What happens when the association fails to file for nonprofit corporation status; does not follow the Arizona open meeting law, does not hold board meetings or annual meetings, does not have an annual audit conducted, procure adequate insurance for the association or follow state laws. These issues and more plus the Top 10 Things you need to Know about Community Association Law.

1. LUNCH WITH MULCAHY
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2. Please join us in the Pledge of Allegiance

3. What are the Legal Ramifications of
Board Inaction?
Thursday, February 06, 2014

4. WHAT HAPPENS WHEN?
The association fails:
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To file for non profit corporation status
To follow the Arizona open meeting law
To hold board meetings or annual meetings
To have an annual audit conducted
To procure adequate insurance for the association
or
To follow state laws

5. Important Arizona Common Law Cases on
Enforcement of Association Documents

6. GFELLAR V. SCOTTSDALE VISTA NORTH TOWNHOMES
ASSOCIATION
Arizona Court of Appeals ruled that the
Association had a duty (and not just a right)
to enforce a restrictive covenant requiring
owners to not interfere with drainage.
 Use of “shall” vs. “may”
 If documents use the word “shall” then
enforcement is likely mandatory (“The Board
of Directors shall have the right and duty to
enforce…”)


7. JOHNSON V. POINTE COMMUNITY ASSOCIATION
Arizona Court of Appeals ruled that a Board’s
decision to not enforce a requirement to obtain
approval by the DRC/ACC for an exterior
alteration to a property can be challenged by an
owner in the Association
 Court held that the Board’s decisions are not
entitled to deference if the Board doesn’t follow
the Association’s CC&Rs in the first place. If the
CC&Rs give the Board discretion to enforce or
not enforce (“may”) then the Court will defer to
the decision of the Board.


8. THE IMPORTANCE OF MAINTAINING NONPROFIT
CORPORATE STATUS

One major benefit:
Protection of the association’s officers,
directors and members from personal liability for
the corporation’s debts and liabilities

9. WHY FILE AN ANNUAL REPORT?

Pursuant to Arizona Law (A.R.S. Section 1011622), all nonprofit corporations must prepare
and file an annual report on a form provided by the
“ACC”
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A $10.00 filing fee must be paid to the ACC each
year on or before the due date assigned

New online reminders are available

10. IMPORTANT CONTACT INFORMATION
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For the status of your corporation:
Phone (602) 542-3026
For information on filing documents:
Phone (602) 542-3135
For information about your annual report:
Phone (602) 542-3285
Corporate Records:
Phone (602) 542-3026

11. ARIZONA OPEN MEETING LAW

Pursuant to Arizona Law, all board of directors and
regularly scheduled committee meetings are
required to be open to all association members or
their representatives and held in the State of
Arizona

Members or their representatives:
 Are allowed to attend and speak at appropriate
times within reasonable time restrictions
 Must be permitted to speak before the board
takes formal action on an item under discussion

12. ARIZONA OPEN MEETING LAW
The board may close a portion of a meeting to the
members and go into executive session to
discuss:

1. Legal advice from an attorney for the board or the
association. On final resolution of any matter for which
the board received legal advice or that concerned
pending or contemplated litigation, the board may
disclose information about that matter in an open
meeting except for matters that are required to remain
confidential by the terms of a settlement agreement or
judgment;

13. ARIZONA OPEN MEETING LAW
2. Pending or contemplated litigation;
3. Personal, health or financial information about an
individual member of the association, an individual
employee of the association or an individual
employee of a contractor for the association,
including records of the association directly related to
the personal, health or financial information about an
individual member of the association, an individual
employee of the association or an individual
employee of a contractor for the association;

14. ARIZONA OPEN MEETING LAW
4. Matters relating to the job performance of,
compensation of, health records of or specific
complaints against an individual employee of the
association or an individual employee of a contractor
of the association who works under the direction of
the association; and
5. Discussion of a member's appeal of any violation
cited or penalty imposed by the association except on
request of the affected member that the meeting be
held in an open session.

15. ARIZONA OPEN MEETING LAW

Homeowners are also permitted to tape and/or
video record open board meetings

16. ANNUAL MEETINGS
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MUST be held once a year
Requirements for an annual meeting are typically
set forth in the bylaws
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Purpose of an annual meeting:
Elect directors
 Conduct other business i.e. – approval of budgets,
proposed amendments to associations documents,
etc.
 Discussion and input by members


17. ANNUAL MEETINGS: PLANNING AND EXECUTION

Establish nominating committee and solicit
candidates
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Provide notice 10-50 days in advance of meeting

Create formal tally sheets, sign-in sheets and log
mail-in ballots
Have personnel to tackle problems before they
arise: Greeter, registrar, troubleshooter, etc.


18. ANNUAL MEETINGS: PLANNING AND EXECUTION

Conduct voting in an appropriate manner:
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Establish independent “inspectors of election” to
oversee voting process and tally votes
Inspectors should not have an interest in the election
results
Ensure quorum is obtained to lawfully conduct
business

19. ANNUAL AUDIT, REVIEW, COMPILATION

The board of directors is required to conduct a
financial audit, review or compilation of the
association annually

Completed no later than 180 days (6 months) after
the end of each fiscal year

Made available to the members within 30 days of
completion

20. D & O INSURANCE

Directors and Officers Liability Coverage
(D&O)
1. Typically covers the board of directors
2. Common claims: board’s failure to adhere to
governing documents, challenges to assessments,
breach of fiduciary duty, etc.
3. Choose a policy that includes indemnity coverage
for
the cost of defending actions against the
association
and specifies that the coverage limit does not
include

