HOA - ALJDEC decisions

23F-H019-REL · Department of Real Estate - H/C · 2023-01-31

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

In the Matter of:

Pamela McKinney,

Petitioner,

Valle Vista Property Owners Association,

Respondent.

No. 23F-H019-REL

ADMINISTRATIVE LAW JUDGE

DECISION

HEARING: January 17, 2023

APPEARANCES: Petitioner Pamela McKinney appeared on her own behalf. Alan Meda, Esq. represented Respondent Valle Vista Property Owners Association. Sharon Grossi appeared as a witness for Respondent Valle Vista Property Owners Association.

ADMINISTRATIVE LAW JUDGE: Sondra J. Vanella

FINDINGS OF FACT

On or about November 1, 2022, Pamela McKinney (“Petitioner”) filed a Homeowners Association (HOA) Dispute Process Petition (“Petition”) with the Arizona Department of Real Estate (“Department”) alleging a violation of community documents by Valle Vista Property Owners Association (“Respondent”). Petitioner indicated a single issue would be presented, paid the appropriate $500.00 filing fee, and asserted a violation by Respondent of the Covenants, Limitations & Restrictions Article 19 Sections A and B, and Article 8 of the Articles of Incorporation.

On or about December 5, 2022, the Department issued a Notice of Hearing in which it set forth the issue for hearing as follows:

Petitioner states that the Respondent has violated “Article 8 of the Articles of Incorporation dated July 19, 1972 and corresponding Article 19 Sec. a and b of the [Declarations of Covenants, Limitations and Restrictions] relating to the expiration of the association charter at 50 years (2022). [Respondent] is attempting by Resolution/Memorandum of September 27, 2022 to amend the charter another 25 years without approval/vote of Council of co-owners.”

At hearing, Petitioner testified on her own behalf. Respondent presented the testimony of Sharon Grossi, President of the Board.

Respondent consists of 4,357 lots that all fall within three units that were annexed on different dates. Unit One was annexed on May 18, 1972, Unit Two was annexed on November 1, 1972, and Unit Three was annexed on August 6, 1973. Petitioner owns two lots in Unit One. Each of the three Units have recorded Declarations of Covenants, Limitations and Restrictions (“CLRs”).

All three CLRs had an original duration of 25 years. Petitioner’s position is that the CLRs automatically renewed for a period of 25 years, however after the expiration of the 25 year renewal, the Articles of Incorporation expired for Units One and Two, and will expire for Unit Three, and therefore Respondent ceases to exist because it is no longer incorporated. Petitioner contends that new Articles of Incorporation must be implemented and further, that if there is a conflict between the Articles of Incorporation and the CLRs, the Articles of Incorporation control.

Petitioner referenced and testified regarding several communications from the Board to the homeowners that informed the homeowners that the CLRs were expiring and were up for renewal, and further advised of the various negative impacts to the community that would occur in the event the CLRs were not renewed.

On September 27, 2022, Respondent’s Board of Directors passed Resolution 092722 extending the CLRs. The Resolution states the following:

The undersigned officers and members do hereby confirm that the following resolution was adopted by the Directors of Valle Vista Property Owners Association, Inc. at their Executive Board Meeting held on September 27, 2022, at its corporate offices in Kingman, AZ.

Valle Vista Property Owners Association Board of Directors have met with legal counsel to review the following governing documents:

The Declaration of Covenants, Limitations and Restrictions for Valle Vista Unit One recorded May 18, 1972, at Book 28, pages 205-211, official records of Mohave County, Arizona (the Unit One CLR’s”);

The Declaration of Covenants, Limitations and Restrictions for Valle Vista Unit Two recorded November 1, 1972, at Book 68, pages 173-181, official records of Mohave County, Arizona (the Unit Two CLR’s”); and

The Declaration of Covenants, Limitations and Restrictions for Valle Vista Unit Three recorded August 6, 1973, at Book 142, pages 240-247, official records of Mohave County, Arizona (the Unit Three CLR’s”)

And believe that it is reasonable to interpret the governing documents to provide that the Unit One CLR’s, the Unit Two CLR’s, and the Unit Three CLR’s automatically renew for a period of 25 years or permit the Association to renew without a vote as long as the same are not amended or modified.

. . .

This Resolution is what gave rise to Petitioner’s filing of the Petition in this matter.

Respondent’s Articles of Incorporation dated July 19, 1972, Section VIII state the following:

The time of commencement of this corporation shall be the date upon which the Arizona Corporation Commission shall issue its Certificate of Incorporation and the termination of the Corporation shall be twenty-five (25) years thereafter, with the power and privilege of renewal as provided by law. Application for the renewal of such corporate existence shall be made in a timely manner prior to the date of termination of the original corporation charter.

On November 18, 1994, Respondent amended its Articles of Incorporation with Articles of Amendment, specifically to Article VIII, which was amended to read as follows: “The corporate existence of the VALLE VISTA PROPERTY OWNERS ASSOCIATION, INC. is about to expire on July 19, 1997, the said corporate existence is hereby renewed. The duration of the corporation shall be perpetual.”

On January 15, 1999, Respondent amended its Articles of Incorporation with Articles of Amendment, specifically to Article VIII, which was amended to read as follows: “That the commencement of this corporation shall be the date upon which the Arizona Corporation Commission shall issue its Certificate of Incorporation and the duration of the corporation shall be perpetual.”

Consequently, Respondent amended its Articles of Incorporation, Section VIII, on both November 18, 1994 and January 15, 1999, which extended its duration perpetually.

