ALJDEC decisions subject to certification as final

19F-H1918017-REL · Department of Real Estate - H/C · 2019-04-01

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: March 25, 2019 at 1:30 PM. APPEARANCES: Loraine Brokaw (“Petitioner”) appeared on her own behalf. Jason Smith, Esq., and Sean Moynihan, Esq., appeared on behalf of Sin Vacas Property Owners Association (“Association” and “Respondent”). Robert Brokaw and Jack Juraco observed. ADMINISTRATIVE LAW JUDGE: Jenna Clark. _____________________________________________________________________ After review of the hearing record in this matter, the undersigned Administrative Law Judge makes the following Findings of Fact and Conclusions of Law, and issues this Order to the Commissioner of the Arizona Department of Real Estate (“Department”).

FINDINGS OF FACT Background and Procedure 1. The Department is authorized by statute to receive and to decide petitions for hearings from members of homeowners’ associations and from homeowners’ associations in Arizona. 2. On or about September 04, 2018, Petitioner filed a single-issue petition[1] with the Department which states in pertinent part, “The relief I request is that Board be compelled to respect the 30 years of the assessment schedule that has been in place without objection and continue to charge me the 150% assessment. I further request that the Board reimburse me for the costs associated with bringing this Petition.” 3. On November 02, 2018, Respondent returned its Answer to the Department whereby it denied all complaint items in the petition.[2] 4. On November 05, 2018, Respondent issued a formal response to the petition.[3] 5. Per the Notice of Hearing, the Department referred this matter to the Office of Administrative Hearings (“OAH”), an independent state agency, for an evidentiary hearing on January 08, 2019[4], regarding the following issue: Whether Sin Vacas Property Owners Association (Respondent) arbitrarily and capriciously raised annual assessments for some homeowners and not others in contravention of decades of past board practice and contractual agreements based on utterly flawed legal theory, which, in fact, changed from attorney to attorney.[5]

The Parties and Governing Documents 6. Respondent is a homeowners’ association whose members own properties in a residential real estate development located in Tucson, Arizona. Membership for the Association is compromised of the Sin Vacas subdivision. 7. Petitioner is a Sin Vacas subdivision property owner and a member of the Association. 8. The Association is governed by its Covenants, Conditions, and Restrictions (“CC&Rs”)[6], and overseen by a Board of Directors (“the Board”). The CC&Rs empower the Association to control certain aspects of property use within the development. When a party buys a residential unit in the development, the party receives a copy of the CC&Rs and agrees to be bound by their terms. Thus, the CC&Rs form an enforceable contract between the Association and each property owner. 9. The Association’s CC&Rs were recorded with the Pima County Recorder’s Office on April 13, 1978. 10. Bylaws Article I, Definitions, Section 3 states “[Properties] shall mean and refer to that certain real property hereinabove described, including all CR-1, SR and TR Lots.” 11. Bylaws Article I, Definitions, Section 5 states “[Lot] shall mean and refer to any numbered lot shown upon any recorded subdivision map of the Sin Vacas Properties with the exception of the Common Area.” 12. Bylaws Article IV, Covenant For Maintenance Assessments, Section 2 states, in pertinent part “The assessments levied by the Association shall be used exclusively to promote the recreation, health, safety, and welfare of the residents in the Properties and for the improvement and maintenance of the Common Areas and private streets within the Properties. The Sin Vacas Property Owners Association shall be responsible for future construction, maintenance, safety, liability and control of all private streets and roadways covered by these Covenants, Conditions, and Restrictions. 13. Bylaws Article IV, Covenant For Maintenance Assessments, Section 3 states, in pertinent part Until January 1 of the year immediately following the conveyance of the first CR-1, SR or TR Lot to an Owner, the maximum annual assessment shall be not more than FIVE DOLLARS ($5.00) per CR-1 lot, not more than FIVE DOLLARS ($5.00) per SR lot and not more than TWENTY-FIVE DOLLARS ($25.00) per TR lot. (Emphasis in original). a. From and after January 1 of the year immediately following the conveyance of the first CR-1, SR or TR lot to an Owner, the maximum annual assessment may be increased by the Board of Directors each year not more than TEN PERCENT (10%) above the maximum assessment for the previous year without a vote of the membership. b. From and after January 1 of the year immediately following the conveyance of the first CR-1, SR or TR lot to an Owner, the maximum annual assessment may be increased by 10% by a vote of fifty-one percent (51%) of the total votes outstanding at a meeting duly called for this purpose. c. The Board of Directors may fix the annual assessment at an amount not in excess of the maximum. 14. Bylaws Article IV, Covenant For Maintenance Assessments, Section 5 states “Written notice of any meeting called for the purpose of taking any action authorized under Section 3 and 4 shall be sent to all members not less than 30 days in advance of the meeting.” 15. Bylaws Article IV, Covenant For Maintenance Assessments, Section 6 states “Special assessments must be fixed and apportioned at a uniform rate for all CR-1 lots, SR lots, and each 20,000 square feet of TR lots.” 16. Bylaws Article IV, Covenant For Maintenance Assessments, Section 7 states “The annual assessments provided for herein shall commence as to all Lots on the first day of the month following the conveyance of the Common Area. The first annual assessment shall be adjusted according to the number of months remaining in the calendar year. The Board of Directors shall fix the amount of the annual assessment against each Lot at least thirty (30) days in advance of each annual assessment period. Written notice of the annual assessment shall be sent to every Owner subject thereto. The due dates shall be established by the Board of Directors. The Association shall, upon demand, and for a reasonable charge, furnish a certificate signed by an officer of the Association setting forth whether the assessment on a specified Lot have been paid. A property executed certificate of the Association as to the status of assessments on a lot is binding upon the Association as of the date of its issuance. 17. Bylaws Article VI, General Provisions, Section 3 states “the covenants and restrictions of this Declaration shall run with and bind the land, for a term of twenty-five (25) years from the date this Declaration is recorded, after which time they shall automatically be extended for successive periods of ten (10) years. This Declaration may be amended during the first twenty-five (25) year period by an instrument signed by the Lot Owners representing not less than ninety (90%) of the votes herein established, and thereafter by an instrument signed by the Lot Owners representing no less than seventy-five (75%) percent of the votes herein established. Any amendment must be recorded and prior to amending must be approved by Pima County for conformance to present or future Zoning Ordinances and Subdivision Regulations. Hearing Evidence 18. Petitioner testified on her own behalf and submitted one exhibit. Respondent declined to present any witnesses or exhibits of its own, but did cross-examine Petitioner. The Department’s electronic file was also admitted into the record. 19. Respondent’s position at the hearing was that the parties had different interpretations of the language contained in the Bylaws, and that the matter would be resolved however the tribunal chose to settle their dispute regarding the interpretation of relevant portions of the governing text. Petitioner’s testimony 20. Per Petitioner, she brought forth her action as a result of alleged action taken by Respondent which unlawfully raised her Lot assessment.

