Case Summary
| Case ID | 20F-H2020054-REL |
|---|---|
| Agency | ADRE |
| Tribunal | OAH |
| Decision Date | 2020-07-30 |
| Administrative Law Judge | Tammy L. Eigenheer |
| Outcome | loss |
| Filing Fees Refunded | $0.00 |
| Civil Penalties | $0.00 |
Parties & Counsel
| Petitioner | Jean Williams | Counsel | — |
|---|---|---|---|
| Respondent | Surprise Farms II Community Association | Counsel | Nick Nogami |
Alleged Violations
A.R.S. § 33-1803; CC&Rs Article VII, Section 7.2 and 7.4(a)-(c)
Outcome Summary
Petitioner failed to prove the HOA violated A.R.S. § 33-1803(A) or the CC&Rs by increasing the Annual Assessment by 20% without a vote, as the increase remained below the Maximum Annual Assessment and complied with the statutory 20% cap.
Why this result: Petitioner’s assertion was based on an erroneous reading of the CC&Rs, confusing the maximum automatic increase of the Maximum Annual Assessment (10%) with the limit on the actual Annual Assessment increase.
Key Issues & Findings
Whether the 20% increase in the Annual Assessment effective April 2020 violated statutory limits or CC&R requirements for member approval.
Petitioner alleged the Respondent HOA violated A.R.S. § 33-1803 and the CC&Rs by increasing the Annual Assessment by 20% (from $720 to $864) effective April 2020 without obtaining a 2/3 majority vote of the members.
Orders: Petitioner’s petition is dismissed.
Filing fee: $0.00, Fee refunded: No
Disposition: respondent_win
- A.R.S. § 33-1803(A)
- CC&Rs Article VII, Section 7.2
- CC&Rs Article VII, Section 7.4
Analytics Highlights
- A.R.S. § 33-1803(A)
- CC&Rs Article VII, Section 7.2
- CC&Rs Article VII, Section 7.4
Video Overview
Audio Overview
Decision Documents
20F-H2020054-REL Decision – 810957.pdf
Briefing on Administrative Law Judge Decision: Williams v. Surprise Farms II Community Association
Executive Summary
This briefing analyzes the Administrative Law Judge (ALJ) decision in case number 20F-H2020054-REL, where petitioner Jean Williams alleged that the Surprise Farms II Community Association improperly increased annual homeowner assessments. The ALJ dismissed the petition, concluding that the Association acted within its authority as defined by both its Covenants, Conditions, and Restrictions (CC&Rs) and Arizona state law.
The central finding of the case is that the petitioner erroneously interpreted the CC&Rs by confusing the “Annual Assessment” (the actual amount charged to homeowners) with the “Maximum Annual Assessment” (a calculated upper limit). The ALJ determined that the Association’s 20% increase in the Annual Assessment for 2020 was permissible because:
1. It did not exceed the 20% year-over-year cap allowed by Arizona Revised Statutes (A.R.S.) § 33-1803(A) without a member vote.
2. The resulting assessment of $864 was significantly below the $2,426 Maximum Annual Assessment permitted for 2020 under the community’s own CC&Rs.
Ultimately, the decision affirms the Board’s discretion to set the Annual Assessment, provided it stays within the dual constraints of the state’s percentage increase limit and the community’s own calculated maximum charge.
Case Overview
• Case Number: 20F-H2020054-REL
• Parties:
◦ Petitioner: Jean Williams
◦ Respondent: Surprise Farms II Community Association
• Administrative Law Judge: Tammy L. Eigenheer
• Hearing Date: July 10, 2020
• Decision Date: July 30, 2020
• Nature of Dispute: The petitioner contested the validity of a 20% increase in the annual homeowners association assessment implemented in April 2020, arguing it required a member vote.
Petitioner’s Allegations
Jean Williams filed a petition with the Arizona Department of Real Estate on March 31, 2020, alleging that the Surprise Farms II Community Association violated its governing documents and state law.
• Core Allegation: The Association illegally increased the “Maximum Monthly Assessment” by 20% without the approval of a two-thirds majority of association members.
