ARIZONA STATE SENATE
Phoenix, Arizona
homeowners’
associations
Purpose
Makes widespread
changes to homeowner association (HOA) open meeting laws, voting and elections,
fines and fees, assessments and liens, document disclosure, prospective
purchaser notice requirements and developer control. Creates an internal HOA
appeals process.
Background
Currently, state law provides for planned community HOA’s and for condominium HOA’s. Condominium HOA’s and their board of directors have been regulated in Arizona since 1986, while Laws 1994, Chapter 310 established regulations pertaining to the formation and operation of master planned communities’ HOA’s. S.B. 1342, in part, standardizes the two areas of law.
Other than potential for an increased caseload for state courts, this legislation contains no discernable fiscal impact.
1. Prohibits HOA boards from imposing monetary penalties unless the HOA member has violated the declaration, bylaws or rules.
2. Allows a HOA member to appeal a monetary penalty to a separate HOA appeal committee.
3. Provides for selection of members of the HOA appeal committee, as follows:
a) One person chosen by the HOA member.
b) One person chosen by the HOA board.
c) One person chosen by the two persons named by the HOA board and member.
4. Requires the HOA appeal committee to provide the HOA member with notice and a hearing, and make a determination and report to the HOA board and the affected HOA member.
5. Allows the HOA appeal committee decision to be overturned by a unanimous vote of the HOA board at an open meeting. Stipulates that the HOA board’s decision is final unless an action is filed in a justice court to determine the matter.
6. Requires justices of the peace to provide for expedited and simplified resolution of disputes between a HOA member and the HOA or its board. (22-201)
7. Terminates declarant control of a HOA the earlier of two years after the last unit has been offered for sale or:
a) for a condominium or planned community with fewer than 400 units, 90 days after the sale of 75 percent of the units.
b) for a condominium or planned community with between 400 and 1,000 units, 90 days after the sale of 80 percent of the units.
c) for a condominium or planned community with between 1,000 and 2,000 units, one year after the sale of 90 percent of the units, other than those owned by the developer.
d) for a condominium or planned community with more than 2,000 units, one year after the sale of 95 percent of the units, other than those owned by the developer.
8. Removes existing standard of terminating declarant control the earlier of 90 days after 75 percent of units have been sold or four years after last offer of sale.
9. Stipulates that the termination date of developer control of a HOA is extended in the event of government moratoriums and delays or natural events.
10. Allows the closure of regular and special HOA board meetings for discussion of confidential legal matters.
11. Removes from items of discussion that allow for the closure of regular and special HOA board meetings pending or contemplated litigation and matters relating to enforcement of HOA documents and rules.
12. Removes ability for HOA bylaws to provide alternatives to statutory meeting notice requirements.
13. Subjects declarant controlled HOAs to statutory meeting notice requirements.
14. Requires HOA boards to allow unit owners and lessees to attend and observe the counting of written ballots, proxies and the announcement of the results.
15. Requires HOA boards to retain written ballots and proxies for at least 30 days following the announcement of results.
16. Requires proxy votes to be signed. Allows proxy votes to include the unit number.
17. Voids planned community HOA proxy votes that do not contain the HOA unit owner’s address.
18. Allows revocation of a proxy vote by written notice provided before or at the meeting or by the public, verbal revocation of the proxy by the unit owner during the unit owner’s attendance at a meeting.
19. Allows any HOA member to run for election to the HOA board when a petition with ten percent of available votes or 25 signatures, whichever is less, in the HOA is presented to the board.
20. Prohibits HOAs from imposing a regular assessment that is more than 20 percent higher than the immediately preceding fiscal year’s assessment without the approval of a majority of the votes cast at a HOA meeting at which a quorum is present.
21. Allows a HOA to put a lien on a HOA member’s unit for a monetary penalty, fee or charge for a violation of community documents only:
a) after a HOA member has appealed to penalty to the HOA appeal committee and the appeal committee requires that a penalty, fee or charge be paid by the member, or
b) f the HOA member fails to appeal the monetary penalty, fee or charge to the appeal committee during the time provided for appeals.
