc.
3. Contributed Capital - As it concerns most HOAs, contributed capital is a specific contribution of funds for a specific purpose by the unit owners to the capital of the organization. It is not income and is therefore nontaxable on the corporate tax return. For an assessment to be considered nontaxable contributed capital in lieu of taxable income, certain conditions must be met. These conditions are discussed in the recommended procedures outlined below.
C. General Accounting Procedures and their Justification
1. The Board of Directors should estimate, based on an engineering study or the Board’s expertise, the current state of the HOA’s common area elements that require future capital expenditures. For many HOAs, the largest common area element is the private roads owned by the association. The replacement costs, estimated useful lives and remaining useful lives of all of these elements need to be estimated. A reserve fund needs to be established which allocates money already saved to these elements. Thus, the amount of additional funds required for specific capital expenditures in the future can then be estimated and the amount of money that should be collected as an assessment from each homeowner each year can be determined. All this information can be shown on a simple one or two page budget and reserve schedule. This process is necessary because nontaxable contributed capital is not a regular assessment. Rather, it is a special replacement fund assessment for capital purposes.
2. At the Board's direction and based on estimates calculated above, the HOA should divide the total assessment it collects into two segments--regular assessments and reserve assessments. The reserve assessment is accounted for separately in the books of the corporation. This procedure is necessary because for reserve assessments to be considered nontaxable contributed capital, there must be a separate accounting of these funds.
3. The HOA should maintain a separate bank account which is used for the deposit of these reserve assessments. The bank account should be considered the HOA’s "reserve" fund for capital expenditures. This procedure is necessary because the IRS requires that reserve assessments cannot be commingled with regular assessments if the reserve assessments are to be considered nontaxable contributed capital. While it appears that the IRS should not be concerned with an organization' s banking arrangements, present IRS revenue rulings nevertheless make this requirement.
4. The balance in the reserve account should be reduced for any expenditure made for capital items for which the account was established. The money in the reserve account must be restricted to only its designated purpose for it to be considered nontaxable contributed capital. As the designated expenses are paid from this account, less money of the corporation will be under this restriction. No operating expenses should be paid with reserve funds.
5. Even when not including the money collected and deposited in the reserve account during the year, the HOA may nevertheless have excess membership income as a result of regular assessments exceeding the corporation' s expenses for the year. To prevent these excess assessments from being considered part of taxable income, the HOA has several alternatives. The Board of Directors should hold a meeting at the end of the year to decide what to do with these excess assessments. If it is decided to either return the excess to the owners on a pro-rata basis or to use the excess to pay for some of the following year's operating expenses--and thereby effectively reducing the following year's regular assessments- -the IRS will not consider the excess as taxable income for the year ending. It is based on IRS Revenue Ruling 70-604, which permits this action. In addition, the following year’s budget should show this excess income as a source of money in the operating fund budget. On the other hand, any "loss" which may result from underestimating regular assessments (that is, the amount operating expenses exceed operating assessments) can be carried forward to future years. This may possibly eliminate the need to hold a Board meeting while the membership loss is still on the books.
6. All actions of the corporation in setting up the reserve fund and using these funds, as well as any meetings held to decide what to do with excess assessments, should be documented in the minutes of the meetings of the Board of Directors. Thus, documentary proof of the HOA’s plan of action is available for IRS inspection, if necessary.
D. Practical Suggestions
Two separate funds will be maintained by the HOA. In theory, a part of each homeowner assessment payment should be deposited into the reserve account as it is received and checks should be written from the reserve account as capital expenditures are made. However, doing this would unnecessarily complicate an HOA’s accounting and banking. Instead, after collecting all assessments, money designated for reserves could be transferred from the operating to the reserve account. Similarly, when a payment for a capital expenditure is made, a check could be written from operating account. After all reserve expenditures have been made, this money could be transferred from the reserve to the operating account. Following this process, one fund will owe money to the other fund at any point in time. This money owed should be transferred before the year ends. An HOA could adopt a policy explaining this process so that an actual transfer may need to be made only once a year. Sample wording of a reserve fund policy follows:
The Board of Directors conducted a study to estimate the remaining useful lives of common property components and the costs of future major repairs and replacements on ______. Estimates obtained from the licensed contractors who inspected the property are used as the basis of replacement cost estimates of common area components requiring future capital expenditures. The board is attempting to fund for major repairs and replacements over the remaining useful lives of these components based on future replacement costs and considering amounts previously accumulated in the replacement fund. The Association is establishing and maintaining a reserve fund for the repairs and replacements of common areas, including the private streets and roadways by allocation and payment yearly to such reserve fund of an amount to be designated by the Board of Directors and approved by the membership. The reserve fund may be expended only for the purpose of effecting the replacement and improvement of common areas, major repairs, and operating contingencies of a non-recurring nature. The portion of the homeowner's assessments paid into such reserve fund is considered to be contributions to the capital of the Association by the homeowners. Because the replacement reserve is restricted to the purposes for which it was established, it will classified as designated members' equity in the financial statements. When an expenditure is made for which the replacement reserve was established, a transfer in the amount of this expenditure is made from designated members' equity to undesignated members' equity. The restriction is thereby removed because the amount has been spent for it's designated purpose, leaving only the remaining balance in the reserve fund designated.
E. Advantages of Following Procedures
Following these procedures will provide an HOA with the following advantages:
1. The HOA can file Form 1120 with only interest income being taxed at a 15 percent rate. "Excess" assessments will not be subject to federal tax. Thus federal income taxes are effectively cut in half when compared to the Form 1120H alternative.
2. The Board can determine whether current assessments are adequate for future capital requirements. If adequate amounts are not collected yearly, not all unit owners will be sharing fairly in the "hidden" yearly costs of using the depletable assets (i.e. roads) of the Association. Owners who have used these assets--but have since moved--may not have paid a fair share for their use of the assets. Consequently, newer unit owners may be burdened with more than their fair share of these costs.
The governing documents of the HOA may require the establishment of a reserve fund. Many HOAs do this by collecting more money than is spent each year. However to take advantage of available tax savings opportunities, recommended procedures regarding reserves need to be implemented and followed.
