HOA - ALJDEC decisions

22F-H2222052-REL · Department of Real Estate - H/C · 2022-08-18

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

Emery Herbert,

Petitioner,

v.

Lakebrook Villas II Homeowners Association INC.,

Respondent.

No. 22F-H2222047-REL

No. 22F-H2222052-REL

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: July 11, 2022

APPEARANCES: Petitioner Emery Herbert represented herself. Attorneys Maria G. McKee and Josh Bolen represented Respondent Lakebrook Villas II Homeowners Association Inc.

ADMINISTRATIVE LAW JUDGE: Kay A. Abramsohn

_____________________________________________________________________

FINDINGS OF FACT

The Lakebrook Villas II Homeowners Association (“Association”) is a nonprofit corporation whose members are the owners of real property within the condominium community located in Tucson, Arizona, now known as The Lakebrook Villas II.

Docket No. 22F-2222047-REL

On April 20, 2022, Petitioner filed a single-issue petition (“Petition1”) with the Arizona Department of Real Estate. Petition1 alleged that the Association violated Arizona Revised Statutes (“A.R.S.”) § 33-1247, regarding a failure “to provide a prompt repair for the roof leaks that are considered common elements and are maintained by the HOA.” In Petition1, Petitioner noted that she had notified the Association of the leak on March 29, 2022 with follow-up from her on March 31, 2022, April 4, 2022, and April 11, 2022. Petition1 indicated that the property management company informed Petitioner that her roof is not scheduled for repair for a minimum of three months, which action was to be a replacement of her roof and multiple other roofs within the community. Petitioner’s position is that the Association is refusing to perform necessary maintenance, i.e., a “repair” as to her roof leak, and, instead, is planning on a “capital improvement” and raising the owners’ monthly dues for the funding.

A.R.S. § 33-1247, Upkeep of the condominium provides:

Except to the extent provided by the declaration, subsection C of this section or section 33-1253, subsection B, the association is responsible for maintenance, repair and replacement of the common elements and each unit owner is responsible for maintenance, repair and replacement of the unit. On reasonable notice, each unit owner shall afford to the association and the other unit owners, and to their agents or employees, access through the unit reasonably necessary for those purposes. If damage is inflicted on the common elements or any unit through which access is taken, the unit owner responsible for the damage, or the association if it is responsible, is liable for the prompt repair of the damage.

Section 1, Definitions, subsection (e), of the applicable Declaration, in pertinent parts, contains the following references as to the meaning of “common areas and facilities:”

(4) All of the properties owned by the Lake Biltmore Village Owners Association, a non-profit corporation organized under and by virtue of the laws of the State of Arizona governing non-profit corporations and its successors and assigns. Said common area shall mean all such property held by said association for the common use and enjoyment of members of the association, including but not limited to such things as a lake, driveways, parking areas, bike paths, water courses, fountains, walk areas, lighting fixtures, concessions, rights-of-way, easements, recreational areas and facilities, pumps, trees, landscaping, streets, pipes, wire, conduits and other utility lines;

(5) All foundations, columns, girders, beams, supports, exterior walls, bearing walls, roof, exterior walkways, undesignated and/or guest covered and uncovered parking spaces, service streets, stalls, recreational areas and facilities, yards, gardens, fences, storage spaces, stairwells and landings, all installations of power, light, water and other apparatus, "installations and other parts of the property necessary or convenient to the existence, maintenance and safety of the Common Area, or normally in common use;

Section 1, Definitions, subsection (g), of the applicable Declaration contains the following definition of “unit:”

Each unit is composed of and shall include the space enclosed and bounded by the boundaries shown for each unit on the Plat, which boundaries are the interior surface of the finished perimeter walls and the interior surfaces of finished floor and the finished ceiling, the elevations of each apartment being as shown on the Plat;

On May 10, 2022, Association filed with the Department its blanket response denying the allegations.

On or about May 26, 2022, the Department issued its Notice of Hearing to the parties notifying them that an administrative hearing regarding the Petition would be conducted by the Office of Administrative Hearings (“Tribunal”).

Docket No. 22F-2222052-REL

By letter dated April 20, 2022, the Association notified Unit owners that there would be an increase in the monthly HOA fees to an amount of $885.00 a month beginning on June 1, 2002 and running until the end of 2002. The Association indicated that the total roof project costs were $362,586.00 which, when calculated proportionally per community unit was $4,074.00 per unit, which when divided for the remainder of the year [7 months], equaled $582.00 per month per unit for the remainder of the year. The Association further stated, in pertinent part:

The roofs are a common expense and required maintenance. This is NOT a special assessment; it is an increase to your regular monthly HOA fees.

