AZ Supreme Court landmark HOA opinion

For the times they are a-changin’”[1]

The Arizona Supreme Court opinion in Kalway[2] is, in my view,  a landmark opinion supporting and protecting individual property rights of homeowners in HOAs that are subject to a broad, procedural CC&Rs amendment procedure.  The boilerplate CC&Rs in an intentional denial of fundamental property rights strip away eminent domain protections by ignoring the content of CC&Rs amendments —  anything and everything goes!

Referring to AZ statute 33-1817(A) that allows amendments solely based on a majority vote of the members, the Court stated:

“But § 33-1817(A) does not displace the common law, which  prohibits some amendments even if passed by a majority vote. The original declaration must give sufficient notice of the possibility of a future amendment; that is, amendments must be reasonable and foreseeable.”

The Court cited its 2010 opinion in Dreamland,[3]

“We agree that these cases tend to support the homeowners, in that each refuses enforcement of a new covenant that markedly changed the obligations of the implicated lot owners. . . . in those cases where courts disallowed the amendment of covenants, the impact upon the objecting lot owner was generally far more substantial and unforeseeable than the amendment at issue [in the case before it]

I had addressed these concerns  regarding the Dreamland decision in my 2009-2010 Commentaries that provide  details on these substantive issues.[4]

Although not stated were issues of due process, equal protection of the laws, and eminent domain takings — not raised in the initial complaint or appeal, so the courts  did not offer a direct opinion —  this  opinion strikes at HOA eminent domain takings of homeowner property rights.  It also dealt with the question of homeowner notice (due process) and unexpected and unreasonable modifications to the CC&Rs (lack of equal protection under CC&Rs private eminent domain rights).

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The above represents my perspective as a longtime 22-year homeowner rights advocate and activist.  CAI Arizona has a different perspective favoring HOAs and their decisionmakers, the board of directors.[5]. Its presentation starts with the overall court opinion.

“Based on this recent case law, CC&R amendments must be reasonable and foreseeable in order to be enforceable. In other words, community associations can no longer amend CC&Rs to create new obligations where the original CC&Rs did not provide owners notice that they may be subject to the new obligations.”

But then adds its spin and advertising appeal:

“Please note that these amendments are specific to Calabria Ranch and its CC&Rs. In other words, an amendment that the Arizona Supreme Court found invalid in the Calabria Ranch case may be found valid for a different community association. Again, we strongly recommend consulting with the CHDB team to analyze your community association’s specific CC&Rs and any proposed, or previously adopted, amendments.”

Looking at the tremendous value toward HOA reform, the Court’s opinion would apply to any instance where the broad conditions — no notice and unexpected and unreasonable — apply, above and beyond those specific amendments dealt with in Kalway.  I’ve found the most prevalent are unexpected and unreasonable amendment modifications, and a failure to provide notice to the homeowner that abounds in the CC&Rs. It falls into those discretionary areas where the CC&Rs are silent, which the Court has declared doesn’t give the BOD unlimited rights.

This opinion presents a powerful tool, a powerful argument before the courts and before state legislatures when seeking HOA substantive reforms.

Yes, and how many times can a man turn his head
And pretend that he just doesn’t see?

The answer, my friend, is blowin’ in the wind
The answer is blowin’ in the wind

(Bob Dylan, Blowin’ In the Wind,  1963)

Notes


[1] Bob Dylan,  “For the times they are a-changin’”  (1964).  It’s interesting to note the coincidences of publication years for this song and The Homes Association Handbook.

[2] Kalway v. Calbria Ranch, CV-20-o152-PR (Ariz. March 22, 202).

[3] Dreamland Villa Community Club, Inc. v. Raimey, 224 Ariz. 42, 51 ¶ 38 (App. 2010).

[4] HOA principalities where there’s no ex post facto or eminent domain protections and AZ court ends open-ended “ex post facto” HOA amendments.

[5] “CC&R Amendment Update from the Arizona Supreme Court,” March 29, 2022 By Carpenter Hazlewood I News.

Beware of unsupported legal arguments and opinions when in court

All too often judges make decisions on HOA cases, making new law and new contract meanings, with unsupported statements not related to the case on hand. For example, in a question of signage, a court may state that the HOA is not a mini-government and offer no legal authority for that statement. It is referred to as a dictum (dicta) and is non-binding. However, it is used as if it were indeed a court proven and decided fact.

In the Nevada Supreme Court decision in Sanzaro v. Adiente HOA, Nev. No. 61288 (Oct. 16, 2015) we have a good example that deals with the question of proper notice. (“Proper notice” is a 14th Amendment due process requirement.) Here, arbitrators ruled that Sanzaro had “constructive notice” — here we go again, no need to read the notice — that no dogs were allowed and charged the homeowners with $17,000 in legal fees (and I thought arbitration was the best solution to HOA decisions). The district court upheld that decision, finding that the homeowners had “not shown by competent evidence any deficiency that would warrant the relief being sought.”

As it happened, the homeowners, at purchase time, were told to see the HOA webpage for a copy of the rules, but the web page rules were not the latest with the dog restriction. The HOA insisted that sending a welcome letter about the web page with its rules amounted to constructive notice. In other words, like with the CC&Rs, the homeowners were told that there was another document affecting them. Go get it and read it.

The Court found that arbitration awards are reviewed to determine whether the arbitrator’s decision represents a ‘manifest disregard for the law’ . . . the error of accepting respondents’ [HOA’s] contention that appellants [homeowners] received proper “constructive notice” of the amended rule . . . or that such notice was even properly achieved in light of appellants’ arguments and evidence to the contrary, demonstrates a manifest disregard for the law.”

In regard to CC&Rs, most state laws and CC&Rs require a mailing or personal delivery of the changed rules, or other governing documents. Nevada is one of them. In other words, constructive notice does not trump statutory notice. Some allow constructive notice of amendments by simply filing with the county clerk — BEWARE!!!!

Of course, in regard to the CC&Rs, there are no provisions in the CC&Rs requiring the delivery of the documents to a new buyer. While some states require delivery of the governing documents before closing, this requirement is waived or the documents are not read to the detriment of the buyer.

The important point is that arguments used against homeowners by HOA lawyers must be based on evidence and legal authority and not on a vague statement, like 95% of the people in HOAs like HOAs. The HOA lawyers claim to be the experts; get them to prove it and demand the legal basis for their statements.