Ethics case study #2: HOA attorney fails to tell board about needed CC&Rs amendment

This case study involves an Arizona condo concerned about the condo’s finances, and adopts a resolution to do away with the 15-day grace period for the payment of assessments. The November 2009 Mesa Terrace board meeting minutes show that a homeowner objected to the removal of the grace period, but cited the wrong Arizona statute in his argument. The minutes contain the following entry:

The communication was reviewed with the HOA Attorney. He determined that the statute cited was incorrect as Mesa Terrace Condominium is not a planned
community, but rather a condominium association. Different statutes apply.

Statue 33-1242 is the proper statute which applies to Mesa Terrace Condominium and Section 11 and 12 permit the current late fee(s) and late fee(s) procedure currently in effect.

The minutes indicate that a motion was made to proceed with the no-grace period change, and unanimously adopted. There were no other related entries in the minutes.

Now, within 1 hour of being informed of this issue, it was discovered that:

1. The CC&Rs contain section 7.4.1. granting a 15-day grace period on the payment of assessments.

2. The quoted ARS sections in the minutes, related to the powers of the board, and attributed to the attorney, do grant the HOA power to levy assessments and late fees, but is silent on any grace period. Not mentioned in the minutes was any reference to the relevant ARS sections, 33-1255 and 1256, pertaining to assessments and late payments. Neither said anything about any grace period.

3. Given the silence of the condo statutes (the planned community statutes, however, do impose a 15-day grace period) one must look to the CC&Rs for answers. And, as indicated in (1) above, there is a CC&Rs 15-day grace period. Consequently, didn’t the attorney know about this section and advise the board accordingly? Or, did the board ignore the advice of the attorney, if it were given? We don’t know. We don’t have any written advice to request from the board, and as proper board procedure requires, attached to the board minutes as an exhibit. All “according to Hoyle”, all above board.

4. In order for the no-grace period to be valid, the CC&Rs would have to be amended in accordance with the procedure in the Declaration., sec. 12.5, which requires a 2/3 vote of the members. There is no such amendment.

Taking the minutes at face value, it seems that the attorney was providing half-truths in violation of ethical conduct rules, 4.3, Truthfulness to Others. (See my Commentary on this issue of attorney ethics at “HOA ethics: vigorous performance or collusion?”). It is unconscionable and unethical that the HOA attorney gave such half-truths. (Read my comment to the above-mentioned Commentary on failure to obtain written attorney advice).

The attorney appears to be Maxwell & Morgan, CAI member attorneys. CAI is a national lobbying organization dominated by lawyers and management firms, and is a business trade group. It cannot have HOA members. Maxwell is a member of its College of Community Association Lawyers.

Published in: on February 2, 2010 at 2:59 pm  Leave a Comment  

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