HOA - ALJDEC decisions

24F-H033-REL-RHG · Department of Real Estate - H/C · 2026-03-04

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

In the Matter of:

John Krahn, Janet Krahn, Joseph Pizzicaroli, Michael Holland, John R Krahn Living Trust, and Janet Krahn Living Trust

Petitioners,

vs.

Tonto Forest Estates Homeowners Association

Respondent.

No. 24F-H033-REL-RHG

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: November 4, 2025 and January 30, 2026, with the record held open until February 13, 2026, to allow Petitioners to submit an additional exhibit into evidence.

APPEARANCES: John Krahn appeared on behalf of the John R. Krahn Living Trust. Jill Burns appeared on behalf of the Estate of Pizzicaroli. Michael Holland appeared on behalf of himself. Austin Baillio, Esq. appeared on behalf of Tonto Forest Estates Homeowners Association.

ADMINISTRATIVE LAW JUDGE: Velva Moses-Thompson

EXHIBITS ADMITTED INTO EVIDENCE: Petitioners Exhibits H033-1, H033-4, H033-5, H033-8, H033-9, H033-10, H033-12, H033-17, H033-19, H002-1, H002-2, H002-4, H002-5, H002-7, H002-9, H002-13, H002-14, H002-22, H002-27, H006-1, H006-10, H002-18, H009-5, H009-6, H006-9, , H009-14, H009-17, H009-18, H009-19, and H009-21. Respondent’s Exhibits 2, 3, 6, and 15.

_____________________________________________________________________

FINDINGS OF FACT

1. The Arizona Department of Real Estate (Department) is authorized by statute to receive and to decide Petitions for Hearings from members of homeowners’ associations (HOAs) in Arizona.

Tonto is an HOA whose members own lots in Tonto Forest Estates in Mesa,

Arizona.

At all times relevant to this matter, The John R. Krahn Living Trust/Janet

Krahn Living Trust, Joseph Pizzicaroli, and Michael Holland own homes in Tonto Forest Estates and are members of Tonto.

John Krahn is the trustee of the John R. Krahn Living Trust/Janet Krahn Living Trust (Krahn).

The following facts are undisputed:

Approximately 10% of Tonto consists of empty lots. See the second hearing audio record November 4, 2025 at 5:00 to 10:00 minutes. There are 52 lots within Tonto. See the second hearing audio record November 4, 2025 at 15:00 to 20:00 minutes.

Each developed lot has its own personal septic system. See the second hearing audio record November 4, 2025 at 15:00 to 20:00 minutes.

There is no centralized septic system in Tonto. The septic systems are not connected to each other. See the second hearing audio record November 4, 2025 at 15:00 to 20:00 minutes.

Krahn and other members of Tonto, owned empty lots in addition to their primary residence in Tonto.

Tonto was charging an assessment for septic-related obligations to every lot, regardless of whether there was a dwelling unit on the same or whether it was empty.

Tonto’s Board decided to invoke insurance coverage for its directors and

officers (D&O) while discussing litigation strategy in a lawsuit filed by Krahn against the Board.

During a service call in February of 2024 for a sewer system owned by a

Tonto member, the technician determined that the P-series float needed to be replaced.

See Exhibit H002-2. The cost of the service call was $250.00. The price of the P-series float part was $75.00. It is undisputed that Tonto reimbursed the member $75 for the price of the P-series float. See id.

On August 12, 2024, Krahn received a written notice that the condition of

his property was in violation of the community documents. The notice stated, in relevant part, “the following violation of the covenants was noted: Each Owner of a Lot shall be responsible for the Maintenance of his Lot, and all buildings, Residences, landscaping or other Improvements, in order to keep with the aesthetics of the community.” See Exhibit H006-1. The notice included a photograph of a tree along with the words, “Please cut tree back.” See id.

Docket No. 24F-H033-REL

On or about December 18, 2023, Krahn and Mr. Pizzicaroli filed a

single-issue petition, with the Department. Through the petition, Krahn alleged that Respondent had violated Arizona Revised Statutes (A.R.S.) § 33-1802 and Tonto’s Covenants, Conditions, and Restrictions (CC&Rs) § 4.32, by “assessing empty/undeveloped lots (that do not contain any septic system) to pay for septic-related expenses.” Tonto filed a written answer to the petition, denying any violation of applicable statute, bylaw, or CC&Rs by assessing empty/undeveloped lots (that do not contain any septic system) to pay for septic-related expenses.