• Cited Violations:
◦ A.R.S. § 33-1803: The statute governing assessment increases.
◦ CC&Rs Article VII, Sections 7.2 and 7.4(a)-(c): The sections of the community’s governing documents that outline assessment rules.
• Petitioner’s Argument: Williams contended that the Association’s CC&Rs limited any annual assessment increase to 10% unless a vote was held. She argued that the Association’s justification for the 20% increase, which cited A.R.S. § 33-1803, was a direct violation of the community’s covenants.
Respondent’s Position and Stipulated Facts
The Surprise Farms II Community Association denied all of the petitioner’s complaints. At the hearing, the Association did not present witnesses and relied on its legal argument. The respondent stipulated to the key facts regarding the assessment increases:
• April 2019 Increase: The Annual Assessment increased from $660.00 to $720.00 per year, a 9% increase, without a vote of the members.
• April 2020 Increase: The Annual Assessment increased from $720.00 to $864.00 per year, a 20% increase, without a vote of the members.
Governing Rules and Document Analysis
The ALJ’s decision rested on a detailed interpretation of state law and two distinct concepts within the Association’s CC&Rs: the “Annual Assessment” and the “Maximum Annual Assessment.”
Arizona Revised Statutes (A.R.S.) § 33-1803(A)
This state law establishes a default cap on assessment increases. It states that an association “shall not impose a regular assessment that is more than twenty percent greater than the immediately preceding fiscal year’s assessment without the approval of the majority of the members,” unless the community’s own documents impose an even lower limit.
CC&Rs Article VII: Key Definitions
The case hinged on the distinction between two terms defined in the CC&Rs:
1. Maximum Annual Assessment (Section 7.4): This section defines a ceiling for how much the Board could charge.
◦ It began at $480 in the first year.
◦ Crucially, this maximum automatically increases by up to 10% each year without a member vote.
◦ To raise the Maximum Annual Assessment above this automatic 10% annual increase, a two-thirds vote of members is required.
2. Annual Assessment (Section 7.2): This section defines the actual charge levied against each property.
◦ The Board has “sole discretion” to set this amount each year.
◦ The only limitation is that the Annual Assessment must be less than or equal to the “Maximum Annual Assessment” calculated under Section 7.4.
Administrative Law Judge’s Findings and Conclusion
The ALJ concluded that the petitioner failed to prove by a preponderance of the evidence that the Association violated the CC&Rs or state law. The decision was based on the following key points of analysis:
Erroneous Reading of the CC&Rs
The ALJ found the petitioner’s entire argument was “predicated on her erroneous reading of Article VII, Section 7.4 of the CC&Rs.” The petitioner incorrectly believed the 10% automatic increase to the Maximum Annual Assessment was a cap on the Annual Assessment itself.
The decision explicitly clarifies this distinction:
“Petitioner repeatedly asserted that an increase in the Annual Assessment was limited to ten percent in any given year unless approved by a vote of the members even though Article VII, Section 7.4 was entitled Maximum Annual Assessment and consistently referenced the same. By definition, the existence of a Maximum Annual Assessment necessitates an Annual Assessment that may be less than the maximum.”
Calculation of the Maximum Annual Assessment
The ALJ used the CC&Rs’ formula (a 10% cumulative increase per year since 2003) to calculate the authorized Maximum Annual Assessment for each year. This demonstrated the significant gap between what the Association could charge and what it actually charged.
Maximum Annual Assessment
$480.00
$528.00
$580.80
$638.88
$702.76
$773.03
$850.33
$935.36
$1,028.89
$1,131.77
$1,244.94
$1,369.43
$1,369.43
$1,657.00
$1,822.70
$2,004.97
$2,205.46
$2,426.00
Legality of the 2020 Assessment Increase
The ALJ determined the Association’s 2020 increase was compliant with all rules for two reasons:
1. Compliance with State Law: The increase from $720 to $864 was exactly 20%, which is the maximum allowed under A.R.S. § 33-1803(A) without a member vote.
