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 and prospective
purchaser notice requirements. 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 HOA boards to select the third person on the HOA appeal committee if the aggrieved HOA member and HOA board do not name a third person in ten business days.
5. 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.
6. 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.
7. Requires justices of the peace to provide for expedited and simplified resolution of disputes between a HOA member and the HOA or its board. Excludes actions relating to foreclosures, injunctive relief, declaratory relief and against the declarant.
8. 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.
9. Requires all HOA and board meetings to be held in this state, regardless of any contrary provisions in the community documents.
10. Removes ability for HOA bylaws to provide alternatives to statutory meeting notice requirements.
11. Subjects declarant controlled HOAs to statutory meeting notice requirements.
12. Requires all HOA board meeting notices to include the specific agenda item for the meeting.
13. Requires HOA boards to provide a summary of its actions to HOA members by newsletter, posting or other reasonable means on a quarterly basis.
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. Prohibits proxy votes allocated to a unit from being cast by a lessee.
16. Requires HOA boards to retain written ballots and proxies for at least 30 days following the announcement of results.
17. Requires proxy votes to be signed. Allows proxy votes to include the unit number.
18. Voids planned community HOA proxy votes that do not contain the HOA unit owner’s address.
19. 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.
20. 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.
21. 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.
22. 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) If the HOA member fails to appeal the monetary penalty, fee or charge to the appeal committee during the time provided for appeals.
23. Requires HOAs to furnish a statement of unpaid assessments to an escrow agent upon request.
24. Eliminates the requirement of HOAs to provide a statement of unpaid assessments to the escrow agent in order to maintain a lien.
25. Requires HOAs, on satisfaction of a lien, to promptly release any recorded lien and applies existing law governing wrongful liens and liability.
26. Prohibits HOAs from terminating utility services to a unit owner.
27. Removes ability of a declaration to provide for other than statutory requirement related to the ratification of the budget and the provision of HOA budget summaries to unit owners.
28. Stipulates that the annual budget is adopted unless rejected by a majority of all the HOA owners.
29. Requires HOA records to be physically maintained in this state, regardless of any contrary provisions in the community document.
30. Allows unit owners to inspect and copy HOA records after five business days notice to the HOA.
31. Allows HOAs to withhold records that relate to employment or personnel matters and legal advice from the HOA’s or HOA board's attorney.
32. Allows a HOA to charge based on the courts' charge per page copying fee for costs of preparing and reproducing the documents.
33. Allows HOAs to refuse to disclose financial and other records if the disclosure violates any local, state or federal law.
34. Confirms the right of a HOA member to inspect records pursuant to court action and the power of the court to exam records.
35. 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.
36. 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.
37. 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.
38. Requires HOA boards to provide notice of a special meeting regarding the removal of a HOA board member within 30 days after receiving a petition.
39. Prohibits removal of a board member at any meeting unless notice of the proposed removal is included in the general board meeting notice.
40. 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 vote in person or by proxy at the meeting.
41. Requires HOA boards to retain for one year voting records on the removal and allow HOA members to inspect those records.
42. Entitles a prevailing party in a civil action filed regarding the removal to reasonable attorney fees and costs.
43. Prohibits a HOA board from employing or contracting with a management company unless a majority of the board approves the selection of the company.
44. Generally applies condominium HOA statutory elements to planned community HOAs relating to amending the declaration, budget, declarant controlled HOAs and ballot and proxy voting.
45. 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.
46. 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.
47. Allows a planned community developer to amend a declaration when exercising its development rights.
48. Allows planned community HOA declarations to be amended by greater than 67 percent of possible votes if specified in the declaration.
49. 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
50. Allows suspension of statutory requirements relating 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.
51. 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.
52. Repeals existing record restrictions for nonprofit corporations.
53. Prescribes definitions.
54. Makes numerous technical, conforming and parallel changes.
55. Provides for a general effective date.
Amendments
Adopted by Committee
1. Restores existing condominium law relating to termination of declarant control and makes parallel changes to the planned community provisions.
2. Eliminates provisions requiring conveyance of common areas and, if applicable, a reserve fund, by a developer to a planned community HOA.
3. Requires the budget to be approved by two-thirds of all the unit owners.
4. Prohibits proxy votes to be cast by a lessee.
5. Prohibits HOA boards from hiring or contracting with a management company unless approved by a majority of the board members.
6. Makes technical and conforming changes.
Amendments
Adopted by Committee of the Whole
1. Incorporates the Rules Amendment and some of provisions in the Commerce Committee amendment, as follows:
a) Restores existing condominium law relating to termination of declarant control and applies parallel changes to the planned community provisions.
b) Eliminates provisions requiring conveyance of common areas and a reserve fund by a developer to a planned community HOA.
c) Prohibits proxy votes to be cast by a lessee.
d) Prohibits HOA boards from hiring or contracting with a management company unless approved by a majority of the board members.
2. Excludes actions relating to foreclosures, injunctive relief, declaratory relief and against the declarant from the jurisdiction of justices of the peace over HOA matters.
3. Requires HOA boards to select the third person on an appeals committee in the event that the aggrieved HOA member and HOA board do not name a third person in ten business days.
4. Removes ability for HOA declaration to provide alternate method for adopting and amending budgets. Stipulates that the annual budget is adopted unless rejected by the majority of all the HOA owners and applies parallel changes to the planned community provisions.
5. Requires HOA boards to provide notice of a special meeting regarding the removal of an HOA board member. Requires HOA boards to retain for one year voting records on the removal and to allow HOA members to inspect those records. Entitles a prevailing party in a civil action filed regarding the removal of a board member to reasonable attorney fees and costs.
6. Restores current law with respect to the closure of regular and special HOA board meetings for discussion of legal matters.
7. Requires all HOA and board meetings to be held in this state, regardless of any contrary provisions in the community documents.
8. Requires all notices of an HOA board meeting to include the specific agenda item for the meeting.
9. Requires HOA boards to provide a summary of its actions to HOA members by newsletter, posting or other reasonable means on a quarterly basis.
10. Eliminated provisions making HOAs liable for not releasing satisfied liens and applies instead existing law governing wrongful liens and liability.
11. With respect to records and financial information:
a) Requires 5-days notice, rather than reasonable notice, to an HOA to inspect and copy HOA records.
b) Requires records to be physically maintained in this state, regardless of any contrary provisions in the community documents.
c) Replaces the items in which an HOAs may withhold records with items that warrant the closure of regular and special HOA board meetings.
d) Specifies that the charge for costs of preparing and reproducing documents is based on the courts’ charge per page copying fee.
e) Confirms the right of a HOA member to inspect records pursuant to court action and the power of the court to exam records.
12. Eliminates provisions prohibiting HOAs or HOA boards from hiring or contracting with a management company without evidence of financial assurance (bond).
13. Makes technical, conforming and parallel changes.
Senate Action
COM 3/13/02 DPA 4-1-1-0
3rd Read 3/27/02 30-0-0
Prepared by Senate Staff
March 28, 2002