Did you know homeowners associations in Arizona can foreclose on homes? This week, azcentral Rewind takes a look at Arizona’s history with HOAs and why they have so much power.
Arizona’s nearly 9,000 homeowners associations go virtually unregulated even as they hold immense power over their residents.
While they’re responsible for annoying but trivial matters such as dictating paint colors and enforcing landscaping requirements, these HOAs also manage large sums of money and can foreclose on homeowners.
Unlike other industries that operate within the confines of state or federal rules, Arizona’s HOAs operate with few checks and balances.
- The people who serve on HOA boards and make all of the community decisions — including the cost of dues and how that revenue will be spent — are homeowner volunteers who need not receive any training on finance or budgets.
- The professionals whom HOA boards hire to help manage their communities are not required to be licensed or have any specific training.
- The financial documents that detail how HOAs spend the sometimes millions of dollars they collect from homeowners each year are not publicly reported.
“Homeowners associations really are privatized government without accountability. We can control everything from what you paint your home to when you cut your yard, but we aren’t accountable to you and don’t have to respond to you,” said Phoenix lawyer Jon Dessaules, who represents homeowners in lawsuits against HOAs.
As a result, homeowners are left with little recourse when an HOA decides to take their home, or a management company embezzles hundreds of thousands of dollars intended to repair roads or replace roofs.
Some housing advocates are pushing for reforms — and more oversight. But most of their efforts have found little traction.
Stealing from homeowners
Karen Whiting, who owns community management association Method Real Estate, went to prison in mid-January for stealing more than $300,000 from four Valley HOAs she managed.
The water and electricity were almost turned off in the Gilbert Fincher Creek community Whiting was hired to manage because she hadn’t paid the bills, according to Maricopa County Superior Court documents.
Whiting pleaded guilty to theft and fraud for taking almost $21,000 from that HOA, $177,000 from Gilbert’s Greenfield Lakes HOA, $117,000 from Phoenix’s Paradise Park HOA and $2,445 from Phoenix’s Gold Key Racquet Club.
Board members from those HOAs testified about how the thefts hurt their communities, including home sales falling through and property-tax liens.
When HOA members began to suspect wrongdoing, there was no regulatory agency for them to turn to for help. Instead, members themselves researched and documented the thefts and then notified Gilbert police.
In October, federal prosecutors accused the owners of Phoenix-based Eagle Property Management of taking almost $1.3 million from several Valley homeowners associations.
Harlow White, his wife, Nancy, their daughters Rachel Ellerbrock and Kelsey Powell, and Powell’s husband, Michael Powell, were indicted on money-laundering and conspiracy charges.
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Prosecutors allege the group used funds from the HOAs it managed to pay personal bills and mortgages. Eagle Property managed 40 Valley HOAs, including the upscale Scottsdale communities Edge at Grayhawk, Skye Top at Troon and Mission de los Arroyos.
Harlow and Nancy White have a September trial date.
Kelsey Powell, Michael Powell and Rachel Ellerbrock have sentencing hearings scheduled in July, according to court records. The Powells and Ellerbrock, who face fines of up to $250,000, five years in prison and restitution, pleaded guilty to conspiracy to commit transactional money laundering.
Secrets of HOAs
More than half of Arizona residents live in an HOA community. Here is why that matters.
About half of Phoenix-area homeowners live in a community run by one of Arizona’s HOAs, according to industry estimates. There’s no way to know for sure because the state does not track them.
This lack of oversight is typical of HOAs throughout the country, according to Ron Cheung, an associate professor at Oberlin College who specializes in HOA research.
“Very, very few localities even know how many HOAs there are, and I think that is a huge problem,” Cheung said. “We’re underestimating the importance of the thing by not knowing anything about them.”
When a homeowner buys into an HOA, they agree to live by the covenants, conditions and restrictions, or CC&Rs. Those documents outline everything from required maintenance to how much a homeowner must pay the association — along with what could happen if they don’t.
Homeowners sign these documents at closing, but in the flurry of reading loan and title documents, homeowners can miss important provisions.
“Most homeowners don’t understand the foreclosure process and don’t know their HOA can foreclose,” said Arizona Real Estate Commissioner Judy Lowe.
A 2017 Arizona Republic investigation found HOAs are foreclosing on a record number of homeowners. Since 2015, HOAs have started foreclosure actions on more than 3,000 Phoenix-area homeowners at least $1,200 in unpaid HOA maintenance payments.
During the recession, many Valley homeowners owed more to their lenders than their houses were worth. Because of the negative equity, investors had no incentive to buy foreclosed properties, and the HOAs let the debts ride.