Docket No. 25F-H002-REL

On or about June 28, 2024, Krahn and Mr. Holland filed a single-issue petition with the Department that alleged that Tonto had violated section 4.32 of Tonto’s Covenants, Conditions, and Restrictions (CC&Rs), by reimbursing a member of Tonto for the replacement of a part of her sewage treatment system. Tonto filed a written answer to the petition, denying any violation of applicable statute, bylaw, or CC&Rs by reimbursing the Tonto member for the repair of the system.

Docket No. 25F-H006-REL

On or about August 15, 2024, Krahn filed a single-issue petition with the Department alleging that Tonto attempted to “enforce compliance with wording NOT FOUND in our CCRs is a violation of ARS 33-1803(D)1.” Tonto filed a written answer to the petition, denying any violation of applicable statute, bylaw, or CC&Rs.

Docket No. 25F-H009-REL

On or about August 11, 2024, Krahn filed a single-issue petition with the

Department alleging that Tonto violated A.R.S. § 33-1804(A) by, “unilaterally decided, outside the confines of an Open meeting, to file a claim with the Directors and Officers (D&O) insurance company — a formal (financial) board decision and action with substantial and ongoing financial ramifications. “Tonto filed a written answer to the petition, denying any violation of applicable statute, bylaw, or CC&Rs.

The Department referred the petition to the Office of Administrative

Hearings, an independent state agency, for an evidentiary hearing.

The matters were consolidated and a hearing was held on

December 16, 2024, March 3, 2025, March 19, 2025 and May 5, 2025, with the record held open until May 16, 2025, for submission of written closing arguments.

After the hearing, Administrative Law Judge Stone (ALJ Stone) concluded

that Petitioner established that Tonto had violated its CC&Rs in docket numbers 24F-H033-REL and 25F-H002-REL. ALJ Stone also found that Respondent violated ARS 33-1803(D)(1) in docket number 25F-H006-REL. However, ALJ Stone found that Petitioner failed to establish that Respondent violated A.R.S. section 33-1804(A) in docket number 25F-H009-REL.

Petitioners requested a rehearing in docket numbers 24F-H033-REL and

25F-H002-REL, 25F-H006-REL, and 25F-H009-REL.

On or about August 22, 2019, the Commissioner of the Department

granted Petitioner’s request for rehearing for the following reasons:

Irregularity in the proceedings or any order or abuse of discretion by the administrative law judge that deprived a party of a fair hearing.

Error in the admission or rejection of evidence or other errors of law occurring during the proceeding.

That the findings of fact or decision is arbitrary, capricious, or an abuse of discretion.

That the findings of fact or decision is not supported by the evidence or is contrary.

18. The Department referred the petition to OAH for a rehearing.

19. A rehearing was held on November 4, 2025 and January 30, 2026.

20. At hearing, Krahn testified on behalf of himself. Mr. Holland testified on

behalf of himself. Tonto presented the testimony of Dwight Jolivette, the President of Tonto’s Board.

21. At hearing, Mr. Jolivette testified that he reviewed the definition of repair in

the dictionary and understands that it includes restoration by replacing a part.

Mr. Jolivette explained that it has been difficult to distinguish between a repair and a replacement. Mr. Jolivette explained that the Board considers whether a repair adds value or extends the life of the system. Tonto issued a policy reminder that provided, “Per CC&R 4.32, all replacements of large septic items are Owner-paid. This includes both the material replacement and the labor involved. Replacments can include but are not limited to Pumps, Brushes, Screens, and Lids.” See Exhibit H002-15. Mr. Jolivette stated that the Board did not consider the P-Series Float to be a large septic item.

Relevant CC&Rs and Statutes

22. A.R.S. § 33-1803 provides as follows:

A. 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. Unless reserved to the members of the association, the board of directors may impose reasonable charges for the late payment of assessments. A payment by a member is deemed late if it is unpaid fifteen or more days after its due date, unless the community documents provide for a longer period. Charges for the late payment of assessments are limited to the greater of fifteen dollars or ten percent of the amount of the unpaid assessment and may be imposed only after the association has provided notice that the assessment is overdue or provided notice that the assessment is considered overdue after a certain date. Any monies paid by the member for an unpaid assessment shall be applied first to the principal amount unpaid and then to the interest accrued.

