Case No 07F-H067009-BFS

Complaint:
1: involves HOA purchase of a $723,000 building without member vote.
2: involves 2005 increase of Transfer Fee on property from $300 to $950 to create a discretionary fund for making major purchases, thus avoiding a special assessment and avoiding a vote of the homeowners.
3. Validity of transfer fee upon sale of property for application to purchase.

Source of Law:
Divizio v. Kewin Enterprises; declarations and bylaws.

Discussion:
The Administrative Law Judge concludes that by virtue of the Board’s authority to run the business activities of the Apache Wells, the provision in the Bylaws that Apache Wells can purchase real estate, and the credible evidence of record that Apache Wells needed to obtain additional office space and meeting rooms, it was not unreasonable for Apache Wells to purchase the Building to satisfy its business needs.

The evidentiary record reflects that the determination as to the amount of the increase of the transfer fee was arbitrarily and capriciously selected and not reasonably related to specific expenses that are anticipated. Under the circumstances, the Administrative Law Judge concludes that the increase of the transfer fee was not authorized and was not reasonable related to expense.

Holding:
[I]t is concluded that with respect to Issue 1, Apache Wells acted appropriately with respect to the purchase of the Building and no action is required of Apache Wells with respect to that issue;

It is concluded that with respect to Issue 2, Apache Wells acted arbitrarily, capriciously and unreasonably in increasing the transfer fee from $300.00 to $950.00. Therefore, the increase of the transfer fee is voided and the transfer fee shall be $300.00;

IT IS ORDERED that within forty days from the date of this Order, Apache Wells shall pay to Mr. Stromme his filing fee of $550.00.


Additional Remarks:
Other issues are not properly before me if not related to governing documents or statutes regulating planned communities or the governing documents. Issues are not related unless they are tied into the statutes or governing documents ... cannot address these issues without additional legal authority.

ALJ also advised parties that although documents were submitted as evidence, the parties must speak to the relevant parts of those documents for the record – do not assume ALJ will understand whatever point trying to be made without specifically speaking to those concerns. Homeowner basically argued that his interpretation does count, when he reads any HOA document of budget entry.

Attorneys submitted “legal memoranda”, which are their written arguments to the ALJ with supporting authorities – laws, case history, declaration, bylaws, etc. (Big dollars at stake here since assessments are being used to fund building purchase).

Important legal authority cited by homeowner was: Divizio v. Kewin Enterprises, 666 P.2d 1085 (Ariz. App. Div. 2 1983)(fiduciary duty; interpretation of covenants; CC&Rs as contract). (listed in my HOA case history file posted to website). This case held that maintenance assessments could not be used to purchase property.

In closing, HOA attorney called HOA's decision valid under the business judgment rule.

In this case, the HOA insisted that the transfer fee was not part of a general assessment or member fee, but imposed on the BUYER at closing. The homeowner attorney demanded to know how the HOA can impose a payment on the buyer who is not an HOA member? (Implication is extortion of buyer, or interference with title company duties by not allowing closing to go ahead. In reality, transfer fees must be a member obligation, and all member fees must be uniformly applied to all members. A transfer fee is transactional, applied on a case by case basis).

HOA answered that "It's widely done". HOA tells title company to collect, even though their is no legal basis for title company action -- there is no recorded lien. HOA maintained that bylaws give HOA authority to collect a transfer fee, yet provided no basis in bylaws and declarations to do so.

In cross, HOA president is asked, "What happens if the buyer refuses to pay?" He responded, "Property wouldn't go through . . . seller doesn't have qualified buyer, like with a qualified buyer under a mortgage."

Current president said the board passed such an obligation, as to a transfer fee about a year ago. Transfer fee was for a number of reasons, as a result of a budget shortage. Transfer fees benefit the community, therefore justified. "Contributions from purchasers", argued the HOA attorney, for existing amenities -- "only fair

HOA attorney repeatedly objected on the basis of “foundation”, meaning that the petitioner has no knowledge of what went on. He did not participate in the board decisions regarding declarations or in the preparation of the budget. The impression given was that the poor homeowner is not allowed to have any input or interpretation of what he receives from the HOA – he must just accept it unquestioningly and does as ordered. While the courts operate on the basis that words are to be interpreted as to their common meanings, but somehow HOA seems to be arguing that their words meant other things. Was this an attempt to discredit the witness who “is inexperienced” in HOA matters?

HOA attorney argued purchase of building within “community” to benefit the community as an administrative facility. A 15-year loan in the amount of some $600,000 was entered into. $9,000 per month, plus interest. HOA admitted payment was from general assessment funds.

Both parties represented by lawyers. HOA by Jackson of Jackson, White.


OAH File:
Files