Petitioner was not aware of the 1994 and 1999 amendments to the Articles of Incorporation until hearing. Petitioner testified that her concern is that the homeowners did not vote for the amendments in 1994 and 1999, and she based her position for hearing on the documentation she had and “wouldn’t be here if [she] had these documents,” referring to the two amendments. Petitioner asserted that the Board was “rogue.”

Sharon Grossi, current President of Respondent’s Board of Directors, testified regarding the Amendments to the CLRs. Unit One’s Amendment, dated July 19, 1972, amended Unit One’s CLRs dated May 17, 1972. Section 19 of the Amended CLRs for Unit One states the following:

DURATION, AMENDMENT AND ENFORCEMENT: (a) These Covenants, Limitations and Restrictions shall remain in full force and effect, being binding on all parties and all persons claiming under them, for a period of 25 years from May 15, 1972, at which time said Covenants, Limitations and Restrictions shall automatically be renewed for an additional period of 25 years, unless 66-2/3% or more of the owners of record, at that time, agree in writing to changes, and said changes are made in a lawful manner.

(b) These Covenants, Limitations and Restrictions may be amended during either 25-year period by an instrument in writing, signed and acknowledged by the then owners of record of not less than 75% of the lots or other parcels on said property. Said amendments will take effect only upon their proper recording with the County Recorder of Mohave County, Arizona.

Section 17 of the Amended CLRs for Unit Two states the following:

DURATION, AMENDMENT AND ENFORCEMENT: (a) These Covenants, Limitations and Restrictions shall remain in full force and effect, being binding on all parties and all persons claiming under them, for a period of 25 years from October 3, 1972, at which time said Covenants, Limitations and Restrictions shall automatically be renewed for an additional period of 25 years, unless 66-2/3% or more of the owners of record, at that time, agree in writing to changes, and said changes are made in a lawful manner.

Section 19 of the Amended CLRs for Unit Three states the following:

DURATION, AMENDMENT AND ENFORCEMENT: (a) These Covenants, Limitations and Restrictions shall remain in full force and effect, being binding on all parties and all persons claiming under them, for a period of 25 years from [date illegible], at which time said Covenants, Limitations and Restrictions shall automatically be renewed for an additional period of 25 years, unless 66-2/3% or more of the owners of record, at that time, agree in writing to changes, and said changes are made in a lawful manner.

Ms. Grossi testified that there were no modifications/changes to the CLRs when they were renewed. Therefore, they renewed automatically. Ms. Grossi explained that the September 27, 2022 Resolution extending the CLRs was recorded because Respondent “wanted a reflection of the automatic renewals.”

Ms. Grossi testified regarding the practical impact to the community if the CLRs were not renewed, including the decrease in value of the assets of the community.

Ms. Grossi also addressed the exhibits offered by Petitioner including various communications from the Board regarding voting for the renewal of the CLRs. Ms. Grossi explained that the Board members had received “bad information” and “thought that there had to be a vote.” After the Board consulted with its attorney, the Board learned that a vote was only necessary if modifications/changes to the CLRs were to be made, and that a vote was not necessary if the CLRs were simply renewing with no modifications/changes.

Petitioner testified at hearing that it is her position that a renewal constitutes a change to the CLRs because it is a change to their duration.

Ultimately, Petitioner asserted that the amendments to the Articles of Incorporation were done “unlawfully” without a vote, that “just because they are recorded doesn’t make them legal,” and if the CLRs renewed automatically, the Board should not have sent out so many communications regarding their expiration and the need to vote thereby creating angst for the members of the community. Petitioner continued to contend throughout the hearing that the CLRs remain expired.

CONCLUSIONS OF LAW

Arizona statute permits an owner or a planned community organization to file a petition with the Department for a hearing concerning violations of planned community documents or violations of statutes that regulate planned communities. That statute provides that such petitions will be heard before the Office of Administrative Hearings.

Petitioner bears the burden of proof to establish that Respondent committed the alleged violation by a preponderance of the evidence. Respondent bears the burden to establish affirmative defenses by the same evidentiary standard.

“A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” 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.”

Petitioner failed to prove by a preponderance of the evidence that Respondent violated Article 8 of the Articles of Incorporation and Article 19 the CLRs when it passed its September 27, 2022 Resolution to extend the CLRs another 25 years without approval/vote of homeowners. The credible and probative evidence of record established that Respondent amended its Articles of Incorporation, Section VIII, on November 18, 1994, and again on January 15, 1999, which extended the duration of the Articles of Incorporation perpetually. Further, all three Units’ CLRs were amended in 1972 and 1973, for a period of 25 years and provided for the automatic renewal for an additional period of 25 years, unless modifications/changes were made to the CLRs. Petitioner failed to establish by a preponderance of the evidence that any changes or modifications were made to the CLRs, and the Administrative Law Judge concludes that the automatic renewal of the CLRs does not constitute a modification/change that required a vote of the homeowners.

Thus, Petitioner failed to sustain her burden to establish a violation by Respondent of the CLRs Article 19 Sections A and B, and Article 8 of the Articles of Incorporation.

ORDER

IT IS ORDERED that Petitioner’s Petition is dismissed.

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.

-54864001

001

-137160-45720000Done this day, January 31, 2023.

/s/ Sondra J. Vanella

Administrative Law Judge

Transmitted by either mail, e-mail, or facsimile January 31, 2023 to:

Louis Dettorre, Commissioner

Arizona Department of Real Estate

100 N. 15th Avenue, Suite 201

Phoenix, Arizona 85007

Attn:

[email redacted]

Pamela McKinney

6906 E. Trails End Ln.

Kingman AZ 86401

[email redacted]

Alan A. Meda, P.C.

c/o Burch & Cracchiolo

1850 N. Central Avenue, Suite 1700

Phoenix, AZ 85004

[email redacted]

By: OAH Staff