B. After notice and an opportunity to be heard, the board of directors may impose reasonable monetary penalties on members for violations of the declaration, bylaws and rules of the association. Notwithstanding any provision in the community documents, the board of directors shall not impose a charge for a late payment of a penalty that exceeds the greater of fifteen dollars or ten percent of the amount of the unpaid penalty. A payment is deemed late if it is unpaid fifteen or more days after its due date, unless the declaration, bylaws or rules of the association provide for a longer period. Any monies paid by a member for an unpaid penalty shall be applied first to the principal amount unpaid and then to the interest accrued. Notice pursuant to this subsection shall include information pertaining to the manner in which the penalty shall be enforced.

C. A member who receives a written notice that the condition of the property owned by the member is in violation of the community documents without regard to whether a monetary penalty is imposed by the notice may provide the association with a written response by sending the response by certified mail within twenty-one calendar days after the date of the notice. The response shall be sent to the address identified in the notice.

D. Within ten business days after receipt of the certified mail containing the response from the member, the association shall respond to the member with a written explanation regarding the notice that shall provide at least the following information unless previously provided in the notice of violation:

1. The provision of the community documents that has allegedly been violated.

2. The date of the violation or the date the violation was observed.

3. The first and last name of the person or persons who observed the violation.

4. The process the member must follow to contest the notice.

E. Unless the information required in subsection D, paragraph 4 of this section is provided in the notice of violation, the association shall not proceed with any action to enforce the community documents, including the collection of attorney fees, before or during the time prescribed by subsection D of this section regarding the exchange of information between the association and the member and shall give the member written notice of the member's option to petition for an administrative hearing on the matter in the state real estate department pursuant to section 32-2199.01. At any time before or after completion of the exchange of information pursuant to this section, the member may petition for a hearing pursuant to section 32-2199.01 if the dispute is within the jurisdiction of the state real estate department as prescribed in section 32-2199.01

23. A.R.S. § 33-1804 provides, in relevant part, as follows:

A. Notwithstanding any provision in the declaration, bylaws or other documents to the contrary, all meetings of the members' association and the board of directors, and any regularly scheduled committee meetings, are open to all members of the association or any person designated by a member in writing as the member's representative and all members or designated representatives so desiring shall be allowed to attend and speak at an appropriate time during the deliberations and proceedings.......................... Any portion of a meeting may be closed only if that closed portion of the meeting is limited to consideration of one or more of the following:

1. Legal advice from an attorney for the board or the association. On final resolution of any matter for which the board received legal advice or that concerned pending or contemplated litigation, the board may disclose information about that matter in an open meeting except for matters that are required to remain confidential by the terms of a settlement agreement or judgment.

2. Pending or contemplated litigation.

..............................................

24. CC&R 4.32 provides:

Required Sewage Treatment System. Each owner who purchases a Lot within the Property acknowledges that it shall be required to construct and install, at such Owner’s sole cost and expense, an AdvanTex sewage treatment system manufactured by Orenco Systems...as part of the construction of an Dwelling Unit on such Owner’s Lot...After installation of the Required Sewage Treatment System, the Association shall assume responsibility for the monitoring, maintenance and repair of the Required Sewage Treatment System, with the costs thereof to be included as part of the Assessments payable by such Owner. If the Required Sewage Treatment System requires any capital improvements or replacements, such capital improvements or replacements shall be the responsibility of the Owner. (emphasis added).

CONCLUSIONS OF LAW

A.R.S. § 32-2199(B) permits an owner or a planned community organization to file a petition with the Department for a hearing concerning violations of planned community documents under the authority Title 33, Chapter 16. Such petitions will be heard before the Office of Administrative Hearings, an independent state agency.

Petitioners bear the burden of proof to establish that Respondent violated A.R.S. § 33-1802, A.R.S. § 33-1803, A.R.S. § 33-1804, and CC&R § 4.32 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.”

“A cardinal rule of statutory interpretation is to give full effect to each statutory word or phrase so that no part is rendered void, superfluous, contradictory or insignificant.” Similarly, if a restrictive covenant is unambiguous, it is enforced to give effect to the intent of the parties. “Restrictive covenants must be construed as a whole and interpreted in view of their underlying purposes, giving effect to all provisions contained therein.”

Docket No. 24F-H033-REL

Upon consideration of the evidence presented at hearing, the

Administrative Law Judge (ALJ) concludes that CC&R § 4.32 of the CC&Rs only applies to lots with a dwelling unit and sewage treatment system. The Administrative Law Judge decision from Judge Eigenheer applied to a member who had installed a sewage treatment system and dwelling unit on her lot. Petitioners have met their burden to establish, by a preponderance of the evidence, that Tonto violated CC&R § 4.32 by imposing an assessment on lots without a sewage treatment system. Respondent has not violated A.R.S. § 33-1802 because it is not a prohibitory statute. A.R.S. § 33-1802 provides definitions under A.R.S. Title 33, Chapter 16 and community documents.