21. Petitioner clarified that the issue she sought to have resolved was whether it was legal for the Association to raise her assessment without raising assessments for all other Homeowners. Specifically, Petitioner requested that the Tribunal enforce an approximately thirty- year practice, pursuant to a Board Order based on a Restatement. 22. Petitioner testified that her husband first bought property in San Vacas in 1979. In 2003 the couple purchase an adjacent Lot and built a new home which spanned across both Lots.[7] 23. Petitioner testified that she legally had both Lots combined.[8] 24. Petitioner testified that as of 2003 the Association issued assessments as follows: 100% for a home on a single Lot, 25% for an undeveloped vacant Lot, and 150% for a residence on two Lots, regardless of what percentage of the home was located on either Lot. 25. Petitioner testified that she had never requested to be assessed for a single Lot, but that during a Board meeting in 2003 the Board voted to grant her a reduced assessment. She received written confirmation of her reduced assessment, to 150%, from the Board on March 24, 2003.[9] 26. On or about December 04, 2017, Petitioner received a letter from the Association’s management company which advised that the Board decided to raise her assessment, from 150% to 200%, pursuant to “advice of counsel.” 27. Per Petitioner, she was given varying reasons as to the underlying reason for the assessment increase but was ultimately informed that it was because the Board determined that all plats needed to be assessed uniformly, per the Association’s Restatement. 28. On or about June 22, 2018, Petitioner received an assessment invoice. When she inquired with the Board’s counsel as to her assessment increase, she was informed that she would have to have her Lots combined on the county’s plat map in order to be assessed as a single Lot. Per Petitioner, she would have to pay be between $3,000.00 and $10,000.00, and get permission from every other homeowner in Sin Vacas in order to do so. Conclusions of Law 1. This matter lies within the Department’s jurisdiction pursuant to Ariz. Rev. Stat. §§ 32-2102 and 32-2199 et seq., regarding a dispute between an owner and a planned community association. The owner or association may petition the department for a hearing concerning violations of community documents or violations of the statutes that regulate planned communities as long as the petitioner has filed a petition with the department and paid a filing fee as outlined in Ariz. Rev. Stat. § 32-2199.05. 2. Pursuant to Ariz. Rev. Stat. §§ 32-2199(2), 32-2199.01(A), 32- 2199.01(D), 32-2199.02, and 41-1092 et seq. OAH has the authority to hear and decide the contested case at bar. OAH has the authority to interpret the contract between the parties. See Tierra Ranchos Homeowners Ass'n v. Kitchukov, 216 Ariz. 195, 165 P.3d 173 (App. 2007). 3. In this proceeding, Petitioner bears the burden of proving by a preponderance of the evidence that Respondent violated a community document and/or Ariz. Rev. Stat. § 33-1803.[10] 4. “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.”[11] A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”[12] 5. Ariz. Rev. Stat. § 33-1802(4) provides, in pertinent part, that a “‘Planned community’ means a real estate development that includes real estate owned and operated by or real estate on which an easement to maintain roadways or a covenant to maintain roadways is held by a nonprofit corporation or unincorporated association of owners, that is created for the purpose of managing, maintaining or improving the property and in which the owners of separately owned lots, parcels or units are mandatory members and are required to pay assessments to the association for these purposes.” 6. Ariz. Rev. Stat. § 33-1803(A) provides, in pertinent part, that “Unless limitations in the community documents would result in a lower limit for the assessment, the association shall not impose a regular assessment that is more than twenty percent greater than the immediately preceding fiscal year's assessment without the approval of the majority of the members of the association.” 7. Based upon a review of the credible and relevant evidence in the record, Petitioner has failed to sustain her burden of proof. 8. Here, the material facts are not at issue. 9. It is undisputed that Petitioner owns Lots 156 and 157, that both Lots are CR-1 Lots, that the Lots have never been combined or consolidated per the Pima County Assessor’s Office plat map into an individually numbered Lot, and that Petitioner’s residence is constructed on both lots. 10. Additionally, it is undisputed that Bylaws Article IV of the Declaration therefore require that the Association assess all developed CR-1 lots at a uniform rate. Thus, the Declaration requires that the Association assess Lots 156 and 157 at the same rate as every other developed CR-1 lot in Sin Vacas. By assessing both of Petitioner’s lots at the same full rate as every other developed CR-1 lot in Sin Vacas, the Association is already complying with the Declaration. 11. Petitioner has not established that her assessments were raised selectively or unlawfully. What Petitioner established is that she owns two Lots that were assessed at differing rates per a long standing Board Order, but increased due to a new Board’s Order based on its interpretation of the Association’s Declaration. Petitioner has not established that this interpretation is in error or in violation of an applicable community document or statute. Petitioner’s argument that her 2003 Board Order to reduce her assessment supersedes the 2017 Board Order to uniformly fix and apportion all CR-1 lot assessments is inaccurate. Notably, the Board’s action does not constitute a breach of contract either, as Petitioner provided no proof of consideration tendered to the Association. 12. In this case the governing documents for the Association take precedent over any informal agreement Petitioner had with the Board, regardless of the duration of that agreement. Moreover, the governing documents themselves are clear: special assessments must be fixed and apportioned at a uniform rate for all CR-1 lots. 13. Therefore, the undersigned Administrative Law Judge concludes that the Board’s action to uniformly assess all Cr-1 Lots in Sin Vacas does not violate Ariz. Rev. Stat. § 33-1803 or the Association Bylaws. ORDER Based on the foregoing findings and conclusions, IT IS ORDERED that Petitioner’s petition be denied. In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order will be five days from the date of that certification.