These recommendations require that all common area elements of the HOA needing future capital expenditures be identified. A reserve fund for these expenditures needs to be established and a reserve fund budget developed. A portion of each yearly assessment needs to be designated for this reserve fund. Finally, specific accounting procedures need to be followed. These accounting procedures are based on requirements of the IRS, state law, and guidelines of the American Institute of Certified Public Accountants.
An in-depth discussion follows that explains these recommended procedures and how they should be implemented. These procedures, which should be adopted before the year begins in order to take advantage of tax savings opportunities for the year, may at first seem complicated. However, once fully implemented, they are quite simple to comply with. To understand the justification of these procedures, it is first necessary to understand tax filing alternatives.
A. Tax Filing Alternatives
Generally, HOAs have the option of selecting one of two alternatives for filing their annual federal income tax returns. They can file as a corporation (Form 1120) or as an exempt homeowners association (Form 1120-H). Filing as a corporation (Form 1120) can result in less federal tax liability than filing as an exempt association; however additional record keeping is necessary and certain methods of handling funds are required. To better understand how certain record keeping and financial procedures related to corporate filing can result in less tax liability, a brief description of both types of filing--together with their advantages and disadvantages- -is provided below.
1. Form 1120H: Filing Form 1120H constitutes an election by the organization to be taxed as an exempt homeowners association. An election made for a past year cannot be revoked without the consent of the Commissioner of IRS, and special circumstances must exist before the Commissioner will revoke this election. To file an 1120H, certain income and expense requirements must first be satisfied. Most homeowners associations meet these requirements. The advantage of this election is that no special record keeping requirements are necessary to prevent "over" or "excess" assessments- -the amount by which total assessments exceed total expenses--from being taxed. The disadvantage of the election is that association taxable income is taxed at a 30 percent rate. For many associations, taxable income is basically interest income.
2. Form 1120: To effectively file a tax return using Form 1120, an HOA must also comply with IRS regulations regarding membership organizations. As a corporation, the first $50,000 of the organization' s corporate taxable income is taxed at a 15 percent rate. For a homeowners association, corporate taxable income includes "excess" assessments as well as interest income. However, by following certain procedures explained later, it is possible to reduce corporate taxable income even while increasing total assessments collected. The net effect of these procedures is to have only interest income taxed at a 15 percent rate. Thus, the advantage of filing Form 1120 in lieu of Form 1120H is a 50 percent reduction in income taxes. The disadvantage- -and it is a minor one--is that to reduce corporate taxable income in this manner requires additional bookkeeping.
B. Definitions
By following procedures outlined below, many HOAs can file using Form 1120 and have its corporate taxable income be comprised of only interest earned. To understand the logic of these procedures, the following brief definitions are provided:
1. Capital Expenditure - As it concerns most HOAs, a capital expenditure is the cost of making improvements or replacements which add to the value or useful life of the property the organization owns or is responsible for maintaining. Unlike non-capital expenditures, capital expenditures are not made every year. An example of a capital expenditure is the cost of replacing and repairing private roads.
2. Non-capital (Operating) Expenditure - These are ordinary and necessary expenses incurred each year by the organization in providing the services for which it was formed. Examples of non-capital (i.e. operating) expenditures include ordinary maintenance of the community entrance, snow removal, insurance, electricity, administrative expenses, etc.
3. Contributed Capital - As it concerns most HOAs, contributed capital is a specific contribution of funds for a specific purpose by the unit owners to the capital of the organization. It is not income and is therefore nontaxable on the corporate tax return. For an assessment to be considered nontaxable contributed capital in lieu of taxable income, certain conditions must be met. These conditions are discussed in the recommended procedures outlined below.
C. General Accounting Procedures and their Justification
1. The Board of Directors should estimate, based on an engineering study or the Board’s expertise, the current state of the HOA’s common area elements that require future capital expenditures. For many HOAs, the largest common area element is the private roads owned by the association. The replacement costs, estimated useful lives and remaining useful lives of all of these elements need to be estimated. A reserve fund needs to be established which allocates money already saved to these elements. Thus, the amount of additional funds required for specific capital expenditures in the future can then be estimated and the amount of money that should be collected as an assessment from each homeowner each year can be determined. All this information can be shown on a simple one or two page budget and reserve schedule. This process is necessary because nontaxable contributed capital is not a regular assessment. Rather, it is a special replacement fund assessment for capital purposes.
2. At the Board's direction and based on estimates calculated above, the HOA should divide the total assessment it collects into two segments--regular assessments and reserve assessments. The reserve assessment is accounted for separately in the books of the corporation. This procedure is necessary because for reserve assessments to be considered nontaxable contributed capital, there must be a separate accounting of these funds.
3. The HOA should maintain a separate bank account which is used for the deposit of these reserve assessments. The bank account should be considered the HOA’s "reserve" fund for capital expenditures. This procedure is necessary because the IRS requires that reserve assessments cannot be commingled with regular assessments if the reserve assessments are to be considered nontaxable contributed capital. While it appears that the IRS should not be concerned with an organization' s banking arrangements, present IRS revenue rulings nevertheless make this requirement.
4. The balance in the reserve account should be reduced for any expenditure made for capital items for which the account was established. The money in the reserve account must be restricted to only its designated purpose for it to be considered nontaxable contributed capital. As the designated expenses are paid from this account, less money of the corporation will be under this restriction. No operating expenses should be paid with reserve funds.
5. Even when not including the money collected and deposited in the reserve account during the year, the HOA may nevertheless have excess membership income as a result of regular assessments exceeding the corporation' s expenses for the year. To prevent these excess assessments from being considered part of taxable income, the HOA has several alternatives. The Board of Directors should hold a meeting at the end of the year to decide what to do with these excess assessments. If it is decided to either return the excess to the owners on a pro-rata basis or to use the excess to pay for some of the following year's operating expenses--and thereby effectively reducing the following year's regular assessments- -the IRS will not consider the excess as taxable income for the year ending. It is based on IRS Revenue Ruling 70-604, which permits this action. In addition, the following year’s budget should show this excess income as a source of money in the operating fund budget. On the other hand, any "loss" which may result from underestimating regular assessments (that is, the amount operating expenses exceed operating assessments) can be carried forward to future years. This may possibly eliminate the need to hold a Board meeting while the membership loss is still on the books.