As home prices rebounded, investor interest returned and HOAs began to use foreclosure to collect debts more aggressively.
Lowe’s department offers an arbitration process for disputes between homeowners and HOAs, but it doesn’t have jurisdiction over HOA foreclosures.
“Community Associations are private entities,” said Mark Stapp, director of the Master of Real Estate Development program at Arizona State University. “Government can’t come in and tell them what to do, but is that a good thing for homeowners?”
No license required
Real-estate agents must complete 90 hours of classes and pass a test to sell homes in Arizona. Mortgage loan officers must have 20 hours of education and pass a criminal background check.
Contractors are required to take a test and post a bond. Property managers of rental homes must have a real-estate license.
Homeowners fighting with HOAs are often shocked to learn there’s no one overseeing their community association’s actions.
HOA board membersgenerally have no experience at running a community and rely on management companies to collect and manage fees, fine homeowners and foreclose on them when they don’t pay.
But management companies aren’t regulated, and community managers aren’t required to take training or education classes like real-estate agents.
“I couldn’t believe there was nowhere for me to go for help,” said Marie De Sanna, who has been fighting her Chandler HOA for a few years over its move to foreclose on her for late payments. “My HOA sued me, didn’t respond my requests for information or even update my account when I caught up on payments.”
She said her only option was to hire an attorney, often a difficult financial move for homeowners already struggling to make HOA payments or pay fines.
HOAs regulating themselves
Arizona’s largest group of community managers believes they can do a better job of regulating themselves than the state.
The Arizona Association of Community Managers offers a training program with classes and certification for managers.
Linda Lang, executive director of AACM, said some communities only will hire community managers with their certification.
AACM can, and has, revoked certification when managers violate the association’s code of ethics, which prohibits bad financial practices like commingling funds and requires community managers to act in the best interest of associations.
Many managers seek out the certification, but it is not a requirement to be hired to manage a community in Arizona.
About 60 percent of community managers are members of the group.
“Although there is great concern over no oversight for HOAs, not much can be done without the governor’s help,” said Susan Sweetow, founder of the Southwestern School of Real Estate and author of the book “Arizona HOAs and All That Jazz.” “Licensing for HOA managers would be a great start in protecting the associations.”
But most HOA community managers don’t think they should be regulated like real-estate agents.
Nick Ferre, a vice president with Community Association Management in Phoenix, said community managers don’t close sales or sign lease like real-estate agents or property managers, so they shouldn’t be regulated the same way.
“We don’t have control of HOA boards,”he said. “It is up the board members to manage the community association and prevent any wrongdoing like embezzlement.”
Fincher Creek homeowner Cindy Butters went to her first HOA meeting in early 2015 and only two people were there. She was appointed to the board that night, and within a few months the HOA’s manager, Whiting, had stolen the community’s last $7,000.
“I never would have gone to an HOA meeting, but Whiting kept telling me she would fix a security light by my house and then wouldn’t do it,” Butters said. “When I walked into the meeting, I could feel something was wrong right away.”
Butters eventually become president of the HOA and spent the following 18 months acting as an unpaid forensic accountant, trying to track where her community association’s money had gone. She found checks Whiting had written to casinos out of the account.
Butters also found through her accounting research that Whiting had taken money from three other Valley HOAs and alerted those boards.
The police found that most of the money Whiting took went to gambling. Her Gila River Casinos players card showed Whiting gambled nearly $380,000 between 2013 and 2015, according to court documents.
Gary Haenel had a similar story.
He took on the presidency of his HOA board at Paradise Parks when two other board members resigned in 2014.
A year later, Whiting was a no-show at the community’s annual meeting. A few days later, it was clear she had cleaned more than $117,000 out of Paradise Parks HOA accounts.
“I didn’t hire Whiting, a previous board did,” Haenel said. “We have a lot of other senior citizens in our community, and it was devastating what she did to our community.”
He was there for her sentencing in early January.
“The judge told her she had choices, and she still stole the money,” he said. “She left a lot of victims.”
Efforts to force oversight
The Arizona Homeowners Coalition sprouted a few years ago from a group of homeowners irked with their HOAs.
The group educates homeowners about their rights and spends most of its spring at the state Capitol, lobbying legislators to increase protection for owners and fighting bills they believe would hurt people living in HOAs.
Dennis Legere, lobbyist for the coalition, said pursuing licensing for community managers is the Legislature’s “token effort to try to do something” about HOA complaints.
It comes up — and then fails — almost every year but has yet to be introduced this session.
He said there are some legitimate reasons why managers should be licensed — “they manage a lot of money” — but he said it’s not the most effective way to root out bad-acting HOAs and community managers.
