Tag: Arizona

HOA email ‘meetings’ – intent of the law — bad faith

Calif. attorney Beth Grimm advises against email meetings as new law goes into effect. In contrast, in Arizona, following CAI Scott Carpenter’s advice to HOAs on “how to adjust to the new laws” (see AZ CAI’s reaction to the “new era of regulation” of HOAs), I’m aware of another CAI attorney making use of “written consent” to bypass the intent of the Arizona law.

And let’s not forget the HOA directors who hide behind “upon advice of their attorney” to get around the laws. They forget, and the HOA attorneys apparently don’t advise them accordingly — especially at those town sponsored seminars — that under ARS 10-3830(C), “A director is not acting in good faith if the director has knowledge concerning the matter in question that makes reliance otherwise permitted by subsection B unwarranted.” “B” refers to reliance on other experts like CPAs and attorneys.

While a legal mechanism, is the avoidance of the intent of the law in this email instance a violation of good faith to the members? I think so! Good faith – “honesty and integrity, or an honest intent to act without taking an unfair advantage over another person.”

In this instance, can the director play “dumb” and say, “I didn’t know the law” and get away with it? Hell no!

See Grim blog, EMAIL “MEETINGS” – MORE ON THE TOPIC

HOA boards cannot escape wrongful acts by their managers

Given the fact that the HOA manager and/or firm acts “in place” or “on behalf of” the board under a contractual relationship that explicitly identifies the manager as an “agent” or “management agent,” the HOA can be held liable for the acts of its manager. (See study of Arizona management contracts).

Under tort law (the common law of wrongful acts) of vicarious liability (the tort doctrine that imposes responsibility upon one person for the failure of another) and respondeat superior, the board cannot ignore, walk away or refuse to take corrective action action against the manager without incurring liabilities.

First, from the HOA’s obligations, under the officers and directors duties to act in good faith and as a prudent man, the board is obligated to act against its manager where state laws and the governing documents have been violated, or when the manager is clearly committing wrongful acts, like making false statements, harassing a homeowner, etc.

Second, let’s look at what the Restatement (3rd) of Agency (2006) has to say about the liabilities of the agent and principal (manager – board). (Of course, one would not expect to see this material covered in any government sponsored seminar, or manager licensing education, like at the Leadership Centre in Phoenix, which is supported by the towns of Chandler, Mesa, Gilbert, Queen Creek, Apache Junction). “Direct liability” refers to suing the party as such. The main points are summarized below:

¶ 7.01 An agent is subject to liability to a third party (homeowner) harmed by the agent’s tortious conduct.

¶ 7.03 (1) A principal is subject to direct liability to a third party harmed by an agent’s conduct when . . .

(a)(ii) the agent’s conduct, if that of the principal, would subject the principal to tort liability; or . . .
(b) the principal is negligent in selecting, supervising, or otherwise controlling the agent;
(2) A principal is subject to vicarious liability to a third party harmed by an agent’s conduct when . . . the agent commits a tort when acting with apparent authority in dealing with a third party on or purportedly on behalf of the principal.

¶ 7.05 (2) When a principal has a special relationship with another person [as the board with a homeowner], the principal owes that person a duty of reasonable care with regard to risks arising out of the relationship, including the risk that agents of the principal will harm the person with whom the principal has such a special relationship.

¶ 7.06 A principal required by contract or otherwise by law to protect another cannot avoid liability by delegating performance of the duty, whether or not the delegate is an agent.

study of Arizona management contracts

I’ve collected 5 actual management contracts from management firms who are members of the AZ Assn of Community Managers, AACM. All are for HOAs in the Phoenix Metro area. As one management agent told me a long time ago, “What are you doing George? We got a good thing going here!”

 

In general, here’s what they have in common

 

Monthly fees:

$2,000 – $4,000 per month — ($12, 000 – $48,000 plus all those transaction fees summarized below).

Per transaction fees:

numerous and detailed, above the basic monthly fee.

Agency relationship:

4 out of the 5 explicitly acknowledge an agency relationship with the HOA – fiduciary, loyalty, best interests.  One contract specified that it was an independent contractor, but this does not remove the agency relationship.

 “acting under orders”:

All contracts are full of wording that the agent acts under the supervision and direction of the HOA board and its policies.  This serves to negate any “independency” and place the liability on the HOA board. The board can be held responsible for the misdeeds of its agent under respondeat superior. (Never heard of it, did you? That’s because CAI wants it a secret.)

 what does the monthly fee cover?

I couldn’t figure this out after looking at all those transaction fees that are extra. I concluded that it must cover such items as

  • waiting for the phone to ring,
  • responding sometime to homeowners, touring the grounds on an inspection tour (except nighttime inspections which are extra),
  • seeking violators and or physical damage,
  • and dealing with the clerical duties pertaining to meetings and attending a few of them.

Transaction fees:

  • Paper, envelopes, stamps, check, faxes, etc charges;
  • letters including dunning letters, billing reports;
  • transfer fees, disclosure fees, computer and bookkeeping fees;
  • education, newsletters, website;
  • senior staff, computer staff, agent staff.

 

POINTS TO REMEMBER

Your management firm has a legal, binding contract with your HOA, in which it admits that it is an agent of the HOA and to acting under the “orders” of the board. An agency relationship is a fiducciary relaionship with the HOA.  The contract, corporation law, and the CC&Rs require to board to oversee the acts and actions of the management firm, and to take action when there’s wrong-doing by the management firm.  The HOA can be sued under respondeat superior for any wrongful acts by the management firm.

