Never Seen Before for 2024

Jonathan Ebertshauser (00:00):
All right, it is 12 o’clock. We’ve got 53 participants on, so let’s get started. My name is Jonathan Edwards Hauser. I’m a partner here at Carpenter Hazelwood. Thanks for joining me this afternoon to talk about the things that we’ve never seen before in 2024. Like I said, we’ve got 56, 58, we’re growing in numbers, so I have Andrea here assisting me today to field the chats, so feel free during the presentation to shoot a chat to Andrea or the group and she will pause and read that out for me so that we can address those questions. And I want to have as much dialogue as you possibly need, so feel free to shoot your questions out as we go through the presentation. Fortunately for all of us, our jobs are not going to change too much in 2024. 2024 is not going to look too different than 2023, thank goodness, but there are a couple things that we want to go over and make sure you’re prepared for.

(01:01):
The first and probably the most discussed right now is the regulations on public roadways, the new statutory authority that’s come out on that. Most of you have already probably heard about this and have lots of discussions about it. So what we’re trying to do today is really frame your understanding of how this statute works, and I think that will be very helpful to you as you move forward with your associations and understanding the implications of this statute for you. So the new legislation is going to change ARS 33.1818 that’s titled Authority over Public Roadways. And if I had to sum up what we’ve discussed in hour long presentations into one sentence, it’s essentially that the associations may lose their right to regulate the use of a public roadway if the members do not reaffirm current deed restrictions. So if you have deed restrictions that regulate the use of public roadways, and we’ll go over what that means in our next slides.

(01:59):
If your memberships do not vote to keep that restriction in place, you may lose the opportunity to enforce it as you move forward. So here’s the framing. How does this all work? You have a deed restriction on your property, right? The CCNRs? Well, when you look at the definition on what is covered by that declaration, what is the property that’s subject to these restrictions? We typically are defining that as a capital P property and essentially that definition will typically just establish this perimeter boundaries of everything that exists within your homeowner’s association. So that encompasses your lots, your common areas, your units, the common elements, and it can encompass the public roads because we’re drawing a box around land and there’s property that is within the association and there’s property that we don’t own. What the legislature tried to do here is take control back from homeowners associations over the public roadways that fall within that capital P property.

(02:57):
And so those regulations are applying anywhere within in that those four corners, we’ll call it. This legislation isn’t going to apply to one-Way streets. It doesn’t apply to private streets. It’s not going to apply to any of our communities that are still under declarant control. This is something that planned communities need to be aware of and specifically planned communities that have public roadways within them, within that capital P property and specifically those planned communities which have CCNRs that were reported prior to January 1st, 2015. So pretty large set of our historical communities. This is the part that we need to be aware of. We talk about this as an industry as a restriction against street parking or a regulation of street parking and that nomenclature is not correct. I have in blue here the actual verbiage from the legislation and it says, after the period of declaring control for any planned community, which has a declaration recorded before January 1st, 2015, that regulates any roadway for which the ownership has been dedicated to or is otherwise held by a governmental entity.

(04:12):
That’s the important thing. It’s regulations on public roadways. It’s not a street parking restriction, it’s a regulation of public roadways. And if we look at CCNRs historically, we regulate a lot of public roadways. Even if you don’t necessarily have a CCNR restriction that prohibits you from parking on the street, you probably still regulate your public roadways. Most CCNRs contain restrictions on RV parking. So we’re talking about passenger vehicles, and we might be framing our thoughts on this is something important for those associations that prohibit passenger vehicles from parking on the streets. Let’s not get stuck there. It could be that you have a commercial vehicle parking restriction. It could be that you have posted speed limit signs through your community regulating the use of the public roadway. Oversized vehicles, most associations have restrictions on inoperable vehicles being parked within the Capital P property vehicle storage.

(05:07):
We also see restrictions against porta-potties being placed on the public roadways. And maybe you don’t have a restriction, but you have rules that talk about when you can go through your construction and maybe you have a rule about placing the porta-potties. Well, if your association does not affirm your right to maintain the porta potty on the public roadways, that porta-potties going on the lot, storage pods, boats and trailer restrictions, the use in parking of golf carts, and this is a big one for me that I am curious how we’ll see through legislation and legal disputes, but garbage cans. So right now, most associations contain restrictions that say you can’t leave your can on the street for more than overnight or the duration of the day that pickup. Well, that’s again regulating the use of the public roadway. And it could be that if your association does not affirm your right to control that public roadway, you may lose the right to enforce those kinds of restrictions.

(06:10):
So there are some broad implications resulting from this legislation that all associations need to be aware of. So for you, what are you going to do in 2024? Well, we have to hold this membership vote prior to June 30th, 2025, whether to continue enforcing our regulations on public parking. We’re seeking majority support from the members once quorum is present in order to establish that approval and at quorum, we’re going to look to your governing documents. That’s something that’s going to be document specific for homeowners associations. Check your bylaws. What does a membership meeting quorum look like? And we’re looking for majority of the quorum. The HOA cannot enforce the parking restrictions on the public roadways or otherwise regulate public roadways. If you fail to obtain the vote and record the notice by June 30th, 2025. It’s also true if you hold the vote and the owners vote in opposition to that enforcement.

Andrea Rizen (07:10):
Jonathan, we have a question. Yes, they’ve always discouraged the HOA from regulating public streets due to the liability. Couldn’t a homeowner sue the HOA for enforcing public streets when they don’t have authority to do so unless permitted by the city?

