By Jonathan Olcott, Olcott & Shore, PLLC. www.olcottlaw.com
as published in the Arizona Journal of Real Estate & Business
Enforcing use restrictions contained in Community Documents can cause destructive emotional conflicts in HOAs. Two legal undercurrents collide: 1) it is my land, and nobody can tell me how I can use it; and 2) the use of one’s land affects the neighbor’s rights, and the rights of subsequent purchasers. The violator can become emotional about the enforcement action taken. A neighbor can become emotional about a lack of enforcement action taken. In a recent case, a homeowner successfully sued an association for not enforcing the covenants against a neighbor. Johnson v. The Pointe Community Association, Inc., 1 CA-CV 02-0160 (Court of Appeals, 07/31/03).
Effective covenant enforcement preserves property values. The first step is to identify the violation, and communicate the violation to the homeowner. Under Arizona law, a homeowner must receive notice and an opportunity for a hearing, before a HOA can fine the homeowner for a violation. However, proceeding directly to a fine letter will fuel the emotional content of the enforcement action. In order to cure the violation, the HOA must diminish the emotional content of the action.
The first communication should be a neighborly, friendly communication. It should use words such as “home”, “community”, “pleasing” and “neighbor”. It should avoid words such as “dwelling unit” and “penalty”. The first letter should invite the recipient to agree that preserving property values by maintaining the appearance of the homes is a goal shared in the community.
Violators can be lumped into three categories: 1) procrastinators; 2) hardship cases; and 3) defiant homeowners. Enforcing the covenants against the defiant homeowners is the most challenging. A threatening initial communication to a defiant homeowner will cause that homeowner to become defensive and aggressive. Only the neighborly initial communication has a hope of obtaining compliance by the defiant homeowner.
The neighborly initial communication has little chance of obtaining compliance by the procrastinator. It may open up communication with the hardship cases, and the defiant homeowners. If communications open, the HOA should obviously work with the homeowners to solve the problem. If not, continued enforcement is required.
I recommend that the second notice should not threaten a fine, unless the violation is egregious, or poses a danger to the community. The second notice should again be neighborly. It should assure the homeowner that the oversight was not intentional. These communications can become trial exhibits for a judge and jury to evaluate. The tone of the violation letters can sway the opinions of a judge or jury.
The third letter should threaten a fine, and invite the homeowner to a hearing before the Board. The term “hearing” is contained in ARS sections 33-1242(11) for condominiums, and 33-1803(B) for planned communities. “Hearing” was an unfortunate choice of words. The Board should try to negotiate a resolution at the hearing. HOAs should approach a hearing as an opportunity for a discussion to obtain compliance, rather than only a procedure for weighing testimony and evidence.
Arizona law only provides that the amount of a fine must be “reasonable”. The HOA should calculate the amount as a sufficient incentive to obtain compliance. Fines should never be used as revenue enhancers. Factors to consider are: 1) the seriousness of the violation; 2) whether it is a first violation or a continuing violation; 2) whether the violation is a danger to person or property; and 4) whether the Board believes the homeowner will fulfill a promise to comply. In a recent case where a homeowner was operating a business from a home, the Board properly considered the amount of the profit, and calculated the fine in an amount sufficient to render the business unprofitable.
Boards should always consider waiving the fines, if the homeowner cures the violations. Boards may decide to waive the fines only after a period of compliance. For example, if a homeowner has repeated trashcan violations, the Board may consider waiving the fines, but only after six months or one year of compliance. Resales are also an opportunity to obtain compliance. Under ARS sections 33-1260(A)(3)(e) for condominiums and 33-1806(A)(3)(e) for planned communities, a HOA must provide a statement to the buyer a statement whether the records of the HOA reflect any violations. Again, HOAs should use the resale as an opportunity to waive fines, in exchange for compliance. Waiving the fines in exchange for compliance will inform the buyer that compliance is required in the community, and that the HOA uses fines for compliance, rather than for revenue enhancement.
The opinion in the Johnson v. The Pointe case has been interpreted as exposing a HOA to liability if it does not enforce the covenants. Now is an opportune moment for HOAs to review their covenant enforcement policies, to ensure the process is aimed at compliance.