Homeowners upset at HOA for spending more than $167K in legal fees

Gilbert, Ariz. (KPHO/Gray News) - Anh Jung spends a lot of time making her backyard beautiful.

But says she only wishes her homeowners’ association would make the same investment in keeping up her community, especially with what they’re paying in dues.

“You see faded paint, missing signs, graffiti, all these outdated things that needed to be done, but yet we’re not doing it,” Jung said.

Jung is one of several homeowners in Gilbert’s Power Ranch Community who sat down with Arizona’s Family to discuss their concerns about how their homeowners’ association operates.

“We should know where our dollars are going,” homeowner Kristi Kisler said. “We should know if they are going to raise rates and why they are raising those HOA fees. It shouldn’t be, oh well, we have to raise it 20% this year.”

Arizona’s Family reports that Power Ranch spent more than $167,268 in legal fees last year.

That’s six times more than what was budgeted for legal expenses.

“I didn’t hear any of this until February of this year,” homeowner James Quinn said. “My first thought was what the heck is going on here?”

The reason Power Ranch is spending so much money on legal fees is because of a lawsuit the HOA filed in January 2023 against a development in the Power Ranch Community called Woodcrest East.

The developer, Bela Flor, had purchased the land off Germann Road and Ranch House Pkwy in 2019 with plans on building and selling 120 luxury condominiums.

Then COVID-19 hit, and Bela Flor decided it made more financial sense to rent out the condos instead, prompting the lawsuit.

Bela Flor has since filed a $13 million counterclaim, leaving many of the 4,000-plus Power Ranch homeowners wondering when the legal battle will end, how much more it will cost them, and what they stand to gain from all the litigation.

“I do think there needs to be a lot more financial accountability on where the money is going and how it’s being spent,” Kisler said. “Endless lawsuits, I don’t think is where most residents want that money to go.”

Arizona’s Family reached out to the law firm representing Power Ranch, Carpenter, Hazlewood, Delgado and Bolen, and have made countless requests to do an interview with an attorney, or Power Ranch Board member, but nobody agreed to speak on camera.

However, the board did respond to a number of questions in writing.

• Why was the decision made to file a lawsuit against Woodcrest East LLC last year?

This Developer stated he planned to own all the Dwelling Units and rent them all out. In other words, they wanted to operate as if they were an apartment complex. However, the Tract Declaration and the Power Ranch Master Declaration did not and does not allow an apartment on this piece of property. Rather, they require a condominium. The Association requested the Developer follow the Tract Declaration and Master Declaration.

• Why weren’t homeowners notified about the lawsuit and potential cost when it was filed?

The board discussed the lawsuit in a closed executive session. After carefully reviewing the facts, the Board voted unanimously to proceed. After the counterclaim was filed on February 22, 2023 the lawsuit was verbally presented at the March 27, 2023 open session. It has been since communicated on several occasions.

• Why weren’t homeowners notified about the $13 million counter-lawsuit?

The Counterclaim is a matter of public record and has been discussed at multiple meetings.

• Power Ranch HOA dues have gone up 11% in 2023 and another 12% in 2024. Were these increases necessary because of all the money being spent on legal fees?

Butler Hansen, which is a third-party CPA firm that handles the Power Ranch audits, presented an inflation impact presentation to the Power Ranch community on February 13, 2024. Part of this presentation discussed consumer price index (CPI) rates for the Phoenix market since 2019 (see chart below). In summary, the cost of all goods and services have increased almost 30%. Power Ranch is dealing with the same cost increases that all other community associations have been dealing with over the last five years.

The 2023 budget was approved at the September 26, 2022 meeting. The assessment increase for 2023 was increased by 11% due to major items such as utilities, insurance, contracted services, onsite services, and an increase to the reserve contribution as recommended by the reserve study. The assessment for 2024 increased by 12% to keep up with inflation for major items such as utilities, insurance, contracted services, and landscape contract. This was not due to the money being spent on legal fees.

Power Ranch’s reserves have not dropped below 30% funded. Over the last several years the Board, with the assistance of the Budget and Finance Committee, has been increasing the contribution to the reserves knowing that inflation and costs of goods and services have increased.

As outlined below, those increases have impacted the reserve balances favorably. The numbers below are the percent funded balances at the start of each year indicated. 2021: 58%; 2022: 65%; 2023: 73%; 2024: 85%.