Jonathan Ebertshauser (07:29):
Yeah, I am going to try to follow that and you might need you to read it back to me, but it comes down to do we have liability? We’ve got liability both directions. If we fail to enforce a current restriction, there’s liability under our case law because we have an obligation to enforce the documents that’s written. So I think maybe that’s where you’re getting to, but if we have the restriction, we need to enforce it. If the owners are presented with this vote and you have current regulations on the public roadway and it fails, well now our obligation to enforce goes away and it’s our liability as a result also goes away.

Andrea Rizen (08:07):
And if it’s not in the CCNRs,

Jonathan Ebertshauser (08:09):
If you don’t have a restriction on public roadway enforcement, then yeah, we probably don’t have anything to enforce in the first place.

Andrea Rizen (08:18):
Alright, and then I have another question. Can the voting be electronic?

Jonathan Ebertshauser (08:23):
Certainly we want to go through the same process as you would for any membership meeting, so take advantage of the resources you have to get the votes back. So here’s some good examples of how this plays out as we move forward. If we’ve got a restriction for an owner vehicle in the CCNRs, you’re permitted to park in the garage, the driveway and the streets, but only on an overflow basis. If you fail to get membership approval to continue in enforcement of that, vehicles would now be permitted to park on the street. And then of course we’re looking to municipalities to come up with their own ordinances to regulate their public streets. Recreational vehicles, you might have a restriction that permits them to be parked in garages and driveways only, and so got to pay attention to it may not say street parking. That’s what this is telling us is the CCNRs may say RVs must be parked in garages and driveways. Well then that by implication means they can’t be parked on the streets. If the homeowner’s association does not reaffirm that regulation, RVs can now be parked on the streets.

(09:36):
And the big practice tip that I wanted to make sure we really nail in there is that failing to obtain the membership vote does not remove the parking restriction altogether. It simply removes the restriction on street parking. So what may happen by implication is that we’re forcing vehicles that would typically park in the streets back onto the lots. So let me walk you through that. If we’ve got a restriction that prohibits driveway and street parking, so all vehicles must be parked in the garage, we fail to get the vote to maintain street parking when we still have to enforce the restriction that says you can’t park in your driveway. We’ve got a restriction that says you’ve got to park in the garage, then park into the driveway, then park into the street. Well now they can park in the street. We still have to enforce the, you’ve got to first have availability in your garage before you can park in your driveway kind of restriction.

(10:34):
And so what may happen is you’ve got a car parked in the driveway without proper authority under the declaration and we’ve got to send a letter for that because they’re breaching the CCNRs by parking in the driveway. So we’re going to pull vehicles out of the driveway and onto the street. And so this is good messaging points as you move forward with your membership. Votes of a lot of associations have some interesting parking restrictions and so be very careful about what the implications are when we no longer have the ability to regulate street parking doesn’t mean the homeowners get to the free pass. Now they can park on their driveway because we’d prefer it, right? If we don’t want them parking on the street, we’d probably prefer them parking on the driveway. But if we’ve got a no driveway parking restriction, we’re going to pull that vehicle out onto the street.

(11:25):
Do you have any questions on that? Perfect. See some heads shaking. So we’ve gotten clarity. That’s good. The next legislative update we really received is this condominium insurance that I’m sure you’ve all heard about ad nauseum at this point. This applies to condominiums only. It changes a RS 33, 12 53 and it authorizes owners to file property claims directly against your homeowner’s association’s insurance policy. And it gives us a procedure on how the owners are supposed to notice the association and go through that process. So prior to an owner filing a claim under the condominium’s insurance policy, you give the homeowner’s association 10 business days notice. And during that 10 business days, you as management and boards are charged with this decision-making authority of will we file the claim on behalf of this homeowner against our policy? If the homeowner’s association declines to file that claim, we have to provide the owner a written basis on why the association declined to file that claim. That could be that the estimated work is not going to exceed the deductible and so the insurance wouldn’t be triggered. It could be that we don’t believe that the policy provides coverage for this type of claim, but we have to engage in this interactive process with the homeowner where we’ve received notice of the issue and we’ve got to make a decision on whether or not it qualifies under the policy.

(12:54):
In addition, the homeowners association is required to inform owners annually of what their responsibilities for obtaining coverage may be and what their insurance deductibles might be. And we need to provide them the amount of those deductibles. And so we’ve got this new obligation to make sure that homeowners are very aware of what we cover, what we don’t, and what their deductibles might look like. And this is important because historically we’ve been reactive when we receive the claim, it comes to Carpenter Hazelwood, we evaluate whether or not you carry a policy that ensures the unit or doesn’t, and then we evaluate what the deductible is and who pays the deductible. Now we’ve got to do that proactively. We need to have those conversations now and make sure that we’re disseminating that information to homeowners so that they have the information going forward and they can secure the policies that they need to make sure their units are covered.

(13:47):
One thing I want to touch on with that though is we’re seeing a change in how insurance policies work to address some of this. And one of the best things that I’m seeing is claim based deductibles. So these insurance carriers are now establishing claims deductible specific for specific types of damage. So the biggest one I see is a water damage claim. We’d have a separate deductible for the water damage claim. Unit two oh ones leaking into unit 1 0 1. Well the deductible of that is $25,000. Let’s just pick ridiculous numbers, maybe it’s not. But your general deductible for any other claim is 5,000 bucks. And in doing that, we might have some ability to shift some liabilities. It comes in really importantly when we’re talking about associations that don’t maintain the units or don’t maintain limited common elements but have the obligation to ensure them. And for those of you who have been doing condos for a long time, you know that when we insure something and what we don’t maintain it, the question of whether or not the association’s liable for paying the deductible is an issue. So while increasing the amount of that deductible for the water-based claim or the common claim, we might be able to limit some of the association’s insurance liabilities while still protecting the association at large from the common element related insurance claims with a lower deductible.