2. Compliance with CC&Rs: The new Annual Assessment of $864 was substantially lower than the calculated Maximum Annual Assessment of $2,426 allowed for 2020.
The Board therefore acted within its “sole discretion” as granted by Section 7.2 of the CC&Rs.
Final Order
Based on the finding that the Association acted properly, IT IS ORDERED that Petitioner’s petition is dismissed. The decision is binding unless a rehearing is requested within 30 days of the order.
Study Guide: Williams v. Surprise Farms II Community Association
This study guide provides a review of the Administrative Law Judge Decision in case number 20F-H2020054-REL, Jean Williams v. Surprise Farms II Community Association. It includes a short-answer quiz, an answer key, suggested essay questions, and a glossary of key terms to facilitate a comprehensive understanding of the case.
Short-Answer Quiz
Answer the following questions in 2-3 complete sentences, based on the provided legal decision.
1. Who were the primary parties involved in this case, and what were their respective roles?
2. What was the central allegation Jean Williams made against the Surprise Farms II Community Association in her petition?
3. What was the specific percentage and dollar amount of the Annual Assessment increase that took effect in April 2020, and was it approved by a vote of the members?
4. According to the decision, which two governing documents did the Petitioner allege the Respondent had violated?
5. What limitation does Arizona Revised Statute (A.R.S.) § 33-1803(A) place on an association’s ability to raise regular assessments?
6. How did the community’s CC&Rs define the relationship between the “Annual Assessment” set by the Board and the “Maximum Annual Assessment”?
7. What was the calculated “Maximum Annual Assessment” for the year 2020, according to the automatic increase formula in the CC&Rs?
8. According to the Administrative Law Judge, what was the petitioner’s fundamental misunderstanding of Article VII, Section 7.4 of the CC&Rs?
9. Who bore the “burden of proof” in this case, and what legal standard was required to meet it?
10. What was the final order issued by the Administrative Law Judge, and on what date was the decision made?
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Quiz Answer Key
1. The primary parties were Jean Williams, who was the Petitioner appearing on her own behalf, and the Surprise Farms II Community Association, which was the Respondent represented by Nick Nogami. The case was adjudicated by Administrative Law Judge Tammy L. Eigenheer.
2. The petitioner alleged that the association improperly increased the Maximum Monthly Assessment by 20% without the required approval from a two-thirds majority of the association members. She claimed this action violated the community’s CC&Rs and that the association incorrectly used A.R.S. § 33-1803 to justify the increase.
3. Effective April 2020, the Annual Assessment increased by twenty percent, from $720.00 per year to $864.00 per year. The respondent stipulated that this increase occurred without any vote of the members.
4. The Petitioner alleged that the Respondent had violated the provisions of A.R.S. § 33-1803 and specific sections of the association’s governing documents: Article VII, Section 7.2 and 7.4(a)-(c) of the Covenants, Conditions, and Restrictions (CC&Rs).
5. A.R.S. § 33-1803(A) states that an association cannot impose a regular assessment that is more than twenty percent greater than the previous fiscal year’s assessment without the approval of a majority of the members. This limit applies unless the community’s own documents impose an even lower limit.
6. Article VII, Section 7.2 of the CC&Rs granted the Board sole discretion to set the Annual Assessment. This discretion was limited by the provision that the amount must be subject to, and therefore less than or equal to, the “Maximum Annual Assessment” as calculated under Section 7.4.
7. Using the annual ten percent increase formula set forth in Article VII, Section 7.4 of the CC&Rs, the calculated Maximum Annual Assessment for the year 2020 was $2,426.00.
8. The judge concluded that the petitioner’s case was predicated on her erroneous reading of the CC&Rs. She incorrectly believed the 10% figure in Section 7.4 applied to the Annual Assessment itself, when in fact it was the automatic escalator for the Maximum Annual Assessment, which served as a ceiling for the board’s discretion.
9. The Petitioner, Jean Williams, bore the burden of proof in this proceeding. She was required to prove her allegations by a “preponderance of the evidence,” which is defined as evidence with the most convincing force.
