Homeowners are often surprised to receive monetary penalties for hundreds, or even thousands of dollars, for seemingly minor violations of the association’s governing documents. Although HOA’s may impose fines if they are authorized to do so by those governing documents, there are limitations on how such fines and penalties must be implemented and even vague limitations on how large those fines and penalties can be.
The first place to look to determine if an HOA is acting lawfully is within the declaration of CC&Rs, bylaws and rules of the association, which often contain guidelines and limitations the HOA must adhere to. In addition, there are statutory requirements that must be followed. A.R.S. § 33-1803(B) states:
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.
Similar limitations that apply to condominium communities may be found at A.R.S. § 33-1242(A)(11).
Of primary import is the notion that any fine imposed must be “reasonable,” and that the Association must provide proper notice and an opportunity to be heard on any objection to the claimed violation and the fine. Of course, the meaning of “reasonable” is always up for debate, and HOAs and their Boards often have a differing view on what is reasonable than how homeowners might view it. This leads to uncertainty that can only be resolved with any finality by a court.
Unfortunately, the courts have provided little guidance about what may or may not be viewed as reasonable, but an Arizona Court of Appeals case from 2017 does offer some guidance. In Turtle Rock III Homeowners Ass'n v. Fisher, 406 P.3d 824 (Ariz. Ct. App. 2017), the Court held that “monetary fines must be reasonable” (citing the statute) and that “ad hoc fines are per se unreasonable.” The reference to ad hoc fines means that “even where the HOA has the authority to levy fines, it must promulgate the schedule of fines prior to imposing the fines, and the failure to prove promulgation is fatal.” In sum the Turtle Rock III Court held that an HOA must advise homeowners ahead of time what kinds of fines and penalties they will face for violating the governing documents.
The same Court also held that in that particular case, the HOAs policy of a fine of $25 per day, for any violation, was not reasonable because the HOA had failed to provide any evidence to establish why such an amount was appropriate, stating: ““Without competent evidence of a fee schedule timely promulgated demonstrating the fine amounts and the appropriateness of such amounts, monetary penalties are per se unreasonable. Even if a fee schedule existed, the HOA had the burden to prove its damages.”
While all that guidance from the Turtle Rock III court is nice, the Arizona Supreme Court later issued an order de-publishing the decision, meaning that Arizona courts are not required to follow the decision as it does not constitute legal precedence. Nonetheless, the same arguments asserted in that case could be asserted in future cases and there is every reason to believe the Court of Appeals would rule consistently with its prior decision.
Although the reasonableness of fines and penalties is still something of a moving target, these limitations do provide some ability to challenge an association’s imposition of charges that appear to be excessive. Any homeowner facing such a situation should consult with an attorney as soon as possible.