6. All actions of the corporation in setting up the reserve fund and using these funds, as well as any meetings held to decide what to do with excess assessments, should be documented in the minutes of the meetings of the Board of Directors. Thus, documentary proof of the HOA’s plan of action is available for IRS inspection, if necessary.
D. Practical Suggestions
Two separate funds will be maintained by the HOA. In theory, a part of each homeowner assessment payment should be deposited into the reserve account as it is received and checks should be written from the reserve account as capital expenditures are made. However, doing this would unnecessarily complicate an HOA’s accounting and banking. Instead, after collecting all assessments, money designated for reserves could be transferred from the operating to the reserve account. Similarly, when a payment for a capital expenditure is made, a check could be written from operating account. After all reserve expenditures have been made, this money could be transferred from the reserve to the operating account. Following this process, one fund will owe money to the other fund at any point in time. This money owed should be transferred before the year ends. An HOA could adopt a policy explaining this process so that an actual transfer may need to be made only once a year. Sample wording of a reserve fund policy follows:
The Board of Directors conducted a study to estimate the remaining useful lives of common property components and the costs of future major repairs and replacements on ______. Estimates obtained from the licensed contractors who inspected the property are used as the basis of replacement cost estimates of common area components requiring future capital expenditures. The board is attempting to fund for major repairs and replacements over the remaining useful lives of these components based on future replacement costs and considering amounts previously accumulated in the replacement fund. The Association is establishing and maintaining a reserve fund for the repairs and replacements of common areas, including the private streets and roadways by allocation and payment yearly to such reserve fund of an amount to be designated by the Board of Directors and approved by the membership. The reserve fund may be expended only for the purpose of effecting the replacement and improvement of common areas, major repairs, and operating contingencies of a non-recurring nature. The portion of the homeowner's assessments paid into such reserve fund is considered to be contributions to the capital of the Association by the homeowners. Because the replacement reserve is restricted to the purposes for which it was established, it will classified as designated members' equity in the financial statements. When an expenditure is made for which the replacement reserve was established, a transfer in the amount of this expenditure is made from designated members' equity to undesignated members' equity. The restriction is thereby removed because the amount has been spent for it's designated purpose, leaving only the remaining balance in the reserve fund designated.
E. Advantages of Following Procedures
Following these procedures will provide an HOA with the following advantages:
1. The HOA can file Form 1120 with only interest income being taxed at a 15 percent rate. "Excess" assessments will not be subject to federal tax. Thus federal income taxes are effectively cut in half when compared to the Form 1120H alternative.
2. The Board can determine whether current assessments are adequate for future capital requirements. If adequate amounts are not collected yearly, not all unit owners will be sharing fairly in the "hidden" yearly costs of using the depletable assets (i.e. roads) of the Association. Owners who have used these assets--but have since moved--may not have paid a fair share for their use of the assets. Consequently, newer unit owners may be burdened with more than their fair share of these costs.
Monday, August 6, 2007
Planned Unit Development Rider
This document, or one similar, signed at closing, obligates the homeowner in Planned Unit Developments to the conditions set forth as follows:
THIS PLANNED UNIT DEVELOPMENT RIDER is made this ________day of ___________________, and is incorporated into and shall be deemed to amend and supplement the Mortgage, Deed of Trust, or Security Deed (the "Security Instrument") of the same date, given by the undersigned (the "Borrower") to secure Borrower’s Note to
________________________________________________________ (the "Lender") of the same date and covering the Property described in the Security Instrument and located at:
_____________________________________________________[Property Address]
The Property includes, but is not limited to, a parcel of land improved with a dwelling, together with other such parcels and certain common areas and facilities, as described in
____________________________________________________ (the "Declaration").
The Property is a part of a planned unit development known as
_____________________________________________________(Name of Planned Unit Development)
(the "PUD"). The Property also includes Borrower’s interest in the homeowners association or equivalent entity owning or managing the common areas and facilities of the PUD (the "Owners Association") and the uses, benefits and proceeds of Borrower’s interest.
_____________________________________________________(Name of Planned Unit Development)
(the "PUD"). The Property also includes Borrower’s interest in the homeowners association or equivalent entity owning or managing the common areas and facilities of the PUD (the "Owners Association") and the uses, benefits and proceeds of Borrower’s interest.
PUD COVENANTS. In addition to the covenants and agreements made in the Security Instrument, Borrower and Lender further covenant and agree as follows:
A. PUD Obligations. Borrower shall perform all of Borrower’s obligations under the PUD’s Constituent Documents. The "Constituent Documents" are the:
(i) Declaration;
(ii) articles of incorporation, trust instrument or any equivalent document which creates the Owners Association; and
(iii) any by-laws or other rules or regulations of the Owners Association. Borrower shall promptly pay, when due, all dues and assessments imposed pursuant to the Constituent Documents.
B. Property Insurance. So long as the Owners Association maintains, with a generally accepted insurance carrier, a "master" or "blanket" policy insuring the Property which is satisfactory to Lender and which provides insurance coverage in the amounts (including deductible levels), for the periods, and against loss by fire, hazards included within the term "extended coverage," and any other hazards, including, but not limited to, earthquakes and floods, for which Lender requires insurance, then:
(i) Lender waives the provision in Section 3 for the Periodic Payment to Lender of the yearly premium installments for property insurance on the Property; and
(ii) Borrower’s obligation under Section 5 to maintain property insurance coverage on the Property is deemed satisfied to the extent that the required coverage is provided by the Owners Association policy.
What Lender requires as a condition of this waiver can change during the term of the loan.
Borrower shall give Lender prompt notice of any lapse in required property insurance coverage provided by the master or blanket policy.
In the event of a distribution of property insurance proceeds in lieu of restoration or repair following a loss to the Property, or to common areas and facilities of the PUD, any proceeds payable to Borrower are hereby assigned and shall be paid to Lender. Lender shall apply the proceeds to the sums secured by the Security Instrument, whether or not then due, with the excess, if any, paid to Borrower.