10. The final order, issued on July 30, 2020, was that the Petitioner’s petition be dismissed. The Judge concluded that the Respondent did not violate the referenced provisions of the CC&Rs or A.R.S. § 33-1803(A).
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Essay Questions
The following questions are designed for longer-form, analytical responses. No answers are provided.
1. Analyze the distinction between “Annual Assessment” and “Maximum Annual Assessment” as defined in the Surprise Farms II CC&Rs. Explain how the petitioner’s failure to differentiate between these two terms was central to the case’s outcome.
2. Explain the interplay between the community’s CC&Rs (specifically Article VII, Sections 7.2 and 7.4) and the state law (A.R.S. § 33-1803(A)). How did the judge determine that the HOA’s actions complied with both governing authorities?
3. Describe the burden of proof in this case. Who held the burden, what was the standard required, and did they successfully meet it? Use specific details from the “CONCLUSIONS OF LAW” section to support your answer.
4. Trace the history of the assessment increases from April 2019 to April 2020. Detail the specific monetary and percentage increases for both years and explain why the 20% increase in 2020 was deemed legally permissible without a member vote, while an increase over 20% would not have been.
5. Discuss the legal reasoning behind the Administrative Law Judge’s decision to dismiss the petition. What specific conclusions of law and interpretations of the CC&Rs led directly to the ruling that the respondent did not improperly increase the annual assessment?
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Glossary of Key Terms
Definition
Administrative Law Judge (ALJ)
The official, in this case Tammy L. Eigenheer, who presides over administrative hearings and makes legal decisions and rulings.
Annual Assessment
As defined in the CC&Rs, “the charge levied and assessed each year against each Lot and Parcel pursuant to Article VII, Section 7.2 hereof.” The Board has sole discretion to set this amount, as long as it does not exceed the Maximum Annual Assessment.
A.R.S. (Arizona Revised Statutes)
The codified laws of the state of Arizona. The specific statute relevant to this case is A.R.S. § 33-1803(A), which governs HOA assessment increases.
Burden of Proof
The obligation on a party in a legal proceeding to prove their allegations. In this case, the Petitioner bore the burden of proving the Respondent violated the law and CC&Rs.
CC&Rs (Covenants, Conditions, and Restrictions)
The governing legal documents that set forth the rules for a planned community or homeowners association. In this case, the CC&Rs for Surprise Farms II were recorded in 2003.
HOA (Homeowners Association)
An organization in a subdivision, planned community, or condominium that makes and enforces rules for the properties and its residents. The Surprise Farms II Community Association is the HOA in this case.
Maximum Annual Assessment
A ceiling on the Annual Assessment, established by the CC&Rs. This amount was set at $480 initially and designed to increase automatically by ten percent each year without a member vote, serving as the upper limit for the Board’s assessment-setting discretion.
Petitioner
The party who files a petition initiating a legal case. In this matter, Jean Williams was the Petitioner.
Preponderance of the Evidence
The legal standard of proof required in this proceeding. It is met when the evidence presented has the “most convincing force” and shows that a fact is more likely to be true than not true.
Respondent
The party against whom a petition is filed. In this matter, the Surprise Farms II Community Association was the Respondent.
Why This Homeowner Lost Her Lawsuit Against the HOA (And What You Can Learn From It)
1.0 Introduction: The Dreaded HOA Letter
It’s a scenario many homeowners fear: a letter from the Homeowners Association (HOA) announcing a significant and unexpected fee increase. The feeling of frustration and powerlessness can be overwhelming. When Jean Williams received notice that her HOA was raising her annual assessment by a full 20%, she believed the board had overstepped its authority. The increase seemed to be a clear violation of the community’s governing documents, so she decided to fight back and took her HOA to court. The outcome, however, was not what she—or many other homeowners—would have expected.
2.0 The Core Misunderstanding: “Maximum” Dues vs. “Actual” Dues
The foundation of Jean Williams’s case was her belief that the community’s Covenants, Conditions, and Restrictions (CC&Rs) limited any annual fee increase to 10% without a vote from the members. This is where the critical misunderstanding occurred.