Andrea Rizen (15:13):
There’s a question on if this applies to commercial office condos as well.

Jonathan Ebertshauser (15:18):
Yeah, absolutely. I’m seeing it at it will apply to commercial condominiums. They’re subject to condominium act the same way and I’ve heard that the policies are being extended to those entities as well. That’s a question for your insurance carrier too on what those options might be. So here’s your action item. If your condominium association and owners are responsible for property insurance deductibles, let’s send out an annual notice reminding them of what their responsibility for the insurance deductible is and what their liability coverage is and the amount of their deductible. So Carpenter Hazelwood is offering a program to help get this on track. It’s $950. We will review the declaration to determine the insurance deductible obligations, review the declaration page to determine the amount of the deductible and we’ll draft this notice to the owners so that you can get it mailed out to your communities annually. So if you have questions about that policy, give me a call or any of our attorneys here, carpenter Hazelwood, happy to go over getting that done for you.

(16:35):
This is my favorite topic of the day is judicial relief, and I wish we were in person because I would ask who has heard of statutes regarding judicial relief and I’m hoping I’m not going to hear crickets, but I bet I will. Maybe give me, raise your hand if you’ve heard of judicial relief. I can see you at least not seeing too many hands. Well this is good then this will be good news for everybody. What do we know about 2024? We know 2024 is going to be expensive. That’s what we know. 2024 is bringing an increase in insurance premiums. We just talked about all of the changes in insurance, all these additional claims that are going to be filed under the homeowner’s insurance policy that will increase your premiums, increased maintenance costs. We all know that the cost of maintaining a homeowner’s association are shooting through the roof.

(17:26):
And what’s been interesting in 2023 that has not occurred has historically, and I hope no one on this call has been on the receiving end of this, but I certainly have several clients that that cities are now taking a very active role in enforcing deferred maintenance concerns against the associations. So where we’ve been historically, the people sending out violation letters, we’re now receiving the violation letters and we’re receiving them from the bigger fish, the cities that’s putting a lot of pressure on homeowners associations to address different maintenance concerns. And we just heard all this legislation means more mailings, more membership meetings, all of those things come at a price tag and for a long time, associations have been living, we try to make things work. You all know budget season just happened. I’m sure you all pulled the one or two hairs out trying to figure out how to balance a budget.

(18:13):
2024 is going to be expensive. So associations are looking for revenue. That means assessment increases are coming. Here’s our problem. We know participation’s always low. It could be voter apathy. It could be that we have increased opposition to the idea of raising assessments or special assessments. Who knows? But it’s going to make 2024 difficult. And so we’ve pulled here what CAI puts out every few years the homeowner satisfaction survey. This is really an interesting glance at the state of homeowners in the United States, 58% of residents say their assessments are just the right amount or too little. You can see in that first big graph there kind of a downward trend, 58% we’re getting homeowner realization that assessments may need to be increased. That’s helpful for you as community managers and as board members and understanding that this problem is coming. When we look at the bottom graphs here, 15%, a big spike in 2022 have determined that we need to make up the loss by increasing assessments for paying homeowners.

(19:28):
So meaning it doesn’t matter how many people are delinquent, we need to make up losses by increasing assessments. That’s a big spike. People are recognizing the potential impacts of assessment increases. You also see another spike in this idea of we need to curtail services, curtail amenities, reduce pool hours, delay improvements, spending less on landscaping. Homeowners are recognizing the need for more revenue and coming up with creative ways to get there. Well, the most common way of course is increasing your assessments. So let’s talk about that in a planned community context. We know by statute you cannot increase your assessment by more than 20% without membership approval from the majority. Now we could also have lower thresholds. You see several communities that have a CPI cap. You can’t raise your assessment by more than the amount of CPI. We’ve got anything between zero and 20%. You could have an assessment limit lower than 20% and you could have a different voting threshold for this, but we at least know associations aren’t raising their assessments more than 20% without membership approval in the plan community context.

(20:41):
The same is not true for condominium associations. The statutes for the condo act do not set a 20% assessment limit. The condo act is designed so that condominiums can establish the assessment that’s necessary to meet the common expenses. Now, developers and homeowners associations have curtailed their own authority, this broad discretion that condos have and established limits in their own CCNRs, but this is something we’ve got to pay attention to. And just a helpful reminder that in the condo you may not have an increased limit. The 20% doesn’t apply to you. We’re just looking at the governing documents to determine whether or not you have a cap on how much you can raise your assessment to make your budgets work.

(21:28):
Of course we know there’s special assessments or an option for associations to help increase revenue and those typically come at the cost of a membership vote as well. And both of these can sometimes be correlated with a loan. And what I want you to keep in mind is that loans sometimes require membership approval too and that kind of restriction can be tucked away and hidden in the bylaws and articles. So make sure you’re reading those documents to make sure you don’t need membership approval too before you’re signing the loan. But what I’ve seen historically is that the two don’t talk to each other. Well, sometimes the loan voting threshold is different than the threshold for a special assessment or it’s different than what we need to increase the assessments and as you all know, the loans are tied to one another, they’re tied to the amount of the special assessment, they’re tied to the assessments and so we can run into problems where I just recently encountered a condominium where we increased, we got approval to increase the assessment but we couldn’t get approval for the loan because of voter apathy and so we ran into this, well, what do we do?