NOTICE Pursuant to Ariz. Rev. Stat. §32-2199.02(B), this Order is binding on the parties unless a rehearing is granted pursuant to Ariz. Rev. Stat. § 32- 2199.04. Pursuant to Ariz. Rev. Stat. § 41-1092.09, a request for rehearing in this matter must be filed with the Commissioner of the Arizona Department of Real Estate within 30 days of the service of this Order upon the parties. Done this day, April 01, 2019.

/s/ Jenna Clark Administrative Law Judge

Transmitted electronically to:

Judy Lowe, Commissioner Arizona Department of Real Estate

Transmitted US Mail to:

Loraine Brokaw, Petitioner 2401 E Calle Sin Contorversia Tucson, Arizona 85718

Sean K Moynihan, Esq. Jason E Smith, Esq. Carpenter, Hazlewood, Delgado & Bolen LLP, Counsel for Respondent 333 N. Wilmot Road, Suite 180 Tucson, Arizona 85711-2694 ----------------------- [1] See Department’s electronic file at HO19-18017_Notice_Petition.pdf. Notably, Petitioner erroneously checked that Respondent is a Condominium/Community Association when in fact Respondent is a Planned Community Association. [2] See Department’s electronic file at HO19-18017_ADRE Answer form 4811- 1040-6778 v.1.pdf. [3] See Department’s electronic file at HO19-18017_Response to Petition for Hearing 4849-4344-4857 v.pdf. [4] The matter was continued on January 08, 2019, and reset for March 25, 2019, at 1:30 p.m. whereby it was heard. [5] See Department’s electronic file at HO19-18017_Notice_Hearing.pdf. [6] See Department’s electronic file at HO19-18017_SinVaca_CCR.pdf. [7] See Department’s electronic file at HO19-18017_Exhibit B – Answer – 28- Plat.pdf; see also Petitioner Exhibit 1. [8] Petitioner presented no documentation to the Tribunal to substantiate this claim. [9] It is unclear how Petitioner’s Lots were assessed prior to 2003.

[10] See Ariz. Admin. Code R2-19-119. [11] Morris K. Udall, Arizona Law of Evidence § 5 (1960). [12] Black’s Law Dictionary 1220 (8th ed. 1999).

-----------------------

Office of Administrative Hearings 1740 West Adams Street, Lower Level Phoenix, Arizona 85007 (602) 542-9826