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Can an HOA vote in an annual increases years in advance?

I know there is no legal advice here, but maybe someone can point me to similar cases or maybe someone knows where to find the answer. Can an HOA vote in increase in dues in excess of CCRs that will increase each and every year in excess of CCR limits for 15 years in the future?
Also wondering if the HOA board or management company has any obligation to inform voters in advance of soliciting their votes regarding implications of such a vote, such as that homeowners will have to disclose this when selling their homes for as many years as that increase is still rising?

3 Responses

  1. dennisl

    Dani;

    Interesting question. There is a lot in your question. Let me start with the basics. Arizona Laws are extremely weak relative to limitations on the ability of the association to determine their annual budgets or the subsequent assessments from those annual budgets. For an HOA the law limits the ability of an association to raise the annual assessment to 20% above the previous year with out approval of 50% of the community. There is no such limit for Condominiums. However, for Condominiums there is a very weak provision that addresses the need of the association to have each annual budget ratified by the community, but the rejection of the budget will require greater than 50% of the community to disapprove of the measure. In this scheme everyone that does not vote at all is counted as approving the budget. Making it virtually impossible for any community to reject any proposed budget by the Condo board. These are the classic influences and results of CAI and AACM in the structure of our statutes prior to our existence.

    The association is never authorized to increase the annual assessment in excess of the limits established in the CC&R’s. This is little relief because most CC&R’s provide very little limits on the ability of the association to increase the annual assessments. But many if not most CC&R’s to require some level of community approval for special assessments above the normal annual assessments for routine maintenance and operating cost.

    This is where many association boards have taken the strategy that to avoid having to get member approval of special assessments they create a plan where they will increase their annual assessments by 20% every year until they get the money they need to complete the project that they wanted the special assessment for. In doing this the presumption is that they are not exceeding the limits if any within the CC&R’s and staying within the state limits. This is not approving a budget in advance for future years but rather a strategy for getting the money they need for a project while excluding any member approval of that money. Many association that I’ve run across utilize this perfectly legal if not inappropriate way to circumvent any member input into their assessment growth.

    I’ve tried for years to increase the resale disclosure requirements for properties to identify these type of tactics being used by an association to potential buyers before they buy these homes. I’ve presented legislation 3 out of the last 4 years on this subject. But in all cases that legislation was opposed by the Realtors, as a treat to their ability to sell homes in these communities. They would rather make the sale than inform the buyer of the true financial obligations that buyer will experience after he/she buys a home in these communities. There is no current obligation for an association or a home seller to identify association plans for future special assessments or of strategies for 20% assessment increases every year. You are also not obliged under the law to provide annual assessment history that would reveal the 20% increases every year in the immediate past. All of this is simply wrong and totally unfair to potential buyers, but as long as I cannot convince the Realtors that true disclosure is the only fair way for them to treat their clients we will never get better laws in this area.

    As for disclosure by the association the truth about a vote for assessment increases. The truth and full story of any issue presented by the association for member votes is a very rare if not none existent commodity. You will be fed their story and their spin on the issue to convince you to vote as they want. Don’t believe a thing they say. Investigate it on your own, ask questions, look for facts and evidence of what is really going on. Talk to other homeowners seek the truth from any source available they do whatever you can to spread the truth on the issue to your neighbors. This is why SB-1412 that is being considered in the legislature this year is so important. This bill will protect your fundamental freedom of speech and assemble to organize community involvement in community issue. You cannot legislate integrity but you can legislate the ability of the community to free speech and seek the truth so that informed decisions can be made by the association members in the affairs’ of the community.

    Dennis

    1. Dani Smith

      Dennis,
      Thank you so much for your comments. Perhaps more info on my part will help here in what I was looking for. This is a single-family home development. Our CCRs limit annual assessment increases to US Price index something…, basically a very small % a year as you mentioned unless they get 2/3 of the vote to increase it beyond that. They crammed this down people’s throats going to everybody’s doors as many times as necessary. Some people caved just to keep peace. I knew this would have to be disclosed on resale contracts in the HOA addendum & should really be put in the SPDS & mls as well. They passed it by one vote, but people I spoke with said they would not have voted for it if they had known they would have to disclose it to future buyers. They passed an increase on annual assessments to increase more every year than CCR limits every year for the next 15 yrs! The homeowners absolutely have to disclose this & most homeowners didn’t know that. The HOA board & management company were asked before the annual meeting if they had any obligation to inform voters of this prior to getting their vote, and were asked exactly what they were going to disclose in their HOA buyer packets to title. They ignored the requests for answers. After several emails we have gleamed that they have no intention of disclosing it at all (only current dues.) But CCRs tell a buyer fees won’t go up more than X% a year without a vote of 2/3 of the members. I’m starting to believe they don’t have to disclose anything to any homeowner before getting their votes so that isn’t my biggest concern anymore. They only passed this by one vote & held the mtg on the 1st Sat after annual dues would become late which disqualified a portion of our voters, so if it had been held one week earlier it would also not have passed. (Legal but shady & done to get their way.) Besides the fact that they are deceitful to the homeowners, when they release a packet to title with current dues as X combined with CCRs stating dues won’t be increased without 2/3 vote of owners, but do not disclose to the buyer that their voting rights on the matter have been usurped for 15 years to come, I believe it will be a material omission.
      I honestly don’t know why realtors would not want HOAs liable for disclosure because homeowners still have to disclose it anyway and don’t need their HOA packet to be deceiving.