(22:30):
We have the money but it doesn’t help us to have a special assessment because we need the contractor on site today. We need the loan so it creates complications and we just need to be aware that those can make your job a little bit more difficult. The same is true for amending governing documents. A lot of associations are looking into pulling out the CPI caps in their CCNRs and going with something different That’s going to require membership approval as well. And again, participation’s low, but is it voter apathy or is it opposition? That’s the important thing as we go into understanding our options under judicial relief because all is not lost team, this is good news. We have recourse for voter apathy. We have an option when people will not approve special assessments that you need. It comes from a RS 10 31 60 judicial relief and what that statute tells us is that if we can prove that it is impractical or impossible for the association to call or conduct a meeting of the members or otherwise obtain the membership consent, a director and officer or a member can petition the court for judicial relief.

(23:42):
What does that mean? What is judicial relief? It we ask the court to do what we need them to do and make things right. The courts have been given the authority by statute to call the meeting without satisfying the obligations of your governing documents. So we can override hurdles. Sometimes we’ve got those requirements of membership meetings have to be called by 25%. If the members or something like that courts can override those hurdles. They can grant associations alternative options for obtaining the vote. This could be especially helpful if you’re running into problems where maybe it’s not that we have opposition to our vote, but it’s impossible for us to notice the meeting and hold the meeting within 50 days and at the same time reach the thousands of homeowners that need to be reached to obtain their votes. We can ask the court to grant you the option to do that vote through a written consent. We can ask for relief from the obligations for a secret ballot or maybe impose the secret ballot obligation. Whatever it takes, whatever you as the board or the management agent think it’s going to take in order to obtain the relief you’re looking for. We can ask a court to do that. They have the broad authority to provide any relief that the court finds fair and equitable to address the concern that it’s impossible or impractical for the association to satisfy its obligations under the declaration.

(25:04):
Now it’s great news because we’re seeing judges grant this relief for homeowners that are looking for, they’re putting out the special assessment vote and we just can’t get people to participate. Judges are granting the authority to impose the special assessment through judicial relief. The statute tells us that the court is entitled to remove entirely the requirement to hold the meeting. They can remove the requirement that owners have to vote at the meeting. They get authorized written consents. They can change the way that we seek their approval. We can ask courts to remove the requirement to obtain votes in the first place. We can ask the court to permit the special assessment or permit the assessment increase without seeking membership approval at all. We can ask the court to remove the quorum requirements and this is probably the most common relief that we’re requesting. We want to ask the court to relieve us of the 75% voter approval threshold from ending the CCNRs, decrease the participation necessary for us to pass this amendment, decrease the threshold for us to get the special assessment passed, decrease the quorum requirements for us to approve the loan.

(26:15):
It is really helpful when we’re talking about voter apathy and that’s for the few that I’ve done. This is what I’m asking for. We’re getting the vote, we just have too much voter apathy. Take me from 67% to 50% and I have an approved special assessment. We’re getting the relief. We’re asking for the percentage of vote they can remove the percentage of vote needed for approval. So again, think declaration, amendment, think special assessments assessment increases. This is potentially an option for you. So what does this look like? What are you asking Carpenter Hazelwood to do? This is probably at least a six month process we’re asking. Typically what we’ll do is pull your board president, they’ll file a lawsuit in the superior court in their own name with no defendant in the complaint. We’ll explain the history and the need for approval. So we are giving a great narrative of, look, we’ve attempted to raise the assessments. We have X amount of dollars in the bank, we’ve got X amount of dollars in need of repair. Here’s what our reserve studies telling us. We desperately need the money and we can’t get the voter approval to do it. And as a result, the city’s sending us violation demands that we can’t address or we’re headed to complete ruin. Who knows? Insert your history.

(27:36):
The best case scenario is we have voters that support the increase every time we look at it. We’ve got majority support for the special assessment, but due to voter apathy, we just can’t get beyond the 75% voter threshold necessary to approve the special assessment. Those can be really great facts for a judge to look at and say, look, yes, I’m going to relieve your obligation of being st straddled by voter apathy. Let’s look at those for participating. So we ask for the relief, the court then sets a show cause hearing that’s probably within the first 30 to 45 days that we’re hearing. We’re in front of a judge. I have had judges at this stage order judicial relief and I don’t know if I’ve got my manager partner on this that we just went through this process, but you could certainly speak to how crazy this process looks in this context.

(28:31):
We were looking at that loan versus special assessment approval. We had a special assessment that was approved but we couldn’t get to the, it was a 75% voter threshold for the loan and we couldn’t get voter participation to approve the loan at this stage. Just after filing the complaint with no defendants, the judge ordered the relief and approved the loan to go through and we were able to synthesize everything and get it out the door. If that’s not the case, we’re going to the show cause hearing to talk to the judge about how we need to notice the community about our request for this kind of relief and the judge will set an evidentiary hearing and give us that process. So in some associations we’ve had the obligation to serve every homeowner with the lawsuit in one way or another or at least in some way providing them notice because they have an opportunity to come to that evidentiary hearing and object, Hey, the association’s feeding up lies. We’re not in dire straits. We don’t need a special assessment. This is something else that’s contributing to this problem. Everyone gets an opportunity to be heard at that evidentiary hearing at the judge’s discretion. So there typically would be that kind of notice and an opportunity to be heard before the court would execute this kind of order.

