The Arizona Republic recently published an investigative series about homeowners who have lost their houses as the result of foreclosures by their homeowners’ associations. As happens periodically, some people have pointed to these events as demonstrating the need for closer government regulation of homeowners’ associations. My own view is that the process by which homeowners’ associations enforce their rules is not likely to change, and the individual stories are often illustrative of how a homeowner should not respond when there is a dispute with their homeowners’ association.
All mandatory homeowners’ associations collect assessments and enforce rules. For example, most associations have a rule stating that each homeowner must keep their yard up to certain standards and that if the homeowner fails to do so, the association has the authority to cure the failure at the homeowner’s expense. If a yard isn’t kept up, the association gives the homeowner notice of the violation as required under association rules. Then if the homeowner doesn’t clean up the yard, the association hires someone to do the work and sends the homeowner the bill. If the homeowner refuses to pay the bill, the association, again under fairly standard rules, places a lien against the property. If the homeowner continues to fail to pay the bill, the association can sue the homeowner to foreclose the lien, get a judgment for foreclosure, and cause the property to be sold at a Sheriff’s sale to satisfy the lien. The purchaser at the Sheriff’s sale pays the amount of their bid in cash, which goes to the association to pay the homeowner’s debt to the association. The purchaser takes title to the property subject to prior encumbrances (existing obligations) on the property, which usually consist of a bank mortgage, possibly a home equity line of credit, and unpaid real property taxes. The purchaser has to pay those obligations to keep the property, meaning that the purchaser’s investment to acquire the property is not just the amount bid at the Sheriff’s sale, but the amount of that bid plus the amount of the mortgage(s) and the unpaid property taxes.
Despite the calls for increased government regulation of homeowners’ associations, I have heard of very few cases where an association did anything outside of what they are permitted to do to enforce their rules. There are state laws that limit the actions of homeowners’ associations in enforcing liens for unpaid fees. All homeowners’ associations are required by Arizona law to provide a statement of the amount of any unpaid fees upon the request of the homeowner. All homeowners’ associations are also prohibited by Arizona law from enforcing any lien more than three years after the unpaid fees became due. And Arizona law limits the amount that homeowners’ associations can charge for late payment of fees.
Contrary to the perception that homeowners’ associations are a shadow government foisted on unsuspecting homeowners, the existence of a homeowners’ association, its rules, and its powers of enforcement are all disclosed to a prospective home purchaser when a document commonly called the “CC&Rs” (Covenants, Conditions and Restrictions) is provided to the prospective purchaser with the preliminary title report. The Seller’s Property Disclosure Statement, and the Subdivision Public Report in new subdivisions, also provide information about the association and its impact on the property.
Another misconception fostered by the criticism of homeowners’ associations is the notion that they are ubiquitous. The fact is that very few older subdivisions have associations with enforcement powers, even those older subdivisions that have CC&Rs in place. The proliferation of homeowners’ associations is probably more associated with the spread of subdivision common areas rather than CC&Rs. Subdivision common areas are those areas found in most newer subdivisions that are not part of any individual lot, and are not owned by the local government (e.g., public parks or walkways), but are owned collectively by all of the lot owners in the subdivision. The common areas can be as limited as the landscaped area around the subdivision entrance or as extensive as the streets throughout the subdivision. Maintaining those common areas (using the association fees paid by all of the homeowners in the subdivision) is the primary function of most associations. The common areas may make the subdivision more attractive, but having them necessitates the creation of a governing body to maintain them. If you buy a house in such a subdivision, you are knowingly entering into an agreement to live by the rules establishing the common areas and the association, i.e., the CC&Rs.
Now for the part about how not to respond when you get into a dispute with your homeowners’ association. Often in situations that end in a foreclosure, the homeowner ignores the association’s requests to clean up the yard (or pay the assessments, or fix whatever the problem is) and the subsequent notices telling the homeowner that the association is going to take enforcement action. Or, the homeowner objects to the late fees charged when they miss an assessment payment or has some conflict with a member of the association’s board of directors. I’m not saying the association is never in the wrong. Frequently, they are. But in many cases, the association can be persuaded to compromise on the late charges, or give the homeowner more time to pay, if the homeowner opens a constructive dialogue before the association resorts to legal action. Once the association starts legal proceedings, the homeowner’s failure to respond will result in court orders leading to a judgment for foreclosure and Sheriff’s sale. Even if the association’s actions were completely unjustified, if the homeowner ignores the association’s actions, the homeowner can lose their home.
Homeowners’ associations are here to stay and do perform the function of maintaining the common areas that make many modern residential communities more attractive. Homeowners’ associations will exercise their substantial powers to enforce their CC&Rs. If you would prefer to be free of the financial and regulatory burden imposed by a homeowners’ association, you can as a home buyer vote with your feet on the issue by choosing to buy a house in a neighborhood with no association.
Nathan B. Hannah is a Shareholder in the Tucson office, and practices in the areas of estate planning and administration, real estate, and commercial transactions. He is also a noted blogger, and you can find more of his articles on his private blog,
Contact Attorney Hannah: firstname.lastname@example.org or 520/ 322-5000
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