By Jones Osborn II

From time to time we hear stories about overzealous and overbearing homeowners associations making life miserable for their members. This does occasionally occur, and homeowners associations do have considerable power over the homeowners within their jurisdiction. Their powers are not without limits, however, and they do have certain legal responsibilities.

A properly functioning homeowners association can help maintain an attractive and well-kept neighborhood with common amenities, thereby increasing property values. A poor association can allow the appearance and maintenance of the neighborhood to slip, or worse, can create problems and hard feelings where none should exist.

Duties. Homeowners associations are governed by a board of directors which are elected by the homeowners. As board members, these elected representatives have a fiduciary duty to the homeowners to act in their collective best interests. Admittedly, determining whether a board member's actions meet this test is not easy, and board members do have considerable leeway. Nevertheless, this is the overriding principle which must govern their actions. They could, conceivably, be taken to court for violating this duty, although this rarely occurs.

Homeowners associations also have a number of specific duties which are imposed by statute, including the following:

1. Holding regular meetings that are open to all members of the association. Even though the meetings are open, there is no obligation to allow non-board members an opportunity to speak or otherwise participate in the meeting. At least 48 hours notice of the meetings must be given to the members by mail, posting, or other reasonable means.

2. Furnishing a prospective purchaser of a property governed by the association with a package of information including the following:

(a) A copy of the bylaws, declaration, and rules of the association. A declaration is a recorded document similar to a deed restriction which grants the association its powers and imposes restrictions on the property owner.

(b) The name, address, and telephone number of a contact for the association.

(c) The amount of the association's assessment, the amount of reserves held by the association, and the association's current budget.

(d) A statement of any known alterations to the property being sold which violate the declaration or rules of the association.

Powers. The powers of a homeowners association are derived partly from applicable law and partly from the bylaws and the recorded declaration. Usually, the bylaws and declaration give the association broad powers to approve additions or alterations to units, to insure that the individual properties are properly maintained, to levy assessments to maintain and improve the common areas, and to adopt rules and regulations governing the use and appearance of all property within its jurisdiction. It is this latter power that often causes friction between the association's board and the homeowners. This is sometimes due to the particular provisions of the rules and regulations, but more often it arises out of the manner in which they are enforced. No one likes to be told what they can and cannot do with their own property, and the routine enforcement of rules can turn into a nasty battle. Homeowners association boards are well-advised to use tact, persuasion, and reason whenever possible in the enforcement of their rules. Property owners are well-advised to recognize that the association does have a certain amount of legal authority over the use of their property, and that a legal battle with a homeowners association is usually a losing proposition.

Arizona law authorizes homeowners associations to impose liens to collect their assessments. If the liens are not paid, the association can foreclose the liens in a manner similar to foreclosing a mortgage. The lien automatically expires if not foreclosed within three years of the date the assessment was due.

Homeowners associations also have the power to impose reasonable fines for violations of the rules and regulations and to levy late charges for tardy assessments. These late charges and fines may also be enforced by a lien.

Limitations. There are certain specific limitations imposed by law on the powers of homeowners associations.

The first limit is on the power to increase the regular assessment. Arizona law provides that the regular assessment cannot be increased by more than twenty percent per year without the approval of a majority of the members. Of course, if the declaration imposes a lower limit, then the lower limit will apply.

Another limit is on the amount of late charges that may be levied. A late charge may be imposed for tardy payment of assessments, but an assessment cannot be considered tardy unless more than 15 days have passed after due date. The amount of the late charge may not exceed the greater of $15.00 or ten percent of the amount due.

Finally, there is a limit on fines for violations of the rules of the association. A homeowners association may impose reasonable monetary fines for violations of its rules, regulations, bylaws and declaration only after giving the homeowner notice and an opportunity to be heard. This means he must be given an opportunity to present his side of the story to the board before the fine is imposed. The notice to the homeowner must include a statement of how the fine will be enforced, which is normally by the assertion of a lien against the owner's property. The key word in determining whether a fine is enforceable is "reasonable." Although "reasonable" is not defined in the statutes, it is intended to mean that the size of the fine must be in proportion to the infraction. An outrageously large fine for a minor violation may well provoke litigation—an expensive, time-consuming, and divisive process that boards should try to avoid if possible. The only appeal a homeowner has to contest a fine is to the courts.

Conclusion. Although homeowners associations are supposed to act reasonably, and most do, they also have considerable leeway in exercising their powers. There are some statutory limitations on their power, but the ultimate control over an overbearing board (short of litigation) is for the homeowners to elect a new board. Anyone contemplating purchasing property governed by a homeowners association should carefully read the rules, regulations, bylaws and declaration, and should be willing to accept substantial limits on his property rights if he decides to proceed with the purchase.