C. Public Liability Insurance. Borrower shall take such actions as may be reasonable to insure that the Owners Association maintains a public liability insurance policy acceptable in form, amount, and extent of coverage to Lender.
D. Condemnation. The proceeds of any award or claim for damages, direct or consequential, payable to Borrower in connection with any condemnation or other taking of all or any part of the Property or the common areas and facilities of the PUD, or for any conveyance in lieu of condemnation, are hereby assigned and shall be paid to Lender. Such proceeds shall be applied by Lender to the sums secured by the Security Instrument as provided in Section 11.
E. Lender’s Prior Consent. Borrower shall not, except after notice to Lender and with Lender’s prior written consent, either partition or subdivide the Property or consent to:
(i) the abandonment or termination of the PUD, except for abandonment or termination required by law in the case of substantial destruction by fire or other casualty or in the case of a taking by condemnation or eminent domain;
(ii) any amendment to any provision of the "Constituent Documents" if the provision is for the express benefit of Lender;
(iii) termination of professional management and assumption of self-management of the Owners Association; or
(iv) any action which would have the effect of rendering the public liability insurance coverage maintained by the Owners Association unacceptable to Lender.
F. Remedies. If Borrower does not pay PUD dues and assessments when due, then Lender may pay them. Any amounts disbursed by Lender under this paragraph F shall become additional debt of Borrower secured by the Security Instrument. Unless Borrower and Lender agree to other terms of payment, these amounts shall bear interest from the date of disbursement at the Note rate and shall be payable, with interest, upon notice from Lender to Borrower requesting payment.
BY SIGNING BELOW, Borrower accepts and agrees to the terms and covenants contained in this PUD Rider.
(Seal)
_____________________________________________ - Borrower
(Seal)
_____________________________________________ - Borrower
MULTISTATE PUD RIDER--Single Family--Fannie Mae/Freddie Mac UNIFORM INSTRUMENT Form 3150 1/01
Sunday, August 5, 2007
Balancing Community and Governance; Reforming the Community Association
By Wayne S. Hyatt
Hyatt & Stubblefield, P.C.
Atlanta, Georgia
Presented at CNU 2000
Congress for New Urbanism
Copyright 2000
Exercpts from:
The Role and Structure of Association Governing Boards
The following suggestions are offered in no particular order of priority. Some are not revolutionary, others are, or one may so consider them. Many of the ideas are already under discussion or being carried out. They cover a broad spectrum, but the list is not exhaustive. In every case the list awaits expansion through project-specific additions and modifications.
Governing boards need to have a more flexible approach to governance, and the initial governing documents need to create and to institutionalize rule-making as a dynamic rather than a static process. A legal framework is needed that permits the board and the association to implement the development’s covenants in a manner that allows the governance process to evolve with the needs, desires, and changes within the community. At the same time, there should be procedures for owner involvement and owner protections.
An alternative governance approach involves the creation of a more legitimate governance structure than the current corporate model and recognizes the difference between regulation and prohibition. Such a new structure contemplates that the initial governing documents will contain only a limited number, perhaps a severely limited number, of prohibitions and restrictions, including only those restrictions that the developer believes to be vital to the overall community development plan. Coupled with these initial provisions would be a method for permitting changes and for the adoption, modification, or abrogation of regulations through the community’s "legislative process’ as time passes and circumstances change. Members’ rights to initiate and to participate in this process are vital.
In addition, to the initial restrictions or prohibitions, there would be several general but clearly stated standards of conduct, maintenance, and design. These standards would operate to establish ranges of expectation and permitted activity without being overly restrictive or disruptive of individual choice within articulated, accepted norms.
In a system that provides simplicity, flexibility, and balance, it would be necessary to promulgate initial restrictions and prohibitions that might, in the final analysis, be inconsistent with the development plan and the reality of the community as it takes for, grows, and changes. Rather, the governing body, first the board of directors, and, secondarily, the membership, would have the power to make or to change these provisions, according to a defined procedure. In other words, the goal would be to create a truly responsive governance system, one that is realistically empowered to govern. For this to work, the practitioner and the developer, indeed the development team, must not be change-averse and precedent-bound.
At the same time, the governance system must provide checks and balances, disclosures of potential consequences from operation of the system to purchasers, and specific protections for owners and for the individual owner. If one argues, as I do, that there is a great need for recognition of the importance of the group and a moderation of the emphasis upon the individualism and "rights," it is important not to forget that the individual’s interests do exist and need both recognition and protection. Too frequently, boards of directors become autocratic and ignore these interests, deny members information and fair hearings. Civility applies at all levels and the rights of the minority and of the majority need respect.
For this reason, the community association governing documents should contain not only empowering sections but also language establishing a "bill of rights" for owners, establishing boundaries to the board’s powers. Those boundaries provide some degree of certainty to the purchaser and aid in enforceability by showing a court that there are limits both to the acceptable degree of control and to the powers that support that control. It is also appropriate for there to be an obvious cost to directors who act in flagrant violation of these standards. Periodic reevaluation of restrictions also will ensure that those in force have application in the community. Finally, this format would address concerns regarding the applicability of the corporate model to the political and social needs of the community. Finally, this format would address concerns regarding the applicability of the corporate model to the political and social needs of the community as well as establish an appellate mechanism.
The board’s business role will increase as new and greater powers are required to meet new needs, especially as some forms of privatization take place. Examples include the provision of services of a municipal nature, social and educational activities, technological services, and a wide variety of other activities as discussed in the section on changes in market demands. Issues of capacity, delegation, provision of individualized services, and use of technology will all be important. The nature and purpose of the association will become more significant, and courts should look to those considerations in determining the appropriate degree of autonomy to afford to the board.
The powers and methods of operation of the board should be clarified, providing guidance as to what activities fit into each role, how the board should operate, and standards or training requirements for qualifying for office. Training will be formal and informal, and the community association will pay for it as a common expense of all owners.
Quality training promotes better job performance and job satisfaction by providing needed skills and maturity of judgment. It also increases respect for the position and the person holding it. Better-trained boards result in fewer problems and better association governance.