(29:50):
And as a practice tip, as we see this become more prevalent and as we see associations in need of this type of relief, if we abuse the judicial relief option, judges will become wary of granting it. And so you’ll see in the industry that lawyers are not going to be, this isn’t our first course of relief, this is the last ditch effort. We have to show that it’s impractical or impossible for the association to get the membership approval. That’s an incredibly high standard. So if you’re asking me what are my ideal fact scenarios that I want to be presented with before I take a claim for judicial relief, I’d want to see that you’ve tried multiple times, multiple attempts at the vote and it’s failed. And I think a big part of that is going to be consistency. Show me that you’ve tried the same vote multiple times.

(30:45):
This is not always the case because we see associations will propose one assessment increase and then in the next they’ll propose something different. Then in the third attempt they’ll revise it again, tying to address maybe concerns that are coming in from residents and the problem with that can be now it’s a moving target for the judge. Well is it a voting apathy issue or do we have an opposition issue? I could see it being much more difficult for a judge to grant this type of relief if we don’t have membership support. Easier for a judge to say, Hey, I’m not going to straddle the association with the inability to perform its duties simply because we don’t have members that are willing to participate at all. I could see that becoming an overcoming. We could overcome that hurdle much harder if we’ve got opposition and it’s harder for me to show voter apathy if the ball is moving and that the attempts have changed. So keep that in mind. Consistency may be key when we’re talking about trying to seek the kind of judicial relief that you might need.

Andrea Rizen (31:47):
Jonathan, there’s a question. Does the relief cover those boards who have all but one board positions vacant and does the $950 include the judicial relief process?

Jonathan Ebertshauser (31:59):
The 950 only applies to the condo insurance process. This is going to be something that’s billed hourly to the association, but it could absolutely cover. We see all the time associations that can never get quorum for the annual meetings and so we don’t have boards or we’ve got boards that have been left on the seat for a decade. You insert your facts, this could help. This is where we would go to the court and say, I need you to lower the quorum requirement, perhaps even permanently so that this association can do business. If we’ve got associations that are seeing that they can’t achieve quorum or they can’t fill their vacancies on the board and hey, I’ve got a clear restriction in my bylaws that say I have to have five members on my board of directors and there’s only three people that are ever willing to do it. And so we’re always at risk of the lawsuit saying, you are in breach of your bylaws because you failed to fill five positions. That might be a good reason for you to go to the court and ask for judicial relief. Give us the authority to amend our bylaws to lower it to three because five just doesn’t work for our community. You might have some traction there.

(33:19):
Any other questions on the judicial relief? I pause for a second so you can shoot ’em in or feel free to unmute and we can talk about your specifics.

Andrea Rizen (33:28):
If the governing documents limit the HOA increase to less than 20%, say 5%, does state statute of 20% take precedent?

Jonathan Ebertshauser (33:38):
It does not. So we’re going to look at the most restrictive between the CCNRs and the statute. In fact, when we look at the statute, it says unless the documents provide for a lower threshold, the threshold is 20%. You’ve got to go with the more restrictive of the two.

Andrea Rizen (33:54):
Okay then is the judicial process is the judicial relief process relief available only for dire situations? The HOA needs road work and we are on the path to do it in 2024, but road related maintenance costs doubled in two years. So a special assessment will be needed if original timeline for the work is to be met.

Jonathan Ebertshauser (34:17):
Yeah, it’s going to come down to judge interpretation on what’s impractical or impossible. So it’s a high standard. We’ve got to show in that scenario that we have a tremendous need for the road maintenance. We cannot fund it through the operating expenses, that the regular assessments are just simply insufficient to perform that maintenance function and that the only way to do this is through a special assessment. We’re probably going to want to go further to explain what happens if we don’t. And so we’ve certainly seen this in the context of our associations that operate as an air park. We’ve got these runways that are falling apart and the implications of a deteriorating runway are exponential, planes are crashing, there’s millions of dollars of liability, there’s traction there. We’re creating that narrative of, look, judge, if I don’t fix the roads, city of Phoenix is going to send this violation letters in perpetuity until we do.

(35:13):
If I don’t fix the road, the potholes are going to destroy the car and the lawsuits are going to be against the association for failing to maintain the roads and here we are again, we’re just purging money that could have been better spent fixing the road in the first place or insurance premiums are going to shoot through the roof. We’ve got to create that narrative to say it’s impractical or impossible that we need it. We’re trying, but we can’t get the membership support and that could be, again, voter apathy, but it may just be member misinformation. No one wants to pay more, but the reality is we might need to in order to make the business run the way it’s supposed to. And so sometimes we’ve got to remove that membership role. That’s I think a much harder burden, but I don’t think it’s impossible. We’ve certainly been successful in getting approval from judges to do that. Any other questions? Anyone want to unmute and ask their fact pattern? Perfect. I’d like to say that we’ve never seen, excuse

Seminar attendee (36:30):
Me. I put a question and it didn’t get answered actually, I had a couple of questions. One was, what is the average cost of judicial relief? Because obviously depending on the cost of the thing you’re voting on and what the cost, especially in a small community, one of the communities that I’m in charge of only has 25 members, so that weighing the cost of that versus sometimes we’ll only get six people that’ll show up for an annual meeting, but is it worth going to court to get something voted on or is it going to be astronomically expensive for 25 people?