The judge in the case identified a crucial distinction in the legal language. The 10% limit mentioned in the CC&Rs did not apply to the Annual Assessment—the actual dollar amount billed to homeowners each year. Instead, it applied to the Maximum Annual Assessment, a theoretical ceiling on how high the fees could potentially go.
But why was this ceiling so high? The CC&Rs were designed so that this Maximum Annual Assessment would increase automatically by 10% every single year since its inception in 2003. This cumulative growth operated silently in the background for over a decade, creating a vast difference between the two figures. For the year 2020, the actual assessment billed to homeowners was $864. However, due to years of automatic increases, the allowable Maximum Annual Assessment had ballooned to $2,426. The board was operating with far more financial latitude than the petitioner realized.
3.0 How State Law Set the Real Limit at 20%
The next layer of this case involves the interplay between the HOA’s documents and state law. An Arizona state law, A.R.S. § 33-1803(A), dictates that an HOA cannot raise regular assessments by more than 20% in a single year without a vote from the majority of members, unless the community’s own documents set a lower limit.
This is the key legal point. Williams believed her community documents did set a lower limit of 10%. Critically, however, that 10% limit applied only to the wrong variable—the theoretical Maximum Annual Assessment ceiling, not the Annual Assessment actually paid. The CC&Rs’ failure to place a specific annual cap on the actual assessment created a legal vacuum. This vacuum was automatically filled by the Arizona state statute, making its 20% cap the only legally binding limit.
The HOA’s increase from $720 to $864 was exactly 20%. This placed their action right at the maximum threshold allowed by state law without requiring a member vote, making it legally permissible.
4.0 The Fine Print: The Power of “Sole Discretion”
The HOA board’s authority was further solidified by specific language embedded in its governing documents. Article VII, Section 7.2 of the CC&Rs explicitly granted the board “sole discretion” to determine the amount of the Annual Assessment.
The true power of this clause was unlocked by its connection to the two types of assessments. The board’s “sole discretion” was the legal tool that allowed them to set the Annual Assessment at any level they chose, provided it did not exceed the automatically growing Maximum Annual Assessment ceiling. With a ceiling of $2,426 and a previous fee of only $720, the board was legally empowered to enact the 20% increase without consulting homeowners.
5.0 The Judge’s Final Word: A Cautionary Tale
Ultimately, the judge concluded that the homeowner’s entire case was built on a misreading of the governing documents. The judge’s decision offers a clear and potent lesson for all homeowners, emphasizing that the precise wording of these legal documents is everything.
In the final decision, the judge wrote:
Petitioner’s assertion that Respondent could not increase the Annual Assessment by twenty percent was predicated on her erroneous reading of Article VII, Section 7.4 of the CC&Rs. … By definition, the existence of a Maximum Annual Assessment necessitates an Annual Assessment that may be less than the maximum.
The judge’s reasoning is precise: creating a “maximum” assessment in a legal document inherently implies the existence of a separate “actual” assessment that can be lower. Williams’s case collapsed because she treated these two distinct legal concepts as one and the same.
6.0 Conclusion: Are You Sure You Know What Your Documents Say?
The case of Jean Williams serves as a powerful reminder of how interlocking legal mechanics can produce unexpected outcomes. The board’s power was not derived from a single rule, but from the synthesis of three distinct elements: a high Maximum Assessment ceiling created by a silent, cumulative growth clause; the board’s “sole discretion” to set actual fees anywhere underneath that ceiling; and the state law’s 20% backstop that became the only relevant limit in the absence of a specific cap in the CC&Rs.
This case proves that the devil is truly in the details. It begs a critical question for every homeowner living in a planned community: When was the last time you read your community’s CC&Rs?
Case Participants
Petitioner Side
- Jean Williams (petitioner)
Appeared and testified on her own behalf
Respondent Side
- Nick Nogami (HOA attorney)
Surprise Farms II Community Association
Neutral Parties
- Tammy L. Eigenheer (ALJ)
- Judy Lowe (Commissioner)
Arizona Department of Real Estate