Board composition is problematic in this day and age. As owners’ time and demands conflict, member involvement in community policy decisions, as such decisions involve an ever increasing range of issues, will take on even more importance that we see today. Associations may also need procedures to create boards that are balances in terms of the members’ understanding of and experience in corporate governance.
End of author’s comments.
Moderator’s comments:
Under no circumstances should the training involve the Community Associations Institute (CAI). They do not in any way represent the interests of the association members; their only interest is restricting the rights of the members in favor of the corporate interests.
Hyatt & Stubblefield, P.C.
Atlanta, Georgia
Presented at CNU 2000
Congress for New Urbanism
Copyright 2000
Exercpts from:
The Role and Structure of Association Governing Boards
The following suggestions are offered in no particular order of priority. Some are not revolutionary, others are, or one may so consider them. Many of the ideas are already under discussion or being carried out. They cover a broad spectrum, but the list is not exhaustive. In every case the list awaits expansion through project-specific additions and modifications.
Governing boards need to have a more flexible approach to governance, and the initial governing documents need to create and to institutionalize rule-making as a dynamic rather than a static process. A legal framework is needed that permits the board and the association to implement the development’s covenants in a manner that allows the governance process to evolve with the needs, desires, and changes within the community. At the same time, there should be procedures for owner involvement and owner protections.
An alternative governance approach involves the creation of a more legitimate governance structure than the current corporate model and recognizes the difference between regulation and prohibition. Such a new structure contemplates that the initial governing documents will contain only a limited number, perhaps a severely limited number, of prohibitions and restrictions, including only those restrictions that the developer believes to be vital to the overall community development plan. Coupled with these initial provisions would be a method for permitting changes and for the adoption, modification, or abrogation of regulations through the community’s "legislative process’ as time passes and circumstances change. Members’ rights to initiate and to participate in this process are vital.
In addition, to the initial restrictions or prohibitions, there would be several general but clearly stated standards of conduct, maintenance, and design. These standards would operate to establish ranges of expectation and permitted activity without being overly restrictive or disruptive of individual choice within articulated, accepted norms.
In a system that provides simplicity, flexibility, and balance, it would be necessary to promulgate initial restrictions and prohibitions that might, in the final analysis, be inconsistent with the development plan and the reality of the community as it takes for, grows, and changes. Rather, the governing body, first the board of directors, and, secondarily, the membership, would have the power to make or to change these provisions, according to a defined procedure. In other words, the goal would be to create a truly responsive governance system, one that is realistically empowered to govern. For this to work, the practitioner and the developer, indeed the development team, must not be change-averse and precedent-bound.
At the same time, the governance system must provide checks and balances, disclosures of potential consequences from operation of the system to purchasers, and specific protections for owners and for the individual owner. If one argues, as I do, that there is a great need for recognition of the importance of the group and a moderation of the emphasis upon the individualism and "rights," it is important not to forget that the individual’s interests do exist and need both recognition and protection. Too frequently, boards of directors become autocratic and ignore these interests, deny members information and fair hearings. Civility applies at all levels and the rights of the minority and of the majority need respect.
For this reason, the community association governing documents should contain not only empowering sections but also language establishing a "bill of rights" for owners, establishing boundaries to the board’s powers. Those boundaries provide some degree of certainty to the purchaser and aid in enforceability by showing a court that there are limits both to the acceptable degree of control and to the powers that support that control. It is also appropriate for there to be an obvious cost to directors who act in flagrant violation of these standards. Periodic reevaluation of restrictions also will ensure that those in force have application in the community. Finally, this format would address concerns regarding the applicability of the corporate model to the political and social needs of the community. Finally, this format would address concerns regarding the applicability of the corporate model to the political and social needs of the community as well as establish an appellate mechanism.
The board’s business role will increase as new and greater powers are required to meet new needs, especially as some forms of privatization take place. Examples include the provision of services of a municipal nature, social and educational activities, technological services, and a wide variety of other activities as discussed in the section on changes in market demands. Issues of capacity, delegation, provision of individualized services, and use of technology will all be important. The nature and purpose of the association will become more significant, and courts should look to those considerations in determining the appropriate degree of autonomy to afford to the board.
The powers and methods of operation of the board should be clarified, providing guidance as to what activities fit into each role, how the board should operate, and standards or training requirements for qualifying for office. Training will be formal and informal, and the community association will pay for it as a common expense of all owners.
Quality training promotes better job performance and job satisfaction by providing needed skills and maturity of judgment. It also increases respect for the position and the person holding it. Better-trained boards result in fewer problems and better association governance.
Board composition is problematic in this day and age. As owners’ time and demands conflict, member involvement in community policy decisions, as such decisions involve an ever increasing range of issues, will take on even more importance that we see today. Associations may also need procedures to create boards that are balances in terms of the members’ understanding of and experience in corporate governance.
End of author’s comments.
Moderator’s comments:
Under no circumstances should the training involve the Community Associations Institute (CAI). They do not in any way represent the interests of the association members; their only interest is restricting the rights of the members in favor of the corporate interests.
Friday, June 22, 2007
Penalties; Notice to Member of Violation
ARS 33-1803. Penalties; notice to member of violation
http://azleg.state.az.us/ArizonaRevisedStatutes.asp
A. Unless limitations in the community documents would result in a lower limit for the assessment, the association shall not impose a regular assessment that is more than twenty per cent greater than the immediately preceding fiscal year's assessment without the approval of the majority of the members of the association. Unless reserved to the members of the association, the board of directors may impose reasonable charges for the late payment of assessments. A payment by a member is deemed late if it is unpaid fifteen or more days after its due date, unless the community documents provide for a longer period. Charges for the late payment of assessments are limited to the greater of fifteen dollars or ten per cent of the amount of the unpaid assessment. Any monies paid by the member for an unpaid assessment shall be applied first to the principal amount unpaid and then to the interest accrued.