21. D & O INSURANCE
4. D&O coverage typically offered to community
associations may not cover non-monetary
claims
5. Mono-line (stand alone) policy is more
expensive,
but it may cover these non-monetary claims

22. PROPERTY INSURANCE
1. Property damage claims are more common than
liability losses
2. Not uncommon for boards to set insured loss
caps
intentionally too low to reduce premiums
3. Most policies will include an automatic inflation
adjustment provision

23. PROPERTY INSURANCE
4. Community should be periodically appraised
and
reviewed to insure cost benchmarks are
reasonable
5. Add coverage for any additions made after the
existing policy was issued

24. FIDELITY INSURANCE
1. Issued in the association’s name with the
property manager obligated under association's
policy so insurance will cover a theft by the
management company principals as well as by the
property manager
2. Management company will have its own
insurance, but will typically cover the property
manager only and not a theft perpetrated by
management company’s owners

25. NOTICE OF CONTACT
Associations are required to file in the office of
the country recorder in the country in which the
association is located, a notice stating the
following:

Name of association
 Name of community
 Name of designated agent or management company
The date of the recording and the recorded instrument
number or book and page for the main document that
constitutes the declaration


26. NOTICE OF CONTACT

If an association’s address, designated agent or
management company changes, the association is
required to record a new notice with updated
information within 90 after the change

27. RECORDS REQUEST
All financial and other records of the association shall
be made reasonably available for examination by any
member or any person designated by the member in
writing as the member’s representative. Books and
records kept by or on behalf of the association and the
board may be withheld from disclosure to the extent
that the portion withheld relates to any of the following:
1. Privileged communication between an attorney for the
association and the association;
2. Pending litigation;


28. RECORDS REQUEST
3. Meeting minutes or other records of a session of an
executive session board meeting;
New legislation in 2006 entitles owners to see association
books and records pertaining to “contemplated” litigation.
An association cannot charge a member for making
books and records available for review. An association
has ten (10) business days from submittal of a request by
an owner or an owner’s designated agent to make
records available or copies of the requested records. The
association can only charge 15 cents per page for copies
of records

29. RECORDS REQUEST
4. Personal, health or financial records of an individual
member of the association, an individual employee of the
association or an individual employee of a contractor for
the association; and
5. Records relating to the job performance of,
compensation of, health records of or specific complaints
against an individual employee of the association or an
individual employee of a contractor of the association who
works under the direction of the association.

30. REMOVAL OF DIRECTORS & BOARD MEMBERS
1. Petition for Removal of Director Requirements:
a. Associations with 1,000 or fewer members: a
petition must presented to the board for removal of a
director that is signed by the number of persons who
are entitled to cast at least 25% of the vote or 100
votes, whichever is less
b. Associations with 1,000 or more members:
petition signed by 10% or 1,000 votes, whichever is
less

31. REMOVAL OF DIRECTORS & BOARD MEMBERS
2 . Special meeting: Shall be called, noticed, and held
within 30 days after receipt of the petition
3. Quorum: Will be met if at least 20% of the votes, or
1,000 votes, whichever is less, are present t the
meeting in person or as other wise permitted by law
4. Percentage required to remove director: A member
of the board can be removed from office with or
without cause by a majority vote of the members
entitled to vote

32. REMOVAL OF DIRECTORS & BOARD MEMBERS
5. Retention of Documents: The board must retain
documents related to proposed removal for at least 1
year after the special meeting and shall permit
inspection of these records by members
6. Only one removal per term: A petition for removal
of the same member of the board shall not be
submitted more than once during each term of office
for that member

33. DISPLAY OF FLAGS
An association cannot prohibit the outdoor
display of the American Flag, or an official flag of the
United States Army, Navy, Air Force, Marine Corps, Coast
Guard by a unit/lot owner on the unit/lot owner’s property
if the flag is displayed in a manner consistent with the
Federal Flag Code

Associations cannot prohibit the outdoor display of:
POW/MIA flag, Arizona State flag, Arizona Indian Nations
flag, Gadsden flag (Don’t tread on me)
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Planned communities are allowed to limit the number of
flags to two (2) and can restrict the height of a flagpole
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34. FINES AND PENALTIES
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After notice and an opportunity to be heard, an
association or board of directors may impose
reasonable monetary penalties on members for
certain violations
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Associations no longer have the right to record a
notice of lien for unpaid fines

35. FINES AND PENALTIES
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Associations can enforce payment of fines by:
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Filing a lawsuit
Obtaining judgment against owner AND
Recording judgment with the county recorder’s office
Associations can collect judgment through
garnishment of wages, rent, or a bank account

36. FOR SALE SIGNS
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An association shall not prohibit or charge a fee for
the use or placement of the indoor or outdoor
display of a “for sale” sign

37. FOR SALE SIGNS

An association or managing agent’s lien rights (as
authorized under A.R.S. Sections 33-1256/331807), will be forfeited for a period of 6 consecutive
months from the date of violation if an association
or agent violates an owners right to have the
following:
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Temporary open house or for sale signs
Open house hours, except before 8:00 AM and after
6:00 PM
For lease signs on the owners property, unless the
association’s documents prohibit or restrict leasing

38. ARIZONA LEGISLATIVE UPDATE

51st Legislature, Second Regular session

Mulcahy Law Firm, P.C. will provide a summary of
the legislative session every Monday regarding
community associations bills

Check our website’s Publications Tab and our
Legislative Blog

This week’s summary

39. Join us for Lunch with Mulcahy
March 6, 2014
Federal Laws: How Do We Comply?
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We are glad you have joined
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