A previous Association budget line increase affecting the HOA fees regarding roofing expenses, in “November,” was “used up” by the Association with regard to new landscaping costs.

On May 6, 2022, Petitioner filed a single-issue petition (“Petition2”) with the Arizona Department of Real Estate. Petition2 alleged that the Association had violated the Declaration, Section 9, in failing to obtain a 75% vote of the community to impose a special assessment for the “capital improvement” of ripping off and replacing all of the condominium roofs. Petitioner’s position is that the roofing replacement project is a “capital improvement” which, under Section 9, calls for a special assessment and, further, the Association cannot simply raise the monthly Association dues to cover the costs of the roofing replacements.

Section 1, Definitions, subsection (i), of the applicable Declaration contains the following definition of “common expenses:”

[A]ll items things and sums described in the Act which are lawfully assessed against the Unit Owners in accordance with the provisions of the Act, this Declaration, the By-Laws, such rules and regulations pertaining to the Condominium project as the Management Committee may from time to time adopt, and such other determinations and agreements lawfully made and/or entered into by the Management Committee, however, care for stairwells and landings shall be deemed a “common expense”;

Section 9, Assessments, of the applicable Declaration provides as follows:

Assessments. Each Unit Owner, by acceptance of a deed therefor, whether or not it shall be so expressed in such deed, is deemed to covenant and agree to pay to the Management Committee: (1) Common expenses for the operation, maintenance of Common Areas and Facilities; and (2) special assessments for capital improvements, such assessments to be established and collected as the Management Committee determines in accordance with the Act, the Declaration or the By-Laws. The common expenses and special assessments, together with late payment penalties, if any, together with such interest thereon and costs of collection thereof, as hereinafter provided, including reasonable attorney's fees and costs, shall be a charge on the land and shall be a continuing lien upon the property against which each such assessment is made. Each such assessment, together with such interest, costs and reasonable attorney's fees shall also be the personal obligation of the person who was the Unit Owner of such property at the time when the assessment fell due, but' such personal obligation and liability of the Unit Owner shall not be deemed to limit or discharge the charge on the land and continuing lien upon the property against which such assessment is made.

In assessing Unit Owners or requiring them to pay for the building improvements following the execution of the Declaration, it is agreed that no assessment for a single improvement in the nature of capital expenditure exceeding the sum of $2,500.00 in cost shall be made without the same having been first approved by a vote of owners of 75 percent, or more, of the undivided interests in the Common Areas and Facilities. The foregoing provision shall not apply in connection with the replacement or reconstruction occasioned by fire or other casualty.

Section 13, Payment of Expenses, in the applicable Declaration provides as follows, in pertinent part:

Each Unit Owner shall pay the Management Committee his allocated portion of the cash requirement deemed necessary by the Management Committee to manage and operate the Condominium Project, ... upon the terms, at the time, and in the manner therein provided without any deduction on account of any set off or claim which the owner may have against the Management Committee, and if the owner shall fail to pay any installment within one month of the time when the same becomes due, the owner shall pay interest thereon at the rate of 10 percent per annum from the date when such installment shall become due to the date of the payment thereof.

The cash requirements above referred to for each year, or portions of the year, are hereby defined and shall be deemed to be such aggregate sum as the Management Committee from time to time shall determine, in its judgement, is to be paid by all the owners of the Condominium project in order to enable the Management Committee to pay all estimated expenses and outlays of the Management Committee to the close of such year, growing out of or in connection with the maintenance and operation of such land, buildings and improvements, recreational area and facilities, which sum may include, among other things, the cost of management, special assessment, fire, casualty and public liability insurance premiums, common lighting, landscaping and the care of grounds, repairs and renovations to Common Areas and Facilities, recreational facilities, wages, water and charges, legal and accounting fees, management fees, expenses and liabilities incurred by the Management Committee under or by reason of this Declaration, the payment of any deficit remaining from a previous period, the creation of a reasonable contingency or other reserve or surplus fund, as well as all other costs and expenses relating to the Condominium Project. The Management Committee may from time: to time, up to the close of the year for which such cash requirements have been so filed or determined, increase or diminish the amount previously fixed or determined for such year.