Jonathan Ebertshauser (37:09):
Yeah, it’s hard to predict. Certainly the cost is going to get more expensive as you get larger because I imagine that the courts will require some sort of notice to go out and our goal is always to say, great, if we have to notice a community, let us do it through a mailing. We know that the mailings are known quantity. We have how judges and probably would occur in a community of 25 where they say no, you’ve got to serve them all personally. That can be very expensive and that those are costs that are outside of control, right? You’ve got to hire a third party to serve these individuals.

Seminar attendee (37:45):
It’s a

Jonathan Ebertshauser (37:45):
Little bit of a

Seminar attendee (37:46):
Changing

Jonathan Ebertshauser (37:47):
What’s that?

Seminar attendee (37:48):
Could the board serve them or could we do that? Something like that. I noticed that

Jonathan Ebertshauser (37:52):
With the, yeah, that’s what we’d be asking for. So traditionally the lawsuit would need to be served by a third party process server against the homeowners and they would have their own costs and fees associated with doing that. When we go to that order to show cause hearing, there we go. When we set that order to show cause hearing, we’re asking the judges, if you’re not willing to grant the relief based on the complaint alone and you want to set an evidentiary hearing, we’re having an open dialogue with the judge at that point on what is practical for the association to notice the membership. Who knows what that is? I mean it’s going to be different at 25 homes. It may be practical to serve by process server at a community of 10,000. It’s probably not realistic to serve them all by a process server. And so that’s where we might get a little bit more relief from the judge to say They’ll do it by certified mail, do it by regular mail. Who knows? Do it in conjunction.

Seminar attendee (38:51):
So taking the process service, how much would you estimate for the rest of the filing in Superior Court doing the summary of the complaint

Jonathan Ebertshauser (39:01):
History? Yeah, so just filing the complaint alone, I think you’re probably in the five to $7,000 range just preparing the document itself. The thing that you have to keep in mind though is the amounts go up based on how many meetings you’ve got to participate in, and so it’s a moving target of course, but if you take this down to this brass tack, you’re talking about drafting a complaint, the complaint itself is not overwhelmingly difficult. It’s this narrative and so that’s where you see a little bit of a moving target. The complaint, most complaints are probably in the five to 7,000 range

Seminar attendee (39:37):
And what percentage prevail.

Jonathan Ebertshauser (39:40):
We don’t file these very often. I think maybe in the last five years we’ve only done three, but I think we’ve been successful in all three. This has not been something, so I say this is not a new statute. This has been around for a long time. It’s that this has historically not been something that’s become a problem. That’s why we’re talking a lot about this assessment. What’s changed in 2024 is the fact that the costs are spiking and what was okay, what our reserve studies were telling us in 20 20 19 were all great things change so drastically that now we’re seeing this kind of spike where we thought we were well funded, maybe we’re not so well funded.

(40:30):
Those associations are the ones that are really going to benefit from judicial relief. Any other questions? Perfect. Okay. Yeah, and like I said, I wish I could say that difficult people were going to be a new problem for us in 2024, but I know you’ve all been dealing with difficult people, but I do want to just go over kind of a refresher on some of our options and how we deal with difficult people. It seems like people are getting angrier in homeowners associations or people are willing to file lawsuits again where in the last few years maybe they weren’t. So we’re having difficult people problems. Again, I pulled this information again from the CAAI satisfaction survey, 74,000 Americans in homeowners associations and apparently about 89% of those individuals represent that they’re at least either neutral to their association or they believe their association is good or very good. You see those two statistics in the slides and the charts to the right.

(41:47):
87% say their board serves the best interest of the community. 74% say that the manager provides value and support. 68% say that the rules of the community protect and enhance property values. I would say that we’re probably seeing a little bit of a slip. It’s only gone down 1%, but this 2022, we are seeing 89% where we’re seeing 90% support. But what is this telling us? It means that the complaints you’re receiving are the minority. The silent majority is not complaining. That’s good news. I know that this job can be very difficult and all we get inundated with unhappy calls and that frames the way we’re thinking. Keep in mind that the silent majority is not unhappy, and that’s great news. Maybe that keeps us going in 2024. So who are our difficult people? Let’s go through. We’ve got a director disruptor. These are your rogue board members. They’re not going to see it the way everyone else sees it. They take action on their own without approval. What options do you have as a board and as a management agent? We do have the authority to remove by membership vote by statute. Board trainings are always very helpful in curtailing some of this activity. Just making sure that people are aware of their liabilities and obligations. Sometimes a letter from the attorney can be helpful, maybe even enforcing some sort of code of conduct can be helpful.

(43:18):
That’s your toolbox. When we’re talking about a director disruptor, we know there can be hecklers at board meetings, not going to let your board conduct the meeting. Make sure you’re taking the course on how to hold the one hour board meeting. That’s always a great refresher on how to deal with the heckler. Keep comments to two to three minutes that’s within your authority to regulate in the board. Meetings don’t have to engage with homeowners that are causing problems. We can accept comments and move on. Maybe security helps keep people paying attention. Sometimes putting people on camera and on zoom keeps people paying attention or at least knowing that they’re being recorded, they’re going to act a little bit more cordial and then you can adjourn meetings when it seems appropriate for the board to do so, you get repetitive records. Requesters, keep in mind we’ve got 10 business days to respond to those records requests.