B. After notice and an opportunity to be heard, the board of directors may impose reasonable monetary penalties on members for violations of the declaration, bylaws and rules of the association. Notwithstanding any provision in the community documents, the board of directors shall not impose a charge for a late payment of a penalty that exceeds the greater of fifteen dollars or ten per cent of the amount of the unpaid penalty. A payment is deemed late if it is unpaid fifteen or more days after its due date, unless the declaration, bylaws or rules of the association provide for a longer period. Any monies paid by a member for an unpaid penalty shall be applied first to the principal amount unpaid and then to the interest accrued. Notice pursuant to this subsection shall include information pertaining to the manner in which the penalty shall be enforced.
C. A member who receives a written notice that the condition of the property owned by the member is in violation of the community documents without regard to whether a monetary penalty is imposed by the notice may provide the association with a written response by sending the response by certified mail within ten business days after the date of the notice. The response shall be sent to the address contained in the notice or in the recorded notice prescribed by section 33-1807, subsection J.
D. Within ten business days after receipt of the certified mail containing the response from the member, the association shall respond to the member with a written explanation regarding the notice that shall provide at least the following information unless previously provided in the notice of violation:
1. The provision of the community documents that has allegedly been violated.
2. The date of the violation or the date the violation was observed.
3. The first and last name of the person or persons who observed the violation.
4. The process the member must follow to contest the notice.
E. Unless the information required in subsection D, paragraph 4 of this section is provided in the notice of violation, the association shall not proceed with any action to enforce the community documents, including the collection of attorney fees, before or during the time prescribed by subsection D of this section regarding the exchange of information between the association and the member. At any time before or after completion of the exchange of information pursuant to this section, the member may petition for a hearing pursuant to section 41-2198.01 if the dispute is within the jurisdiction of the department of fire, building and life safety as prescribed in section 41-2198.01, subsection B.
END OF 33-1803.
Note:
The supreme courts in Virginia and Rhode Island have ruled that HOAs (private governments) cannot levy fines. Only governmental entities have the power to levy fines according to the US Constitution.
http://azleg.state.az.us/ArizonaRevisedStatutes.asp
A. Unless limitations in the community documents would result in a lower limit for the assessment, the association shall not impose a regular assessment that is more than twenty per cent greater than the immediately preceding fiscal year's assessment without the approval of the majority of the members of the association. Unless reserved to the members of the association, the board of directors may impose reasonable charges for the late payment of assessments. A payment by a member is deemed late if it is unpaid fifteen or more days after its due date, unless the community documents provide for a longer period. Charges for the late payment of assessments are limited to the greater of fifteen dollars or ten per cent of the amount of the unpaid assessment. Any monies paid by the member for an unpaid assessment shall be applied first to the principal amount unpaid and then to the interest accrued.
B. After notice and an opportunity to be heard, the board of directors may impose reasonable monetary penalties on members for violations of the declaration, bylaws and rules of the association. Notwithstanding any provision in the community documents, the board of directors shall not impose a charge for a late payment of a penalty that exceeds the greater of fifteen dollars or ten per cent of the amount of the unpaid penalty. A payment is deemed late if it is unpaid fifteen or more days after its due date, unless the declaration, bylaws or rules of the association provide for a longer period. Any monies paid by a member for an unpaid penalty shall be applied first to the principal amount unpaid and then to the interest accrued. Notice pursuant to this subsection shall include information pertaining to the manner in which the penalty shall be enforced.
C. A member who receives a written notice that the condition of the property owned by the member is in violation of the community documents without regard to whether a monetary penalty is imposed by the notice may provide the association with a written response by sending the response by certified mail within ten business days after the date of the notice. The response shall be sent to the address contained in the notice or in the recorded notice prescribed by section 33-1807, subsection J.
D. Within ten business days after receipt of the certified mail containing the response from the member, the association shall respond to the member with a written explanation regarding the notice that shall provide at least the following information unless previously provided in the notice of violation:
1. The provision of the community documents that has allegedly been violated.
2. The date of the violation or the date the violation was observed.
3. The first and last name of the person or persons who observed the violation.
4. The process the member must follow to contest the notice.
E. Unless the information required in subsection D, paragraph 4 of this section is provided in the notice of violation, the association shall not proceed with any action to enforce the community documents, including the collection of attorney fees, before or during the time prescribed by subsection D of this section regarding the exchange of information between the association and the member. At any time before or after completion of the exchange of information pursuant to this section, the member may petition for a hearing pursuant to section 41-2198.01 if the dispute is within the jurisdiction of the department of fire, building and life safety as prescribed in section 41-2198.01, subsection B.
END OF 33-1803.
Note:
The supreme courts in Virginia and Rhode Island have ruled that HOAs (private governments) cannot levy fines. Only governmental entities have the power to levy fines according to the US Constitution.
Thursday, June 21, 2007
Flag Display; Political Signs
Arizona Revised Statute 33-1808.
http://azleg.state.az.us/ArizonaRevisedStatutes.asp
A. Notwithstanding any provision in the community documents, an association shall not prohibit the outdoor display of any of the following:
1. The American flag or an official or replica of a flag of the United States army, navy, air force, marine corps or coast guard by an association member on that member's property if the American flag or military flag is displayed in a manner consistent with the federal flag code (P.L. 94-344; 90 Stat. 810; 4 United States Code sections 4 through 10).
2. The POW/MIA flag.
3. The Arizona state flag.
4. An Arizona Indian nations flag.
B. The association shall adopt reasonable rules and regulations regarding the placement and manner of display of the American flag, the military flag, the POW/MIA flag, the Arizona state flag or an Arizona Indian nations flag. The association rules may regulate the location and size of flagpoles but shall not prohibit the installation of a flagpole.
C. Notwithstanding any provision in the community documents, an association shall not prohibit the indoor or outdoor display of a political sign by an association member on that member's property, except that an association may prohibit the display of political signs earlier than forty-five days before the day of an election and later than seven days after an election day. An association may regulate the size and number of political signs that may be placed on a member's property if the association's regulation is no more restrictive than any applicable city, town or county ordinance that regulates the size and number of political signs on residential property. If the city, town or county in which the property is located does not regulate the size and number of political signs on residential property, the association shall permit at least one political sign with the maximum dimensions of twenty-four inches by twenty-four inches on a member's property. For the purposes of this paragraph, "political sign" means a sign that attempts to influence the outcome of an election, including supporting or opposing the recall of a public officer or supporting or opposing the circulation of a petition for a ballot measure, question or proposition or the recall of a public officer.
http://azleg.state.az.us/ArizonaRevisedStatutes.asp
A. Notwithstanding any provision in the community documents, an association shall not prohibit the outdoor display of any of the following:
1. The American flag or an official or replica of a flag of the United States army, navy, air force, marine corps or coast guard by an association member on that member's property if the American flag or military flag is displayed in a manner consistent with the federal flag code (P.L. 94-344; 90 Stat. 810; 4 United States Code sections 4 through 10).