...

The portion payable by the owner in and for each year or for a portion of a year shall be a sum within the limits and on the conditions hereinabove provided bearing to the aggregate amount of such cash requirements for such year, or portion of year, determined as aforesaid, in the same ratio as the owner owns an undivided interest in the Common Areas and Facilities, and such assessments, together with any additional sums accruing under this Declaration shall be payable monthly in advance, or in such payments and installments as shall be required by the Management Committee.

The Management Committee shall have discretionary powers to prescribe the manner of maintaining and operating the Condominium Project and to determine the cash requirements of the Management Committee to be paid as aforesaid by the owners under this Declaration. Every such reasonable determination by the Management Committee within the bounds of the Act and this Declaration shall, as against the owner, be deemed necessary and properly made for such purpose.

...

Each monthly assessment and each special assessment shall be separate, distinct, and personal debts and obligations the owner against whom the same are assessed at the time the assessment is made and shall be collectible as such. Suit to recover a money judgment for unpaid common expenses shall be maintainable without foreclosing or waiving the lien securing the same. The amount of any assessment, whether regular or special, assessed to the owner of any condominium plus interest at ten percent per annum and costs, including reasonable attorney’s fees, shall become a lien for non-payment of common expenses and have priority over all other liens and encumbrances, recorded or unrecorded, except only ...

On June 1, 2022, Association filed with the Department its blanket response denying the allegations.

On or about June 14, 2022, the Department issued its Notice of Hearing to the parties notifying them that an administrative hearing regarding the Petition would be conducted by the Office of Administrative Hearings (“Tribunal”).

On request of the Association, the two Petitions were determined to be heard at a consolidated hearing.

The Tribunal’s authority is limited to rule on the two Petitions and the alleged violations. The issues for consideration are (1) whether the Association violated A.R.S. § 33-1247(A) and (2) whether the Association violated Section 9 of the Association’s Declaration.

BACKGROUND

In 2019, Association obtained a Roof Inspection Report assessing the general quality and condition of the roofing materials on each of the buildings within the community. The report noted the variances in materials on various buildings and assessed the condition of the materials as to each; the report listed the conditions as to the buildings from worst to best.

Association was receiving reports from homeowners regarding roofing issues and leaks.

On December 17, 2021, Association obtained a bid and proposal from Roofing Consultants of Arizona regarding complete roof tear-offs, determined repairs, and new foam and coating for the existing foam roofs in the community. The proposal for new installation was of minimum 1” of 2.8 Density LaPolla Foam and elastomeric LaPolla TF-750 coating, base and topcoat, and included a 10-year labor and material warranty.

At a February 16, 2022 Board meeting, the Board noted that the roof of Building “‘C” had been replaced.

At that February 2022 meeting, the Board discussed the possibility of obtaining a loan in the amount of $350,000.00 and needing a written vote approval of sixty-seven percent of the membership to proceed with obtaining a loan; the need/reasons for the possible loan were not expressed in the minutes. In the minutes, the Board indicated that in order to make a “special assessment” to the members to repay such a loan, the Board would need to have a written vote approval of sixty-seven percent of the membership. Alternatively, the Board noted that it could elect to increase the monthly assessment (i.e., the HOA dues/fees) “by the maximum amount allowable under the CC&Rs” of ten (10) percent, which the minutes noted would be an increase of thirty-five (35) dollars each month, in order to be able to repay the loan in five years.

In March of 2022, Association was also in contact with a second roofing company regarding the condition of the roofing, and reported leaking, on multiple buildings.

At a March 23, 2022 meeting, the Board discussed verifying with lawyers whether a $2,500.00 “special assessment” could go out to each owner without the need for a community vote on the roofs project.

On March 30, 2022, Association contracted with Desert Canyon Roofing to perform, as to buildings with foam roofing, complete roofing tear-offs, underlying determined repairs, and installation of 1.5” to 2” of 2.8 Density LaPolla Foam and 2 layers of elastomeric LaPolla TF-750 base coating, and included a 10-year labor and material warranty.

Petitioner became a homeowner on February 28, 2022. Petitioner owns Unit #212 in Building M.