      I believe annual dues voted in by members implies an annual vote, not a one-time vote forever (unless you were to modify CCRs) Any thoughts on that?
      So do they have the right to vote in an ongoing incremental increase annually, all at once in one year, to affect many years to come? And if management company/HOA doesn’t disclose it (which I can tell they are not planning to do in spite of half-ass answers and obvious intent to deflect & evade answering questions related to this,) is it legally a material omission? Could buyers sue us in the future because they received misleading information from our HOA which essentially contradicts the CCRs which provide ‘owners’ with a right to vote? Are those dues even binding on a new buyer when buyer’s vote no longer exists?

      Next, is there anything we can do about it now? I did not vote for it, but preferred to do a one-time increase that would solve the financial issue for many years, but they treated us like stupid idiots dangling a carrot of ‘it’s only a little increase this next year’ to push us into it. I’m mad because it creates a disclosure issue for any homeowner trying to sell their home in the next 15 years & I don’t see how they can provide a realistic budget 15 years into the future to justify their need to basically double our fees. I realize some buyers won’t care, but others will and some will even see it as a deferred special assessment that should have been paid by the seller at COE & I see it deterring some buyers from buying in this neighborhood at all if the seller properly discloses it themselves.
      If there is nothing we can do several of us will just be left with zero trust in our board which in a small neighborhood is your neighbors. We’ve been here a really long time, but right now feel like moving. Thanks in advance for your time.

      1. dennisl

        Dani;
        First you have to read your CC&R’s very carefully. Most similar provisions in all the CC&R’s that I’ve read approach this very differently. They typically establish a specific initial limit on the annual assessment and allow an annual increase based on the increase of the consumer price index from a specific year and month. The CPI varies from month to month and year to year. This does not limit the annual assessment increases only based on the increase from the last year but rather the cumulative increase of all the time back to the base year and month. Think of this in this way say the base assessment is $100 annually, after the first year the max assessment is increased by the CPI for the past year times the CPI for that time period. But say the association does not increase any assessment for that year or the next 9 years. In year eleven they want to increase the assessments and need to find out how high they can raise the assessment without voter approval. Now say that the CPI increased 1% for each of the previous 10 years since the base year, the actual assessment increase allowed for that association would be the sum of all the CPI increases since the base year or 10%. When you put actual CPI changes into the equation and long periods of time from the base year this limit of annual CPI change becomes totally moot because it has grown so large. State law for HOA’s cap the annual increase from any year at 20%. Many associations have taken advantage of that provision to simply establish a strategy that increasing the annual assessment by 20% for multiple years is better than to try and get voter approval of a one time special assessment.

        As I mentioned at the beginning of this response you have to read your CC&R’s very carefully. The association cannot by vote of the members change assessment payment schemes without first modifying the CC&R’s. You seam to imply that you believe that they did just that when they said that they asked the association to approve a plan to raise the assessment a certain amount every year for the next 10 years. Here you need to be very careful to what was specifically requested. A special assessment could have been requested to be included in the annual assessment for the next 10 years. Your overall assessment would consist of your normal annual assessment and 1/10 of the special assessment voted on by the members. This does not come under the original CPI limitation or the state 20% limitation because of the two separate parts of the assessment.

        I know that this is very confusing, but I would need to see your actual CC&R’s and the measure that the members were asked to vote on to give you any real clarity on the appropriateness of the associations actions.

        As for the disclosure issue. The requirement under state law is relatively weak, you must disclose the current assessment value and any active special assessment and how they will be paid out. You are not required to disclose an past assessment or any potential future assessments which I believe is fundamentally wrong. Once again I’ve tried to change these laws for 4 year without any success, but one day I will if we can ever grow this organization to a point where the legislators cannot ignore our membership and our ability to vote any of them out of office if they act outside the best interest of the homeowners.

        Dennis

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