Briefing Document: Krahn et al. v. Tonto Forest Estates Homeowners Association

Executive Summary

This document synthesizes a series of legal disputes between a group of homeowners (Petitioners), led by John Krahn, and the Tonto Forest Estates Homeowners Association (Respondent). The disputes, adjudicated by the Arizona Office of Administrative Hearings (OAH), cover a range of alleged violations of the association’s Covenants, Conditions, and Restrictions (CC&Rs), bylaws, and Arizona state statutes.

An initial Administrative Law Judge (ALJ) Decision on June 4, 2025, consolidated six petitions and found in favor of the Petitioners on five of them. These rulings ordered the HOA to comply with its governing documents and state law and to reimburse the Petitioners’ $500 filing fees for each successful petition. The single petition denied concerned the Board’s decision to file an insurance claim during a closed session.

The most contentious dispute, Case 24F-H033-REL, concerns the HOA’s practice of assessing undeveloped lots for septic system maintenance costs. The initial ruling favored the Petitioners, with the ALJ concluding that the CC&Rs “is clear that only lots with dwelling units are required to share in the Assessments.”

The HOA successfully petitioned for a rehearing on this specific case, leading to a new proceeding under a different ALJ. The rehearing, which commenced on November 4, 2025, centers on the HOA’s argument that a separate, prior ALJ ruling in an unrelated case (Burns v. TFE) created a binding precedent that compels them to assess all lots equally, creating what they term an “irreconcilable conundrum.” The Petitioners argue that the plain language of the CC&Rs is specific and controlling, limiting septic costs to lots with installed systems. The rehearing involves extensive legal argumentation, was not concluded in one day, and is scheduled to continue on January 30, 2026.

I. Initial Administrative Law Judge Decision (June 4, 2025)

The initial consolidated hearing was presided over by Administrative Law Judge Adam D. Stone. The decision addressed six separate petitions filed by homeowners against the Tonto Forest Estates Homeowners Association (TFE). The Petitioners prevailed on five of the six issues.

Summary of Rulings

Case Number

Dispute

Petitioner Argument

Respondent Argument

ALJ Conclusion and Order

24F-H033-REL

Violation of CC&R 4.32 & A.R.S. § 33-1802: Assessing empty/undeveloped lots for septic-related expenses.

Septic obligations apply only to lots with dwelling units, as costs arise “after installation.”

All lots were intended to pay the full assessment amount; the CC&Rs should be read in context.

Granted. The tribunal found CC&R 4.32 is “clear that only lots with dwelling units are required to share in the Assessments issued.” HOA ordered to follow CC&Rs and reimburse the $500 filing fee. No civil penalty awarded.

25F-H002-REL

Violation of CC&R 4.32: Improperly reimbursing a former Board member $75.00 for a septic system part.

The reimbursed “P-Series Float” was a replacement part, which is the homeowner’s responsibility under the CC&Rs, not a repair eligible for reimbursement.

The invoice was ambiguous as to whether it was a repair or replacement, giving the Board the right to reimburse the homeowner.

Granted. The tribunal found the part was a replacement and therefore the homeowner’s responsibility. HOA ordered to follow CC&Rs and reimburse the $500 filing fee. No civil penalty awarded.

25F-H006-REL

Violation of A.R.S. § 33-1803(D)(1): Attempting to enforce compliance with rules not found in the CC&Rs regarding tree trimming for “aesthetics.”

A violation notice for tree trimming was improper as it cited no governing section of the CC&Rs and the appeal was never scheduled.

The Board President testified that technical issues in the letters had been remedied and the HOA was not interested in collecting fines.

Granted. The notice, though a “Friendly Reminder,” failed to cite the specific CC&R section violated. HOA ordered to follow Arizona statutes and reimburse the $500 filing fee. No civil penalty awarded based on credible testimony of future compliance.

25F-H020-REL

Violation of Bylaw 3.9 (Secret Ballot): Adding a signature verification page to ballots, compromising anonymity.

Attaching envelopes and ballots together after an election violated the secret ballot bylaw, as it would be easy to determine how members voted.

The bylaw did not address ballot storage after an election.

Granted. The tribunal found that ballots should be stored anonymously after counting. HOA ordered to follow bylaws and reimburse the $500 filing fee. No civil penalty awarded based on credible testimony of an updated storage policy.

25F-H009-REL

Violation of A.R.S. § 33-1804(A) (Open Meetings): Deciding to file a Directors & Officers (D&O) insurance claim outside of an open meeting.

The Board made a discretionary financial choice to file a D&O claim (for a defamation suit filed by Krahn) in a closed session, leading to the policy’s cancellation and increased premiums.

The Board had the right to invoke its insurance coverage in a closed session as it was a legal decision related to pending litigation involving a homeowner.

Denied. The tribunal found no violation. Under the statute, the Board was within its rights to discuss and decide the matter in private due to pending litigation. HOA was not required to reimburse the filing fee.

25F-H011-REL

Violation of A.R.S. § 33-1805(A) (Records Request): Failing to fulfill a request for redacted association records within ten business days.

The HOA failed to produce redacted copies of similar violation notices that were requested on August 19, 2024.

The Board withheld the documents on the advice of its attorney because it was part of ongoing litigation.

Granted. The tribunal found the notices were wrongfully withheld as they were drafted prior to the litigation and were not privileged. HOA ordered to abide by Arizona statutes and reimburse the $500 filing fee. No civil penalty awarded.

