Legislators OK restrictions on HOA foreclosure powers

Article Courtesy of The East Valley Tribune

By Dennis Welch

Published May 11, 2007


State lawmakers passed a bill Thursday limiting homeowners associations from foreclosing on property owners. But critics of the plan warned it could cost homeowners more money in annual association fees.

The measure, which now heads to the governor’s office for her signature, also keeps HOAs from regulating for-sale signs and solar energy panels.

But without the threat of foreclosure, Chris Thompson, property manager for Neely Farms Homeowners Association in Gilbert, said it will be harder to collect back payments.

“This could have the effect of raising the costs for all the other members,” she said. Thompson said associations would be forced to raise fees to compensate for members who don’t pay.

In some cases, she has seen homeowners fall several hundred dollars to a couple thousand dollars behind on their dues. But HOAs rarely foreclose on homes to recover that money, she said.

However, George Staropoli, a Scottsdale resident living in an HOA, said he’s pleased to hear the bill passed because he believes associations have too much power. “It’s about time we got rid of this,” he said.

The proposed bill goes even further in limiting the financial options at the disposal of HOAs to recover back payments.

Right now, associations can impose a financial lien on a home if the owner falls more than $1,200 or a year behind on dues. That means the HOA can collect any profit made once the owner sells the house. Under the proposed bill, HOAs could not collect any money unless the property owner makes more than $150,000 profit on the sale. That would effectively eliminate that option because the bulk of houses don’t make that kind of profit.

Mike Lerch, executive director for the Arizona chapter of the Community Associations Institute, said this bill allows homeowners to break their contract.

“This is a consensus lien. People agree to pay this,” he said. He, like other HOA officials, said homeowners don’t have to move into areas maintained by associations. But once they do, they sign a contract to pay for their services and should live up to those agreements.

Most commonly, HOAs provide services such as basic landscaping for common areas, maintenance of swimming pools and other shared amenities. In many cases, HOAs restrict what colors owners can paint their houses and can penalize them for such things as not cutting their weeds.

While there are other bills that aim to rein in the authority of HOAs, this one is the most comprehensive. For the past two years, state lawmakers have been slowly chipping away at the authority of HOAs to manage neighborhoods.

Other HOA-related bills introduced in the Legislature this year include measures that bar them from regulating solar energy panels and well as for-sale signs.

“I think if the Legislature doesn’t like HOAs then they need to abolish them,” said Sen. Jay Tibshraeny R-Chandler, who voted against the HOA measure.

He said he received a number of phone calls and e-mails from constituents worried the Legislature would render their HOAs ineffective.

However Sen. Jim Waring, R-Phoenix, sees it differently. “We can’t let someone lose their home over a few hundred bucks,” he said. “It doesn’t seem just to me.”

The governor now has five days to either veto the bill, sign it into law or allow it to pass into law without her signature.

What the bill does

• Prohibits homeowners associations from foreclosing on homeowners if they fall behind on fees.

• Limits associations from collecting on a lien unless the property owner makes at least $150,000 profit.

• Restricts associations from regulating solar energy panels.

• Restricts associations from regulating for-sale signs in yards.