“It won’t help homeowners,” Legere said. “If it doesn’t help homeowners, it just adds more bureaucracy to a system that’s already filled with bureaucracy.”
Plus, Gov. Doug Ducey has made it clear that he won’t support licensing, he said. Last April, Ducey said in a veto letter that his administration would not be in the business of regulating homeowner associations.
Instead, the coalition is fighting for increased financial disclosure and foreclosure protections.
One of the bills Legere is pushing, but has yet to find a sponsor for, would require HOAs to disclose financial documents, including their balance sheets with expenses and losses, to interested buyers before they enter the contract to buy the property.
“The current legislation stipulates that the only time homebuyers are required to be provided any information on associations … is after they’ve already signed the contract to buy the house. That’s just fundamentally wrong,” Legere said.
Sen. John Kavanagh, R-Fountain Hills, initially agreed to sponsor the disclosure bill but backed out before the legislative session began.
In an interview with The Arizona Republic, Kavanagh said he realized the bill would have been too burdensome on HOAs.
He said it would force HOAs to produce documents every time a potential buyer “nibbles,” which could become expensive to the association.
Rep. Paul Mosley, R- Lake Havasu, introduced a bill that would clarify the HOA foreclosure process and make it more difficult for HOAs to take people’s homes.
The bill would only allow HOAs to foreclose on missed assessments — not the attorneys fees that usually get rolled into a homeowner’s total debt. It also would require HOAs to accept partial payments on the debt, as opposed to mandating a homeowner pay off the total amount owed all at once.
Legere said the bill could effectively end HOA foreclosures and force HOAs to work with homeowners instead of immediately seeking foreclosure.
Protections from foreclosure
The advocacy group is also pushing for legislation that would clarify the HOA-initiated foreclosure process and add protections for homeowners.
Real-estate attorney Diane Drain, who fought against unethical and illegal Arizona foreclosures during the housing crash, said there should be legislation to force HOAs to make the foreclosure process clearer to homeowners.
“All we need is one sheet with big letters saying that their HOA can foreclose if they miss $1,200 in payments that homebuyers must sign,” she said.
But so far the only HOA bill that’s gotten any traction at the Legislature would have actually made it easier for HOAs to foreclose, allowing associations to start the process after six months with no minimum debt.
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Currently, an HOA can only foreclose after one year of missed payments or if a homeowner accumulates a $1,200 debt, whichever comes first.
Kavanagh, who sponsored the bill, eventually withdrew it after a barrage of media coverage and backlash.
He said he believes his bill would have actually helped homeowners, because those with dues of more than $200 per month would have been granted more time before a foreclosure.
“My bill was going to give people with moderate to high assessments … six months to get their act together,” Kavanagh said.
Where can homeowners turn?
Homeowners can pay $500 to file complaints against their HOA with the Arizona Department of Real Estate. The state agency handles an arbitration process and can recommend cases for administrative hearings.
Administrative law judges hear arguments and review the community’s governing documents and then decide if a homeowner or the HOA board violated the CC&Rs.
Disputes heard through the hearing process in the past include:
- What maintenance an HOA is required to perform.
- Whether an HOA can remove someone as president of a community pickle ball club.
- Alleged mishandling of HOA board elections.
Homeowner complaints against HOAs were up 30 percent last year, according to the agency.
Criminal cases like HOA managers embezzling from communities are handled by police and prosecutors.
Butters and another Fincher Creek HOA board member called the Gilbert police to report Whiting’s theft and then turned over their investigation to them.
“We had nowhere to go for help. There are no government agencies handling HOAs,” said Butters. “We could barely afford to hire a lawyer, but we had to.”
Woman about to lose home to foreclosure | 2:03
Cynthia Levine is faced with losing her Maricopa home to foreclosure. After losing her business and getting behind in HOA payments, foreclosure proceedings started. She talks about her ordeal outside her home May 3, 2017. Tom Tingle/azcentral.com
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Lawyer represents homeowners facing foreclosure from HOA | 2:05
Attorney Jonathan Dessaules represents homeowners facing foreclosure from a homeowners association. He talks about how there has been an uptick in foreclosures based on unpaid HOA fees. Tom Tingle/azcentral.com
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Problems with HOA nearly lead to foreclosure | 1:11
Marie De Sanna talks about problems she experienced with her HOA, at her Chandler home on May 26, 2017.
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HOA foreclosure auction in Phoenix | 1:35
Homeowners associations in Arizona can foreclose on a home after one year of missed payments or $1,200.
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Woman about to lose home to foreclosure
Lawyer represents homeowners facing foreclosure from HOA
Problems with HOA nearly lead to foreclosure
HOA foreclosure auction in Phoenix
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