22. Requires HOAs to furnish a statement of unpaid assessments to an escrow agent upon request.
23. Eliminates the requirement of HOAs to provide a statement of unpaid assessments to the escrow agent in order to maintain a lien.
24. Makes HOAs that do not release a satisfied lien liable for $1,000 or damages, whichever is more, and reasonable attorney fees and costs if the following occur after a 30-day grace period following satisfaction of the lien:
a) a written notice is provided that the lien is satisfied and that the 30-day grace period following satisfaction of the lien has lapsed.
b) the written notice includes recording information of the lien and satisfactory evidence that the lien has been satisfied.
c) the HOA fails to release the lien within five days of receipt of written notice.
25. Prohibits HOAs from terminating utility services to a unit owner.
26. Removes ability of a declaration to provide for other than statutory requirement related to the provision of HOA budget summaries to unit owners.
27. Allows unit owners to inspect and copy HOA records after reasonable notice to the HOA.
28. Allows HOAs to withhold records that relate to personnel matters or medical records and confidential communications with the HOA’s attorney.
29. Allows a HOA to charge for costs of preparing and reproducing the documents.
30. Allows HOAs to refuse to disclose financial and other records if the disclosure violates any local, state or federal law.
31. Eliminates from the required documents that HOAs must make available to prospective purchasers a statement as to whether the unit’s alterations or improvements violates the HOA declaration.
32. Requires a statement as to whether a reserve fund is required by the HOA and if so, in what amount, be made available by a HOA for review by prospective purchasers.
33. Requires HOA boards and appeal committee members to act in good faith and in accordance with HOA documents, including enforcement decisions, imposition of fines and penalties and maintenance of HOA assets.
34. Prohibits a HOA or a HOA board to hire or contract with a management company unless the management company annually provides evidence of financial assurance, either by performance or a surety bond of at least six months of assessments for the HOA.
35. Limits ability of developers to remove HOA board members to those members who are appointed by the developer during a period of declarant control.
36. Prohibits the removal of a HOA board member without a quorum of the unit owners to whom at least 25 percent of the votes are allocated at the meeting.
37. Generally applies condominium HOA statutory elements to planned community HOAs relating to amending the declaration, declarant controlled HOAs and ballot and proxy voting.
38. Conforms planned community HOA statutes with condominium HOA statutes relating to removal of developer appointed HOA board members and voting by multiple owners of a single HOA unit.
39. Allows a quorum to be established by proxy for votes to increase a planned community HOA assessment more than 20 percent greater than the previous year’s assessment.
40. Allows a planned community developer to amend a declaration when exercising its development rights.
41. Allows planned community HOA declarations to be amended by greater than 67 percent of possible votes if specified in the declaration.
42. Prohibits planned community HOA declarations from being amended without the written consent of the developer, if the declaration so provides. Specifies that such a provision is enforceable only during the period of developer control of the planned community HOA, except with respect to amendments that would affect any special declarant rights, that would increase the developer’s share of assessments to the HOA or that would otherwise adversely affect the developer or the developer’s successor.
Termination of Planned Community
HOA Contracts
43. Allows suspension of statutory requirements relating to conveyance of common areas by a developer to a planned community HOA and to termination of planned community HOA contracts entered into after the effective date of this act if such ability is provided in the declaration, some other recorded instrument or a written agreement approved by either a nondeclarant controlled planned community HOA board or by a majority of HOA members.
44. Stipulates that common areas and a reserve fund, if required by community documents, to be maintained by a planned community HOA must be conveyed.
45. Requires planned community HOA declarants (developers) to convey a reserve fund if required by the HOA documents.
46. Exempts proceedings in which a HOA member challenges the actions of a HOA board from the ability to challenge the validity of a corporate action under the nonprofit corporation laws.
47. Repeals existing record restrictions for nonprofit corporations.
48. Prescribes definitions.
49. Makes numerous technical and conforming changes.
50. Provides for a general effective date.
Prepared by Senate Staff
March 8, 2002