The principal may authorize  the agent to perform a variety of tasks or may restrict the agent to specific functions, but regardless of the amount, or scope, of authority given to the agent, the agent represents the principal and is subject to the principal’s  control. More important, the principal is liable for the consequences of acts that the agent has been directed to perform.

AZ tenants have more AG protection than property owners in HOAs

The current AZ Attorney General, Tom  Horne, proudly displays and offers a 48 page handbook for tenants, basically covering the Landlord and Tenant Act, ARS 33-1301 et seq. It contains 2 full pages of where to get help, and sample forms. It can be found under Publications/Handbooks. What about a handbook for homeowners living in HOAs covering Condo and planned communities acts?

Both the L & T and HOA acts deal with private contracts, so that can’t be the distinguishing excuse not to provide a warning guide or advisory, which I’ve repeatedly urged be developed and quickly offered to homebuyers and those already under HOA regimes. It’s not like there are no issues of material fact, like misrepresentation, consent to be governed, loss of individual property rights, freedoms, privileges and immunities; and private governments not subject to the Constitution. Or that problems do not continually appear in the media. Homeowners who have written the AG’s office, and the Real Estate Commissioner receive a standard, No my job. Get the Legislature to write new laws.

Unfortunately, the problem you complained about is not within our jurisdiction. Our office enforces the Consumer Fraud Act, however, the Act does not allow our office to pursue private disputes. Our office represents the state of Arizona and cannot act as a private attorney for individual citizens.

The position of the Arizona Attorney General is unacceptable. The public policy position of the State of Arizona is unacceptable. It strongly reflects HOA protectionism even to the extent that the State permits the denial of constitutional protections for the people. And in a state that has loudly and firmly urged support for the Constitution and the need to uphold the laws of the land! I offer my Truth in HOAs disclosure poll — please vote your conscience, showing a solid rejection of these hidden facts, and the KPHO, HOA Syndrome survey: YES, it exists!,poll showing that HOA boards do inflict emotional stress on homeowners who disagree with the board.

I urge the Legislature to require ADRE and the Attorney General’s Office to provide a Truth in HOAs handbook containing the facts, the negative aspects, of living in an HOA. Such a handbook must address the issues contained in the Truth in HOAs Disclosure Agreement as set forth in the poll mentioned above.

Arizona Tenants’ Rights and Responsibilities Handbook

AZ independent HOA tribunal again under constitutional attack

The Arizona independent tribunal, Office of Administrative Hearings (OAH), must really be hurting not only the CAI lawyers, but all lawyers, too. OAH does not pay attorney fees and HOAs cannot expect to get fees from the homeowner. They have to pay from the total of assessments collected. And with a national law firm at its side, it will be paying big, very big.

In the opening rounds of this second period of adjudication, the first ending with 42% of the cases won by the homeowner, a national law firm undertook the defense of an HOA on the issue of an amendment to the CC&Rs. The amendment forced a homeowner to stop building her home, which she was legally entitled to under under her existing CC&Rs. In Wozniak v. North Slopes POA, OAH No. 11F-H1112001-BFS, filed July 22nd, the attorney seeks dismissal of the case based on 2 black and white claims: the homeowner failed to indicate what law or governing document provision was violated, and that North Slopes was, by definition, not a planned community and, therefore, not subject to OAH adjudication – the HOA does not own any property in the subdivision.

BUT, this did not stop Karen Karr of the national firm of Lewis Brisbois Bisgaard & Smith from an opening barrage against the constitutionality of the old statute — old news and moot – and the claims that the new statute is also unconstitutional. She is a labor management attorney. Obviously, the ALJ would dismiss the Petition based on the “black and white” laws and need not entertain the constitutionality question (as an earlier OAH case appealed to the superior court bypassed the constitutionality question). So why the fuss? Headlines? Coaching from you know who lobbyist firm who got scathed by its initial foray into the constitutionality issue, and seeks others to do its work? The one who promised to attack the new statutes? Could that be Carpenter Hazlewood?

The attorney spends 1 1/2 pages (of 7) on reciting history, not applicable to the new statute, and fails to state the fact that the AZ Supreme Court did not allow the appellate case of Gelb to serve as precedent when it declined to hear an appeal. In another 1/2 page, unsupported allegations are made as to the constitutionality of the new statute – no case law, no constitutional law, no administrative agency law. Why on earth bring constitutionality up in such a feeble manner?

My guess is that we will see another attempt, maybe more, to unseat justice for homeowners in HOAs. I mean, it took Carpenter Hazlewood 4 tries before it won  the appellate court, but not precedent, decision in Gelb.

BTW, why DFBLS did not outright reject this Petition is a mystery. Clearly it did not meet the requirements of proper adjudication. (While the new DFBLS Petition form asks for specific statutes alleged to have been violated, it does not ask about specific provisions of the governing documents that are alleged to have been violated). If DFBLS had properly rejected the Petition, it would have had to return the $550 fee.

Furthermore, I can understand the ALJ giving the Petitioner a chance to answer, but this ALJ, who is experienced in HOA matters, does not ask the homeowner to address these jurisdictional issues right-out, but seeks a pre-trial conference and entertains a motion for continuance.

Is there a “plot” to raise OAH expenses on frivolous matters in order to obtain evidence for a fee increase?  An increase that was already on the drawing board even before the law became effective in July.