(44:11):
What are our solutions? Adopt your record retention policy. Make it clear from the get go what we consider an association record what we don’t and how long we’re going to keep those records. Putting association records online can be a great way to eliminate your burdens as a management agent. Now we can respond really quickly with all of the association’s records are available online. Have a great day. No need for you to scramble and try to compile those documents for them. Charging for copies can sometimes curtail that and sometimes it’s just easier to provide the records to make people happy.

(44:52):
Chronic complainers, they want answers, they want copies, they want complaints about everything. Let’s pull ’em on committees. Keep in mind that sometimes keep putting you closer to the problem, solves the problem. We can also restrict disclosures or you can send them to me and I’ll help you with your chronic complainer, the excessive emailer. One of the things that we always look to is auto reply emails, put on auto replies when you’re getting emails from specific individuals that are just chronic emailers. Don’t feel obligated as a management agent or as a board member to answer those questions via email and sometimes doing so can create one, a false representation of your willingness to engage in conversations outside of a board meeting.

(45:42):
This appreciation becomes expectation philosophy. Then two, the proper place for those kinds of questions are at the board meeting. And so the more you can direct members back to board meetings, the more we can curtail this kind of out of control spiral that emails can get us into. We’ve got the audacious auditor wants to audit all of the records they always seem to have trying to help kind of attitude whether they are or not. I’ll leave it up to you. How do we solve these problems? We remember that we have an obligation to obtain a compilation or review or an audit each year by statute. We’ve got obligations under statute to provide records to owners that are requesting. And again, this is the sometimes if you want to see it, maybe you should be on a committee so that you can get more involved and then stick to your system. Uniformity is key.

(46:40):
Then you’ve got your fighters, physical altercations. Don’t forget that law enforcement is at your call. This is a resource. We don’t want managers serving as law enforcement. Let’s call the police when the police are necessary. We may have to adopt policies on how your common areas are going to function and harassment policies for using the common areas. Levying fines might be an option under your declaration and also suspending the use of the facilities. And sometimes just calling a mediation amongst the disgruntled parties can be very helpful in navigating those problems. So take a look at your documents, understand what your remedies are and be prepared to help. This is a fun one. I always hear about the vexatious litigant, the frequent lawsuit filer. Someone who loves to litigate more than I do, they file in the A ZDE. They file in the justice courts, they file in the superior court.

(47:32):
We do have a remedy under Arizona law for fixation litigant. We can ask courts to require that an individual seek authority from a judge to file new lawsuits. Essentially what we have to show is that when it’s filed repeated meritless claims, they’ve got to lose. They’ve got to be baseless claims. And if they do that, we can stop them from filing new claims that can help your insurance policies as you move forward. Transparency might be helpful, making it clear what’s driving up insurance premiums. We’ve got Joe Schmoe and unit 1 0 2 that’s filed 57 lawsuits and every time we turn around we’re getting litigation for something we can’t do business. Sometimes it’s okay to litigate. Sometimes we’ve got to win those lawsuits to show that the association’s doing things right. And the one thing I wanted to point out, and really the reason I have this on here is that I don’t think very many associations are aware that we have a lot of creative settlement authority when we’re dealing with a lawsuit.

(48:31):
One of the things that I often talk to boards about when we’re sitting in a mediation is the idea that we could incentivize someone to sell and move out of the community and maybe we have broad enough authority under our declaration to reallocate common expenses in a way that we can, if I give you $20,000 in this settlement, would you move away and sell your home? You have no interest in being in a homeowner’s association where it constantly, it ends with each other. What does it take for you to move away? Can I buy your house? Can I incentivize the sale of your lot? What can it be? And I’ve often seen with big eyes of, oh, can we do that? Well, we might be able to. And so I want to make sure that people are aware that as you’re getting these disgruntled loan owners, creative settlement opportunities are out there. Don’t think, don’t forget to think outside the box.

Andrea Rizen (49:23):
There was a question saying what’s to prevent them from buying back in?

Jonathan Ebertshauser (49:27):
That’s something we’d put in a settlement agreement. And so I’ve done this a couple times where we say, Hey, I’m going to give you $20,000. You list your house for sale, you accept a reasonable home offer during that time. You can’t live here and you can never come back and none of your in-laws, none your relatives, none of your family members, no one can come back. We’ve got great language for that. I’ll speed through a couple of these. We’re running short on time, but don’t feed the bear. Don’t feel like you have to answer all the questions. Sometimes bring ’em in as helpful. Don’t forget you’ve got legal options. Cease and desist letters can help calm some situations. We can talk about injunctions against harassment. It can be done with or without an attorney during the time the injunctions in place. You can seek contests. It’s a homeowners can dispute the validity of the injunction. So this again, is not the path of relief, but there are nuclear options I’ll call them to help with problematic individuals.

(50:38):
And then I want to make sure we talk a little bit about short-term rentals during our last few minutes here just as a general case law update on where we stand in Arizona. Again, as most of you know, when Cal, the Supreme Court decision in Cal Way came out, there was a lot of dispute on how we were going to navigate future amendments in homeowners associations. And I think what we’ve seen overall is that the Cal Way implications have not been as broad as we probably anticipated that they would be. And we’ll see how that continues to transpire as these lawsuits are going through the court of appeals in the Supreme Court. So I want to just give you a touch on Callway always comes up when we’re talking about short-term rental amendments in your CCNRs, this idea that we’re implementing a new restriction that may not have previously been in your documents in the condo context, passing a short-term rental amendment where you do not currently have a leasing restriction is very difficult and it really more than callway, it comes down to the Arizona statute 33, 12 27 that says that condos cannot impose an amendment that increases the uses to which a unit is restricted without unanimous consent of the owners.