2. The POW/MIA flag.
3. The Arizona state flag.
4. An Arizona Indian nations flag.
B. The association shall adopt reasonable rules and regulations regarding the placement and manner of display of the American flag, the military flag, the POW/MIA flag, the Arizona state flag or an Arizona Indian nations flag. The association rules may regulate the location and size of flagpoles but shall not prohibit the installation of a flagpole.
C. Notwithstanding any provision in the community documents, an association shall not prohibit the indoor or outdoor display of a political sign by an association member on that member's property, except that an association may prohibit the display of political signs earlier than forty-five days before the day of an election and later than seven days after an election day. An association may regulate the size and number of political signs that may be placed on a member's property if the association's regulation is no more restrictive than any applicable city, town or county ordinance that regulates the size and number of political signs on residential property. If the city, town or county in which the property is located does not regulate the size and number of political signs on residential property, the association shall permit at least one political sign with the maximum dimensions of twenty-four inches by twenty-four inches on a member's property. For the purposes of this paragraph, "political sign" means a sign that attempts to influence the outcome of an election, including supporting or opposing the recall of a public officer or supporting or opposing the circulation of a petition for a ballot measure, question or proposition or the recall of a public officer.
Wednesday, June 20, 2007
Arizona Elected Officials Trounce HOA Homeowners Again in 2007
In the 2007 Arizona legislature, the Community Association Institute and the Arizona Association of Community Managers were instrumental in defeating two key pieces of legislation important to homeowners in HOAs:
SB 1330 Homestead Exemption
would have restored the statutory right of the Homestead Exemption to ALL HOA homeowners – a right that was taken away from the HOA members by state statute in 1996. In Arizona, every person age 18 or older who resides in the state whether married or single, may hold a ‘homestead exemption’ exempt from attachment, execution and forced sale, certain property worth $150,000 or less. A person who is entitled to a homestead exemption holds that exemption by operation of law and no written claim or recording is required. BY STATUTE, THE HOMESTEAD EXEMPTION IS DENYED TO ALL HOMEOWNERS IN HOAs.
Southern Arizona Senators Voting Record (2007 Final Reading)
SB 1330 Homestead Exemption
Yes Paula Aboud
Yes Marsha Arzberger
Yes Jorge Luis Garcia
Yes Victor Soltero
NO Charlene Pesquiera
Yes Timothy S. Bee
The bill passed both the House and Senate but was vetoed by the Governor on a technicality.
SB 1340 Fair Market Value
would have required the sale of property to satisfy a judgment of an association to be sold for at least fair market value with all remaining balances paid to the home owner after payment of prior liens and encumbrances as otherwise provided. Now as before, the foreclosure of a HOA member’s home can be sold for pennies on the dollar, leaving the homeowner financially broke since all of their equity is gone. Only people who live outside HOAs have fair market value protection. Many times, at the sheriff’s foreclosure sale, the HOA will buy the home for a few hundred dollars and turn around and sell it at the fair market value price and pocket a huge profit. The homeowner, however, can stop the foreclosure by paying the total judgment owed and they have the right to ‘redeem their property’ within 6 months after the foreclosure sale.
When you purchased your home, did you know you were giving the HOA a permanent priority lien, running with the land, even when you owe nothing?
People who registered against the 2007 SB 1340:
Stan Barnes, Southern Arizona Home Builders Association
Rob Dalager, Diamond Ventures
Kevin B. DeMenna, CAI lobbyist
Jon Dever, Leisure World HOA
Linda Lang, Arizona Association of Community Managers
Scot Mussi, Home Builders Association of Central AZ
Jeff Sandquist, AZ Association of Community Managers & Robson Communities
Southern Arizona Senators Voting Record (2007 Final Reading)
SB 1340 Fair Market Value
NO Paula Aboud
NO Marsha Arzberger
Yes Jorge Luis Garcia
Yes Victor Soltero
NO Charlene Pesquiera
Yes Timothy S. Bee
The bill was defeated in the Senate by NO votes.
One of many letters to the Arizona senators in support of SB 1340.
From: Monika Grewe
To: Victor Soltero ; Timothy Bee ; Thayer Verschoor ; Ron Gould ; Robt (Bob) Burns ; Richard Miranda ; Rebecca Rios ; R Blendu ; Paula Aboud ; Marsha Arzberger ; Linda Gray ; Ken Cheuvront ; Karen Johnson ; Jorge Garcia ; John Huppenthal ; Jim Waring ; Jay Tibshraeny ; Jack Harper ; J Flake ; Gray, Chuck ; Carolyn Allen ; Barbara Leff ; Albert Hale ; Tom O'Halleran ; Pam Gorman ; Debbie McCune Davis ; Leah Landrum Taylor ; Meg Burton Cahill ; Amanda Aquirre ; Charlene Pesquiera
Sent: Monday, June 11, 2007 9:32 AM
Subject: PLEASE PASS - SB1340 HOA FORECLOSURE MARKET VALUE
Dear Senators,
I respectfully request that you pass SB1340 on Final Read today to implement a simple solution to abusive HOAs that foreclose on homeowners, selling their properties for pennies on the dollar of value. A simple appraisal(s) for which the costs can be added to the to the selling fees, will still allow foreclosure and debt collection, but will prohibit the unconscionable stripping of ALL of the homeowner's equity in their property.
A good example of this type of abuse is the case of Jeanne White, which I have presented to you earlier on this session. Ms. White, a widower with no family or legal guardians, became ill with dementia/Alzheimer' s, and went into long-term care. The Ventana Lakes HOA foreclosed on her property for $2550 in assessments, late fees, and interest. After tacking on attorney fees and other costs, they not only SOLD her home at sheriff's sale in April, 2006 but they THE HOA BOUGHT her home for $10,393!! After the 6-month redemption period expired (remember, Ms. White had no guardian to act on her behalf), the Ventana Lakes HOA sold the property in December 2006 for $123,262.
