Homeowner Associations and Recorded Documents
A.R.S. § 33-420 provides a special cause of action for an owner (or beneficial title holder) of real property in the event that another person records a false or groundless claim against that property. Pursuant to A.R.S. § 33-420(A), “[a] person purporting to claim an interest in, or a lien or encumbrance against, real property, who causes a document asserting such claim to be recorded in the office of county recorder, knowing or having reason to know that the document is forged, groundless, contains a material misstatement or false claim or is otherwise invalid is liable to the owner or beneficial title holder of the real property for the sum of not less than five thousand dollars, or for treble the actual damages caused by the recording, whichever is greater, and reasonable attorney fees and costs of the action.” The owner (or beneficial title holder) can subsequently bring a special action to clear title to the property. See A.R.S. § 33-420(B).
Additionally, the owner (or beneficial title holder) can have a cause of action against anyone named in a document claiming a false or groundless claim against the property if that person knows of the invalidity and willfully refuses to release the claim within twenty (20) days from the date of a written request to do so. The named person can be responsible for statutory damages in the amount of one thousand dollars ($1,000.00) or treble actual damages, whichever is greater, and reasonable attorneys’ fees and costs. See A.R.S. § 33-420(C). If you are a director or officer of a homeowner association that is requested to sign a lien or, as discussed below, a notice of lis pendens, you should be sure that the lien, encumbrance or interest is merited and accurate to limit your own personal liability for the recording.
Finally, if a person does claim an interest in or lien or encumbrance against real property and knows or has reason to know that the claim is false, groundless, invalid, etc., that person is guilty of a class 1 misdemeanor. See A.R.S. § 33-420(E).
Homeowner Association Assessment Liens
The most common potential pitfall for homeowner associations with respect to A.R.S. § 33-420 is in the recording of assessment liens. Planned communities and condominiums both have statutory authority to record a lien against a property for assessments. See A.R.S. § 33-1807 and § 33-1256, respectively. The homeowner association can foreclose on its lien for assessments and for late fees, reasonable collection fees and attorneys’ fees and costs incurred in the collection of assessments in the same manner as a mortgage, provided that certain statutory conditions are met. Specifically, the homeowner must be at least one year or twelve hundred dollars ($1,200.00) delinquent in the payment of assessments.
Homeowner associations need to exercise great care before recording an assessment lien. First, the homeowner association must ensure that its accounting is accurate and that payments are first applied to unpaid assessments and then late fees, collection fees and attorneys’ fees and costs, in that order. See A.R.S. § 33-1807(K) and § 33-1256(K). The homeowner association may then apply any remaining proceeds to fines and other fees and charges. Because the homeowner association does not have a statutory lien for fines for violation of the homeowner association’s governing documents, it is critical that the homeowner association does not attempt to apply payments first to fines and then to assessments to preserve their statutory assessment lien. That is to say, if the assessments are current, but there are outstanding fines, the association cannot lump all of the funds together and record an assessment lien, claiming that assessments are owed. Further, the homeowner association must ensure that the accounting of past-due assessments is accurate to avoid potential liability under A.R.S. § 33-420.
Amendments to CC&Rs
Recently, the Arizona Court of Appeals, Division 1, addressed the issue of whether an invalid amendment to a homeowner association’s CC&Rs provided a homeowner with a cause of action under A.R.S. § 33-420. See Rensel v. Pinnacle Homeowners’ Association, 2009 WL 251139 (App. 2009) (unpublished decision). The Court refused to extend A.R.S. § 33-420 to amendments to CC&Rs, holding that these amendments are not an interest in or encumbrance against real property. Id. at ¶ 12-20. The Court further recognized that an invalid amendment is void and ineffective.
Although this is an unpublished decision that generally cannot be cited as precedent, it appears that the Arizona Court of Appeals has determined that a homeowner does not have a meritorious claim for relief under A.R.S. § 33-420 related to the improper or invalid amendment of a homeowner association’s CC&Rs.
Notice of Lis Pendens
Notices of lis pendens are common recordings in cases in which the title to real property is affected. In short, these notices provide potential purchasers with notice of pending litigation that may impact the title to real property. Notices of lis pendens are authorized by Arizona Statute. See A.R.S. § 12-1191.
Recently, the Arizona Court of Appeals, Division 1, addressed the propriety of a homeowner association’s filing of a notice of lis pendens in a case in which the association sought injunctive relief against a homeowner for violation of the association’s governing documents. See Santa Fe Ridge Homeowners’ Association v. Bartschi, 219 Ariz. 291, 199 P.3d 646 (App. 2008). The Court held that where the homeowner association was not seeking to expand, restrict or burden the rights of a homeowner, but simply to require the homeowner to do something that she was required to do pursuant to the CC&Rs, the filing of a notice of lis pendens was not proper. The CC&Rs, which were already recorded, served to place a prospective purchaser on notice of certain restrictions. The Court affirmed the trial court’s judgment in favor of the homeowner pursuant to A.R.S. § 33-420.
Although notices of lis pendens and assessment liens can be helpful tools in protecting the interests of a homeowner association, great care must be exercised in recording these documents. Homeowner associations are well-advised to obtain the advice of legal counsel prior to proceeding with such a recording. Further, homeowners who have been the victim of an improper recording may have a cause of action against the recording party.
This article is not intended to be specific legal advice. It only provides general legal information. You should consult an Arizona licensed attorney if you have a legal issue. The Bainbridge Law Firm, L.L.C., is experienced in this area of law and are available for consultation. You may contact our Phoenix office at 602-902-1930.