(51:54):
That’s a very similar concept that came out of Cal, but this is a statutory restriction. It’s much clearer. This is what judges hang their hats on. So we don’t have binding case law yet on how this will play out. You can see Judge Udall upheld a rental amendment saying that they’re not subject to unanimous consent requirements. Judge Kylie invalidated an amendment because it did not receive unanimous approval. So these are all cases where approved pursuant to the documents, but not unanimously. Judge Udall invalidated one Judge contest invalidated on the same basis that this is a use. So traditionally the question we get is, well, the uses to which a unit is restricted isn’t that single family, virtual commercial? Well that’s what we thought Judge Kylie and Judge Cones disagreed with you. This is they believe that use is a general use, not the actual property classification.

(52:52):
So this could be very broad. Judge Mahoney at the same time upheld a leasing restriction and said, no, it doesn’t require unanimous consent. 33 12 27 doesn’t apply here. So you’ve got a totally mixed bag of cases and judges that are ruling differently at the superior court level, which means you’ll see more cases in 2024 moving to this court of appeals into the Supreme Court. Maybe we’ll get some binding decisions and the planned community context that’s been happening in 2023. The planned statutes don’t contain that same restriction that we saw in the condo act. We’re just talking about callway analysis and the dream line analysis that this idea that the amendment needs to be tethered in some way to the original declaration or reasonable and foreseeable. Because of that, we’re seeing more approvals and more support from judges for short-term rental amendments approved in conformance with the governing documents rather than a requirement that they be deemed approved unanimously.

(53:56):
But you’ll see here we’ve got a judge that disagrees. Judge Ostrowski upheld an amendment without unanimous consent. It followed the procedures and the CCNRs. That decision was upheld by the Court of Appeals, which arguably creates some questions about the application of Callway. Judge Hannah again upheld an amendment that also was affirmed by the Court of Appeals, meaning the Court of Appeals against supported the amendment without unanimous consent. Judge Georgine upheld an amendment and that particular issue is on appeal right now and Judge Wallace invalidated the amendment under an ACA analysis saying that that would require unanimous consent and the court of appeals upheld that invalidation. So you’ve got a mixed bag of case law out there. We’re going to continue to see that develop. Unfortunately, in order to create the law that helps everyone. One of those court of appeals cases needs to be published and it created binding authority on the industry as a whole.

(55:00):
That just hasn’t occurred yet. So we’ll continue to see some of these discrepancies. What does that tell you as a practitioner? Well, it means that we’re not shying away from making this type of rental amendment, but we need to be aware, one, if who are judges, the case is going to be tried, and two, that we don’t know how those cases are going to come out. You’re still in a mixed bag. It’s still undecided on, we don’t have a slam dunk today to guarantee that these type of amendments will be upheld. So 2024 will be an interesting year in understanding how those things continue to develop.

Andrea Rizen (55:38):
Jonathan, we did have a question going back to the frequent filer that what about someone who files with a better business bureau because they don’t want to pay assessment increases. They’ve already answered them, but they continue to fight.

Jonathan Ebertshauser (55:52):
Yeah, unfortunately we don’t have a statute that’s going to help us stop that. That’s going to be apt to be conversations with the Better Business Bureau in addressing those claims. And our hope is at some point when we get the complaint, we always respond to it and outline how the claim is. One, we dispute that the Better Business Bureau has any jurisdiction and then we address the claim. The hope is that if we continue to do that, eventually they won’t investigate into things that individual but time will tell.

Andrea Rizen (56:27):
All right. And then with regard to the appeal decisions, can we encourage publication somehow and who makes the decision on publication

Jonathan Ebertshauser (56:39):
Goes to the Court of Appeals and certainly we do. It’s a matter of, so when you get to the court of appeals, rather than having a singular judge, you have a panel of judges and they’re meeting to make decisions about how the case should come out. Whether they publish their decision is up to them. There’s certainly conversations we have within the legal community.

Andrea Rizen (57:06):
All right. And then one more for short-term rentals. Would the city codes apply if the city doesn’t allow short-term rentals? Which ones the CCNRs or the city?

Jonathan Ebertshauser (57:17):
It could be both. They work hand in hand with one another. If you don’t have a minimum lease term, a short-term rental restriction, and the city does have some sort of enforcement mechanism, the city is going to have authority in that context. Now we’re not necessarily, what we’re seeing at the city level isn’t a restriction on short-term rentals because statutory authority that makes that difficult. What we’re seeing is more regulation on licensing and notice and maybe how many there are. The municipalities are getting more creative on how they’re going to address this problem. Those all apply. Now take me into a condo that also has a minimum lease term. Those both apply. And I guess the thing that maybe might be getting to is that, well, what if the town permits it? If they’re licensed and they meet all these criteria, but we don’t, well then the CCNRs are going to control whoever has the more restrictive is going to control in that context or they’re going to work hand in hand with one another. Any other questions? We do great on time today, right up to the hour, so perfect. Alright, I’m going to release everyone back to your days. Go make the HOA industry proud and feel free to call me if you have any questions. I’ll leave my number up here. Always available to chat. Don’t be a stranger. Thanks everyone.