Docket No. 25F-H002-REL

6. Upon consideration of the evidence presented at hearing, the ALJ concludes that Petitioners have failed to establish by a preponderance of the evidence that Tonto violated CC&R § 4.32 when it reimbursed a member for the replacement of a P-Series Float. Merriam-Webster defines “repair” as “to restore by replacing a part or putting together what is torn or broken; to fix; to restore to a sound or healthy state.” (Emphasis added.) CC&R § 4.32 provides that Tonto is responsible for the monitoring, maintenance and repair of the sewer system. The term “replacement” immediately follows “capital improvement,” indicating that “replacement” refers to major expenditures that are comparable in nature—i.e. large-scale system overhauls that enhance or extend useful life. If the word “replacement” was intended to apply to the replacement of minor parts, it would render the section allocating responsibility for capital improvements and replacements to the homeowner insignificant and superfluous.

Docket No. 25F-H006-REL

Krahn failed to establish that Tonto violated A.R.S. 33-1803(D)(1) by failing

to provide the specific provision of the governing documents that Krahn allegedly violated in the violation notice. The requirement under A.R.S. 33-1803(D)(1) is not triggered unless the member responds by certified mail to a notice of violation. Furthermore, A.R.S. 33-1803 (E) specifies that the association may not proceed with enforcing the community documents unless the association has provided the member with written notice of “the process the member must follow to contest the notice.” See A.R.S. § 33-1803 (E) and (D)(4). However, the association is not required under A.R.S. 33-1803 (E) to include the specific provision of the CC&Rs that was violated before enforcing the community documents. Krahn provided no evidence to establish that at the time that he filed an appeal with the Department, Krahn responded to the violation notice by certified mail, and Tonto failed to provide notice to Petitioners of the specific violation of the CC&Rs that was allegedly violated within 10 business days. Krahn has failed to establish that Tonto violated A.R.S. § 33-1803(D)(1).

Docket No. 25F-H009-REL

The preponderance of the evidence shows that Tonto invoked D&O

insurance during an executive session concerning Tonto’s response to a lawsuit filed by Krahn. Under A.R.S. § 33-1804 (A)(2), any portion of a board meeting may be closed to consider pending litigation. Petitioners have failed to establish by a preponderance of the evidence that Tonto violated A.R.S. § 33-1804.

order

IT IS ORDERED that Petitioners are considered the prevailing party in Docket No. 24F-H033-REL. Respondent shall pay Petitioners their filing fee of $500.00, to be paid directly to Petitioners within thirty (30) days of this Order.

IT IS FURTHER ORDERED that Respondent is directed ordered to comply with the requirements of CC&R § 4.32 going forward.

IT IS FURTHER ORDERED that a civil penalty is not appropriate.

IT IS FURTHER ORDERED that Respondent is considered the prevailing party in

Docket No. 25F-H002-REL, Docket No. 25F-H006-REL, and Docket No. 25F-H009-REL.

IS FURTHER ORDERED that the petitions in Docket No. 25F-H002-REL, Docket No. 25F-H006-REL, and Docket No. 25F-H002-REL are dismissed.

NOTICE

This administrative law judge order, having been issued as a result of a rehearing, is binding on the parties. A.R.S. § 32-2199.02(B). A party wishing to appeal this order must seek judicial review as prescribed by A.R.S. § 41-1092.08(H) and title 12, chapter 7, article 6. Any such appeal must be filed with the superior court within thirty-five days from the date when a copy of this order was served upon the parties. A.R.S. § 12-904(A).

-54864001

001

-137160-45720000Done this day, March 4, 2026.

/s/ Velva Moses-Thompson

Administrative Law Judge

Transmitted by either mail, e-mail, or facsimile March 4, 2026 to:

Susan Nicolson

Commissioner

Arizona Department of Real Estate

Attn:

[email redacted]

John R and Janet Krahn Living Trust

[email redacted]

Austin Baillio, Esq.

Maxwell & Morgan, P.C.

[email redacted]

Kurt Maddux

Co-Personal Representative, Pizzicaroli Estate

[email redacted]

Tonto Forest Estates Homeowners Association

[email redacted]

By: OAH Staff