On March 29, 2022, Petitioner advised Association (through the management company, “Peterson”) that there was a leak in her roof and that her internal ceiling was bubbling and dripping. Thereafter, a series of emails between March 29th and April 11th ensued with Petitioner imploring and then demanding that a repair be completed at her roof and in her unit given that she had suffered damage to her belongings and feared mold would begin, and continue, to grow as a result of a water leak and damage.

On April 22, 2022, Peterson sent out the notification letter to homeowners and began to compile specific information about active leaks in the event that the hired contractor might be able to place tarps or covers, or band-aid, their roof until the roof replacement began.

Petitioner responded the same day to Peterson inquiry regarding the leaks in her unit.

On May 4, 2022, Peterson again reached out to homeowners with regard to the roof project and active leaks, again indicating that the hired contractor might be able to band-aid their roof. The letter indicated that the projected start date was between June 15th and June 30th.

At a Board meeting on June 15, 2022, the Board noted that roofing work would begin at the end of June or early July on Building “I” and that Buildings “M,” “I,” and “G” were on the active leak list.

On June 20, 2022, Petitioner’s unit was tested for mold.

On June 24, 2022, Peterson notified Petitioner that repairs for Building “I” would start on July 5th, would take about 2 weeks, and then Building “M” would be started. Peterson informed Petitioner that the Association was only responsible to repair the exterior roof and that any mold damage on the interior or her home needed to be submitted to her homeowner’s insurance.

On June 24, 2022, Petitioner responded to Peterson noting, with specificity, that the mold damage was not on the interior of her home but was in the roof and insulation, behind her interior drywall. Petitioner further noted that the roofing companies and other had indicated that the leaks were actually caused by roofing drains that needed to be repaired by a plumber along with the roof replacement.

After a conversation with Petitioner on June 24, 2022, Peterson informed Petitioner that it was going to consult with the Board of Directors about changing the order of roof project to next work on Building “M” instead of Building “I.” Peterson further noted that, as to plumber-repair of the drain pipe leaks, other repairs needed, and mold, that these would be addressed at the time the roof was removed for replacement.

On July 1, 2022, Paul Davis inspected water damage in Unit 212 and Unit 213. In Unit 212, Mr. Davis found ceiling bubbling and staining, microbial growth/mold in the ceiling cavity. Mr. Davis recommended removal of the entire popcorn ceiling, removal of some of the interior drywall away from the exterior wall, sanitization, and then replacement of the demolitioned areas.

___________________________

At hearing, as to Petition1, Petitioner argued that, despite being notified on March 29, 2022 of the leaking and despite her continued requests, the Association has failed to act “promptly” and make the necessary repairs to her roof and the drains, which was a violation of A.R.S. § 33-1247(A), and she argued that through the Association’s “negligent” roof maintenance and refusals to make repair, the Association has caused continued damage to her home.

At hearing, as to Petition2, Petitioner argued that the full roof rip and replacement project is a “capital improvement” which required a 75% vote of the community to approve any “special assessment” over $2,500.00 to the owners. Petitioner argued that the increase in the monthly assessment in the absence of a 75% approval vote of the homeowners was a violation of Section 9 of the Declaration.

Petitioner requested that there be an Order for Association to cease the increase in the monthly fees.

At hearing, Association acknowledged that it is responsible for “maintenance, repair and replacement” as to the common areas, including the roof, and argued that, even prior to hearing from Petitioner regarding her leak, the Association had begun to address the issue of roof maintenance and repair in the entire community because it had heard from other homeowners regarding leaks.

Regarding the “prompt” terminology in A.R.S. § 33-1247 to which Petitioner relies, Association argues that Petitioner incorrectly applies this, essentially, to her specific leak situation when, in fact, the “prompt” term applies to a circumstance when, after a homeowner allows the Association into and through the homeowner’s unit to make common elements’ maintenance or repairs and, during that action, the Association causes damage to the unit or to the common elements, the Association is liable for “prompt” repair of the damage it has so caused.

Overall, Association also acknowledged that Petitioner is unhappy with the time line and time frame as to roof repair but noted that Association had, earlier, taken steps to have inspections and evaluations performed; in December 2021, Association had obtained a bid for foam roof replacements in the community and, in February 2022, Building “C” was completed.

At hearing, Association indicated that three buildings have been done, plus Building “I,” and that Petitioner’s building, Building “M,” is next on the schedule. Peterson’s witness testified that, with the roof replacement, the drain pipes will be tested to determine if they are leaking and that if there are issues with the drainage, it will be addressed during the roof replacement.