II. The Rehearing of Case 24F-H033-REL (Septic Assessments)

Following the June 4, 2025 decision, the Respondent (TFE) successfully petitioned for a rehearing limited to the findings in case 24F-H033-REL.

A. Procedural History of the Rehearing

• August 18, 2025: The Department of Real Estate grants the rehearing.

• September 9, 2025: ALJ Adam D. Stone grants a continuance, setting the rehearing for November 4, 2025.

• October 14, 2025: Petitioners’ motion to disqualify ALJ Stone for alleged personal bias is addressed. Citing new legislation (A.R.S. § 41-1092.07(A)) effective September 26, 2025, which entitles a party to one peremptory change of judge, the motion is treated as such. The case is reassigned to Administrative Law Judge Velva Moses-Thompson.

• October 27 & 28, 2025: Procedural orders are issued permitting Dennis Legere to testify and setting an exhibit exchange deadline.

• November 4, 2025: The rehearing commences but is not concluded.

• November 6 & 17, 2025: A further hearing date is set for January 13, 2026, and later continued to January 30, 2026.

B. Core Arguments in the Rehearing (November 4, 2025)

The rehearing focused exclusively on whether the HOA is permitted to assess undeveloped lots for septic system costs. Both sides presented extensive arguments interpreting the governing documents and prior legal decisions.

1. CC&R 4.32 is Specific and Controlling: The language in CC&R 4.32 is clear and paramount. The clause stating the HOA’s responsibility begins “After installation” of a septic system, and that costs are “payable by such Owner,” explicitly ties septic obligations to lots with existing systems and dwelling units.

2. No Obligation, No Assessment: Under A.R.S. § 33-1802, an HOA can only assess members to pay for its “obligation under the declaration.” Since the HOA has no obligation to monitor, maintain, or repair a non-existent septic system on an empty lot, it has no legal basis to assess that lot for those costs.

3. Septic Costs are a “Limited Common Expense”: The Petitioners argue that septic expenses are not a general common expense applicable to all lots. By analogy to Arizona condominium law (A.R.S. § 33-1255), these costs benefit fewer than all units and should be assessed exclusively against the units benefited.

4. CC&R 8.1 Does Not Mandate Uniformity for All Fees: The governing documents explicitly allow for differentiated fees for services like trash collection, fire protection, and cable television, which apply only to lots “upon which a dwelling unit has been constructed.” This demonstrates a framework for non-uniform assessments, refuting the claim that all assessments must be identical for all lots.

5. The Burns v. TFE Ruling is Inapplicable: The Petitioners contend that the prior ALJ ruling in the Burns case is being misapplied. That case did not address undeveloped lots; it concerned the improper “back-assessing” of a homeowner for septic pump-out costs for which the HOA had already collected funds for 15 years.

6. Respondent’s Own Legal Opinions Concur: The Petitioners presented two prior legal opinions (from 2014 and 2020) obtained by the HOA itself, which concluded that septic-related costs could be “passed on to the specific owner” as an individual assessment, separate from the “regular assessment.”

1. The Burns v. TFE Ruling Creates Binding Precedent: The HOA’s primary defense is that a 2023 ruling by ALJ Ikenhere in the Burns case prohibited them from individually assessing septic costs. That ruling mandated that septic maintenance costs are a common expense to be paid from annual assessments “allocated equally among all lots” per CC&R 8.1.

2. An “Irreconcilable Conundrum”: The HOA claims it is in a no-win situation. If they follow the Burns ruling and assess all lots equally, they are sued by Krahn. If they were to follow the initial Stone ruling and assess only developed lots, they would violate the Burns ruling and could be sued by other homeowners.

3. CC&R 8.1 is Clear and Unambiguous: Section 8.1 of the CC&Rs states that assessments “shall be allocated equally among all lots.” The Petitioners’ interpretation would render this clause meaningless. The document does not define or recognize “limited common expenses” for planned communities.

4. Septic Costs Are a “Common Expense”: The CC&Rs define “common expenses” as the “expenses of operating the association.” Since the HOA is obligated under CC&R 4.32 to monitor and maintain existing septic systems, the costs incurred are a legitimate operational expense. The Burns ruling affirmed this, classifying septic services as protecting the “health and safety of the members.”

5. “After installation” Only Expands the Common Expense Pool: The HOA argues that the “after installation” clause simply marks the point in time when the HOA’s operational expenses grow to include a new system. Once expanded, this common expense must be allocated equally among all lots per CC&R 8.1.

C. Civil Penalty Argument

The Petitioners are seeking a civil penalty of $100 against the HOA, arguing a pattern of bad faith. John Krahn presented a detailed timeline alleging:

• Protracted delays of over 300 days by the Board in formally responding to homeowner concerns.

• A former Board President admitting in a meeting that the HOA’s interpretation was “faulty” and that “empty lots should not be paying that fee,” yet persisting with the assessments.

• A refusal to negotiate a settlement, with the HOA allegedly demanding that Krahn first drop other unrelated OAH cases as a precondition for discussion, an act Krahn described as “blackmail.”

• Unreasonable counter-offers during settlement talks that required Petitioners to drop all cases and agree to never file another complaint.

III. Current Status and Next Steps

The rehearing on November 4, 2025, concluded for the day without completion. A further hearing has been scheduled for January 30, 2026, at 9:00 AM before ALJ Velva Moses-Thompson. The forthcoming session is expected to include the Respondent’s cross-examination of Mr. Krahn on his civil penalty testimony, closing arguments on that issue, and potentially the adjudication of the remaining consolidated petitions.