• What is the current status of the two lawsuits? Is there any chance of a settlement?

The two active legal proceedings are currently pending and set for hearings within the next month, however, it takes both sides to reach a settlement. The Association has made significant efforts to resolve both cases. With respect to Woodcrest East, both sides agreed to mediation, and the Developer did not move from his stated position during that meeting.

With respect to the homeowner generated ALJ (Administrative Law Judge) complaint, the Association offered to approve the modification that is the subject of the ALJ complaint. However, the homeowner refused to dismiss the case and is causing the Association to incur further time and expense litigating the matter. Nevertheless, the Association is willing to settle both cases and is hopeful the other parties will do so in good faith.

• Is this legal battle worth all the money spent on legal fees so far?

At what point is it enough and time to settle? Upholding the integrity of the Declaration is important for the community. To date, the only offer made by the Developer is one that would allow them to operate like an apartment. This would negatively impact the Association financially.

• Is there a chance this lawsuit will drain all of the community funds?

Litigation is always unpredictable for all sides. However, in order to mitigate the risk of the Developer claiming damages, the Association has not stopped the Developer from building and has offered to hold off on enforcing the Declaration until this case is over. Thus, the Developer will be able to operate by owning all the Dwelling Units and renting them all out unless and until a Court rules that they do not have a legal right to do so.

• Are there any plans to provide an update to homeowners about the current financial situation of the community… and why so much money has been spent on legal fees?

There are multiple ways that homeowners are updated about the current financial situation in the community. • The community’s financial statements can be viewed by homeowners at any time by logging into the Power Ranch website. • Residents are advised of the monthly board meetings where they can attend and hear the monthly board treasurer’s reports pertaining to the association finances. •

The Finance Committee Chair reviews monthly financials and the Finance Committee discusses financials and budgets at their open meetings. • At the Annual Meeting each year, a recap of the prior year’s financial summary is shared. • Earlier this year, a Financial Town Hall was held where the third-party auditor, Paul Hansen, CPA from Butler Hansen, discussed the community’s financial state. Legal expenditures were for ongoing matters and matters that have concluded. We are unable to disclose specifics of concluded matters due to non-disclosure settlement agreements.

Karl Huish, managing director with Bela Flor, said there is nothing in Arizona law that prevents them from renting out their condos, and nothing in the community rules or CC&Rs for Power Ranch or Woodcrest East prevents it either.

“I am perplexed by this litigation,” Huish said. “It doesn’t make sense. In over a year of litigation, it’s never been pointed out to me what we are in violation of or what we are doing wrong. The law in Arizona is very clear that condominiums can be sold or they can be rented unless there is a specific prohibition found in CC&Rs — there is none.”

According to state statute 33-1260.01, “a unit owner may use the unit owner’s unit as a rental property unless prohibited in the declaration and shall use it in accordance with the declaration’s rental time period restrictions.”

Huish said when they purchased the vacant lot, which had sat vacant for more than a dozen years, it was clearly zoned for condominiums, and nothing has changed that, even if the Power Ranch Board wants to call them apartments.

The developer has been meeting with Power Ranch homeowners, hoping to ease any concerns they might have about the project.

Construction is 65% complete and the first units are expected to be rented out in August.

Huish does not believe Power Ranch can legally stop him from renting out the condos.

In his opinion, the drawn-out lawsuits are doing nothing but costing homeowners and his company a lot of money.

“We’re pretty deep in, how much deeper can we go?” homeowner Ryan Meeks said. “So I don’t know if it will be another $300,000 in legal fees, we don’t know when it will end.”

He added, “We would rather take that money and make these condominiums even more luxurious, but instead we are having to use the money to pay lawyers to fight this, what I consider very unnecessary litigation.”

Arizona’s Family reports that homeowners in Power Ranch pay significantly more for HOA dues compared to renters.

The board claims that by allowing the units to be rented out it would result in an annual loss of more $125,000 to the association every year.

A resolution may depend on whether the courts consider the 120 units in Woodcrest East to be condominiums or apartments.

The Power Ranch HOA Board claims they are apartments and are not allowed in the community.

Huish insists they are condos that can legally be rented out like many others across the state.

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