As outrageous as this case is, no statutes appear to have been broken. I firmly believe that SB1340 would have required the HOA to at least not be able to profit (they are supposed to be a non-profit corporation) so excessively, and perhaps they might have spent a little less money in attorney costs and utilized the option of debt collection via the reverse mortgage lender agreement.
Ms. White's case is an extreme example, but it is by no means an exception to HOA foreclosure abuse for nominal amounts that strip delinquent homeowners of all their equity. When financial lenders foreclose on properties, there are fair market value requirements on the sale - why are HOA foreclosures not held to the same requirements? ?
PLEASE PASS SB1340 - HOA FORECLOSURES FOR MARKET VALUE.
Sincerely,
Monika Grewe
SB 1330 Homestead Exemption
would have restored the statutory right of the Homestead Exemption to ALL HOA homeowners – a right that was taken away from the HOA members by state statute in 1996. In Arizona, every person age 18 or older who resides in the state whether married or single, may hold a ‘homestead exemption’ exempt from attachment, execution and forced sale, certain property worth $150,000 or less. A person who is entitled to a homestead exemption holds that exemption by operation of law and no written claim or recording is required. BY STATUTE, THE HOMESTEAD EXEMPTION IS DENYED TO ALL HOMEOWNERS IN HOAs.
Southern Arizona Senators Voting Record (2007 Final Reading)
SB 1330 Homestead Exemption
Yes Paula Aboud
Yes Marsha Arzberger
Yes Jorge Luis Garcia
Yes Victor Soltero
NO Charlene Pesquiera
Yes Timothy S. Bee
The bill passed both the House and Senate but was vetoed by the Governor on a technicality.
SB 1340 Fair Market Value
would have required the sale of property to satisfy a judgment of an association to be sold for at least fair market value with all remaining balances paid to the home owner after payment of prior liens and encumbrances as otherwise provided. Now as before, the foreclosure of a HOA member’s home can be sold for pennies on the dollar, leaving the homeowner financially broke since all of their equity is gone. Only people who live outside HOAs have fair market value protection. Many times, at the sheriff’s foreclosure sale, the HOA will buy the home for a few hundred dollars and turn around and sell it at the fair market value price and pocket a huge profit. The homeowner, however, can stop the foreclosure by paying the total judgment owed and they have the right to ‘redeem their property’ within 6 months after the foreclosure sale.
When you purchased your home, did you know you were giving the HOA a permanent priority lien, running with the land, even when you owe nothing?
People who registered against the 2007 SB 1340:
Stan Barnes, Southern Arizona Home Builders Association
Rob Dalager, Diamond Ventures
Kevin B. DeMenna, CAI lobbyist
Jon Dever, Leisure World HOA
Linda Lang, Arizona Association of Community Managers
Scot Mussi, Home Builders Association of Central AZ
Jeff Sandquist, AZ Association of Community Managers & Robson Communities
Southern Arizona Senators Voting Record (2007 Final Reading)
SB 1340 Fair Market Value
NO Paula Aboud
NO Marsha Arzberger
Yes Jorge Luis Garcia
Yes Victor Soltero
NO Charlene Pesquiera
Yes Timothy S. Bee
The bill was defeated in the Senate by NO votes.
One of many letters to the Arizona senators in support of SB 1340.
From: Monika Grewe
To: Victor Soltero ; Timothy Bee ; Thayer Verschoor ; Ron Gould ; Robt (Bob) Burns ; Richard Miranda ; Rebecca Rios ; R Blendu ; Paula Aboud ; Marsha Arzberger ; Linda Gray ; Ken Cheuvront ; Karen Johnson ; Jorge Garcia ; John Huppenthal ; Jim Waring ; Jay Tibshraeny ; Jack Harper ; J Flake ; Gray, Chuck ; Carolyn Allen ; Barbara Leff ; Albert Hale ; Tom O'Halleran ; Pam Gorman ; Debbie McCune Davis ; Leah Landrum Taylor ; Meg Burton Cahill ; Amanda Aquirre ; Charlene Pesquiera
Sent: Monday, June 11, 2007 9:32 AM
Subject: PLEASE PASS - SB1340 HOA FORECLOSURE MARKET VALUE
Dear Senators,
I respectfully request that you pass SB1340 on Final Read today to implement a simple solution to abusive HOAs that foreclose on homeowners, selling their properties for pennies on the dollar of value. A simple appraisal(s) for which the costs can be added to the to the selling fees, will still allow foreclosure and debt collection, but will prohibit the unconscionable stripping of ALL of the homeowner's equity in their property.
A good example of this type of abuse is the case of Jeanne White, which I have presented to you earlier on this session. Ms. White, a widower with no family or legal guardians, became ill with dementia/Alzheimer' s, and went into long-term care. The Ventana Lakes HOA foreclosed on her property for $2550 in assessments, late fees, and interest. After tacking on attorney fees and other costs, they not only SOLD her home at sheriff's sale in April, 2006 but they THE HOA BOUGHT her home for $10,393!! After the 6-month redemption period expired (remember, Ms. White had no guardian to act on her behalf), the Ventana Lakes HOA sold the property in December 2006 for $123,262.
As outrageous as this case is, no statutes appear to have been broken. I firmly believe that SB1340 would have required the HOA to at least not be able to profit (they are supposed to be a non-profit corporation) so excessively, and perhaps they might have spent a little less money in attorney costs and utilized the option of debt collection via the reverse mortgage lender agreement.
Ms. White's case is an extreme example, but it is by no means an exception to HOA foreclosure abuse for nominal amounts that strip delinquent homeowners of all their equity. When financial lenders foreclose on properties, there are fair market value requirements on the sale - why are HOA foreclosures not held to the same requirements? ?
PLEASE PASS SB1340 - HOA FORECLOSURES FOR MARKET VALUE.
Sincerely,
Monika Grewe
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