Regarding Section 9 of the Declaration, Association argued there was not a violation and that a vote by the community was not required. Association argued that Section 13 of the Declaration provides authority for the Board, from time to time, to make assessments regarding necessary expenses to manage and operate the community and this authority extends to determining the costs to be allocated to the homeowners for repairs and renovations including those on the common areas. The Association’s position is that, in these circumstances, the Board determined, based on the contractors’ inspections and evaluations, that repairs could not be made and that the only possible action, for management and maintenance of the roof, as a common element, was that roof replacements had to be completed.

The Association’s position is that the increase in the monthly dues/fees was not a special assessment proposed by the Board but was a regular assessment with regard to necessary expenses for repairs and renovations of the common area, i.e., the roof.

CONCLUSIONS OF LAW

The Department has jurisdiction to receive petitions, to hear disputes between a property owner and a planned community association, and to take other actions pursuant to Arizona Revised Statutes (“A.R.S.”), Title 33, Chapter 16.

The Arizona Office of Administrative Hearings (Tribunal) is a separate state agency authorized by statute to hear and decide agency-referred contested matters through the conduct of an administrative hearing and issuance of a written decision.

In this proceeding, pursuant to Arizona Administrative Code (“A.A.C.”) R2-19-119, Petitioner bears the burden of proving by a preponderance of the evidence that, as alleged, Association violated A.R.S. § 33-1247(A), regarding failure to provide a prompt repair for her roof leaks, and that Association violated Section 9 of the Declaration by raising the monthly Association dues rather than imposing a requisite “special assessment” to cover the costs of capital improvements to the roofs in the absence of obtaining a 75% vote of the community.

A preponderance of the evidence is “[e]vidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not.” Black’s Law Dictionary 1182 (6th ed. 1990).

The Administrative Law Judge concludes that Petitioner has not met her burden with regard to an alleged Association violation of Section 9 of the Declaration. The hearing record demonstrates that Association exercised its authority under Section 13 of the Declaration regarding an assessment for necessary expenses to manage and operate the community in determining the particular costs to be allocated to the homeowners for repairs and renovations including those on the common areas. Further, the Administrative Law Judge concludes that Petitioner erroneously relied on A.R.S. § 33-1247(A) with regard to an alleged violation by Respondent to not act on her specific leaks and repairs “promptly.” The hearing record demonstrates that Association acted with reasonable deliberation as to the overall issue of 40-year old roofs and the need to replace all the roofs in the community; the Association was taking action as early as December of 2021 with regard to the community common areas, i.e., the community roofs. The timing of repairs and/or replacement is within the authority of the Association to determine.

The hearing record demonstrated that, by the time of the hearing, the timeline for roof replacements, that would include determining damage and requisite repairs that would need to be done on each roof, was set and was being implemented. However, as opposed to the urging of the Association, Petitioner need not have pulled her Petition1 based on Association statements that the work would be done at some near point; having filed Petition1, Petitioner was entitled to administrative hearing.

Therefore, based on the hearing record, the Administrative Law Judge concludes that Petitioner has not established, as alleged, any violation by Association. As a result, the Administrative Law Judge concludes that Petitioner’s Petition1 and Petition2 shall both be dismissed.

ORDER

IT IS ORDERED that Petitioner’s Petition1 is dismissed and Petitioner bears that $500.00 filing fee.

IT IS FURTHER ORDERED that Petitioner’s Petition2 is dismissed and Petitioner bears that $500.00 filing fee.

NOTICE

Pursuant to A.R.S. §32-2199.02(B), this Order is binding on the parties unless a rehearing is granted pursuant to A.R.S. § 32-2199.04.

Pursuant to A.R.S. § 41-1092.09, a request for rehearing in this matter must be filed with the Commissioner of the Department of Real Estate within 30 days of the service of this Order upon the parties.

ORDERED this day, August 18, 2022.

/s/ Kay Abramsohn

Administrative Law Judge

Transmitted by e-mail August 18, 2022 to:

Louis Dettorre, Commissioner

Arizona Department of Real Estate

Attn:

[email redacted]

[email redacted]

[email redacted]

[email redacted]

Maria McKee

Josh Bolen

Carpenter Hazelwood Delgado & Bolen LLP

[email redacted]

[email redacted]

[email redacted]

Respondent

Emery A. Herbert

[email redacted]

Petitioner

By: c. serrano