Case Summary
| Case ID | 12F-H1213009-BFS |
|---|---|
| Agency | Department of Fire, Building and Life Safety |
| Tribunal | OAH |
| Decision Date | 2013-03-01 |
| Administrative Law Judge | Tammy L. Eigenheer |
| Outcome | The ALJ dismissed the petition because the Respondent, having fewer than 50 units, was not statutorily required to provide the specific disclosure statement regarding unit alterations or improvements that the Petitioners claimed was missing. |
| Filing Fees Refunded | $550.00 |
| Civil Penalties | $0.00 |
Parties & Counsel
| Petitioner | Emry & Muriel Varhely | Counsel | — |
|---|---|---|---|
| Respondent | Eighth Street Square Townhouse Association | Counsel | Nikita Patel |
Alleged Violations
A.R.S. § 33-1806
Outcome Summary
The ALJ dismissed the petition because the Respondent, having fewer than 50 units, was not statutorily required to provide the specific disclosure statement regarding unit alterations or improvements that the Petitioners claimed was missing.
Why this result: The Respondent successfully established that it governs a community with fewer than 50 units, which exempted it from the specific disclosure requirement alleged by the Petitioners.
Key Issues & Findings
Failure to provide statement regarding existing violations at sale
Petitioners alleged the HOA violated A.R.S. § 33-1806 by failing to provide a statement as to whether association records reflected any alterations or improvements to the unit that violated the declaration prior to closing escrow.
Orders: The Petition is dismissed; no action is required of Respondent.
Filing fee: $550.00, Fee refunded: No
Disposition: respondent_win
Video Overview
Audio Overview
Decision Documents
12F-H1213009-BFS Decision – 327965.pdf
12F-H1213009-BFS Decision – 333516.pdf
12F-H1213009-BFS Decision – 327965.pdf
12F-H1213009-BFS Decision – 333516.pdf
Administrative Law Judge Decision: Varhely v. Eighth Street Square Townhouse Association
Executive Summary
This briefing document analyzes the administrative legal proceedings in the matter of Emry & Muriel Varhely vs. Eighth Street Square Townhouse Association (No. 12F-H1213009-BFS). The case centered on allegations that the Eighth Street Square Townhouse Association (Respondent) violated Arizona Revised Statutes (A.R.S.) § 33-1806 by failing to disclose existing property violations to the Petitioners during their unit purchase in February 2012.
The Administrative Law Judge (ALJ) concluded that the Petitioners failed to establish a violation by the Respondent. The decision turned primarily on the size of the community, as the statutory disclosure obligations for associations differ based on whether a planned community contains more or fewer than 50 units. Because the Eighth Street Square community consists of only 48 units, the legal burden for providing specific violation statements did not fall upon the Association under the cited statute. The decision was certified as final on April 10, 2013.
Detailed Analysis of Key Themes
1. Statutory Disclosure Obligations (A.R.S. § 33-1806)
The core of the dispute involved the interpretation of A.R.S. § 33-1806, which mandates the disclosure of certain information to purchasers of units within planned communities.
- The 50-Unit Threshold: The statute distinguishes between small and large communities. For communities with fewer than 50 units, the "member" (seller) is typically responsible for providing required documentation to the purchaser.
- The Definition of "Member": Under A.R.S. § 33-1806(G), a "member" is defined as the seller of the unit title. Importantly, this definition excludes trustees of a deed of trust selling property in a trustee's sale.
- Association Responsibility: The Association’s obligation to provide a statement regarding alterations or improvements that violate the Declaration is specifically tied to the size of the community. In this case, since Eighth Street Square has 48 units, the Association was not legally mandated to provide the statement of violations that the Petitioners expected.
2. Burdens of Proof and Evidence
The proceedings were governed by the standard of a "preponderance of the evidence."
- Petitioner's Burden: As the initiating party, the Varhelys bore the burden of proving that the Association had a legal duty to provide the violation statement and failed to do so.
- Respondent's Defense: The Association argued that because the community fell below the 50-unit threshold, they were not responsible for the specific disclosures requested.
- The Ruling on Knowledge: The ALJ noted that even if the seller (ING Bank FSB) was unaware of the violation, and even though the Association had provided some documentation, this did not create a statutory obligation for the Association to provide a full statement of violations where one did not exist by law.
3. Impact of Partial Disclosure
A secondary theme was the Petitioners' reliance on partial information. The Association had provided "CondoCerts" and some other unit-related documents prior to closing. The Petitioners argued that because the Association provided some documents, they were obligated to provide all relevant documents, including a statement of violations. The ALJ rejected this argument, ruling that voluntary partial disclosure does not extend an association's statutory obligations beyond what is written in A.R.S. § 33-1806.
Important Quotes with Context
On the Definition of Preponderance of the Evidence
"Evidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not."
— Context: Cited from Black's Law Dictionary to establish the legal standard the Petitioners had to meet to prove the Association violated the law.
On the Statutory Obligation for Small Communities
"For planned communities with fewer than fifty units, a member shall mail or deliver to a purchaser… a statement as to whether the member has any knowledge of any alterations or improvements to the unit that violate the declaration."
— Context: Referring to A.R.S. § 33-1806(A) and (f), highlighting that in small communities, the disclosure burden rests with the seller ("member"), not the association.
On the Association's Lack of Obligation
"Regardless of the seller’s knowledge of a violation or that Respondent provided some documents relating to the unit, Respondent had no obligation under A.R.S. § 33-1806 to notify Petitioners of the known violation."
— Context: The ALJ's definitive legal conclusion that the Association was not liable for the nondisclosure, despite the Petitioners' arguments regarding the seller's lack of knowledge.
Summary of Findings and Actionable Insights
Case Timeline and Facts
| Event | Date |
|---|---|
| Purchase Contract Entered | February 2012 |
| Respondent provided "CondoCerts" | March 13, 2012 |
| Escrow Closed | March 13, 2012 |
| Petition Filed with Department | October 22, 2012 |
| Administrative Hearing Held | February 13, 2013 |
| ALJ Decision Issued | March 1, 2013 |
| Decision Certified as Final | April 10, 2013 |
Actionable Insights for Stakeholders
- Due Diligence on Community Size: Purchasers in Arizona planned communities should determine the total number of units in the association early in the due diligence process. If the community has fewer than 50 units, the purchaser cannot legally compel the association to provide the violation disclosures mandated for larger communities.
- Seller Disclosure Limitations: In cases involving foreclosures (such as the purchase from ING Bank FSB in this case), the "member" disclosure requirements may be complicated by the seller's lack of history with the property. Purchasers should be aware that if the association is not required to disclose violations, and the seller has no knowledge of them, the purchaser may inherit existing violations.
- Statutory Limits on Association Liability: Providing some documentation out of courtesy or standard procedure does not legally bind an association to fulfill all disclosure requirements of A.R.S. § 33-1806 if the community size falls below the statutory threshold.
- Appellate Rights: Following an ALJ decision, parties have the right to request a rehearing from the Department of Fire, Building and Life Safety or seek review by the Superior Court, provided they act within the statutory timeframes (in this case, action was required by April 5, 2013, to prevent the decision from becoming final).
Case Study: Varhely v. Eighth Street Square Townhouse Association – A.R.S. § 33-1806 Application
This study guide provides a comprehensive overview of the administrative legal dispute between Emry and Muriel Varhely (Petitioners) and the Eighth Street Square Townhouse Association (Respondent). It focuses on the interpretation of Arizona Revised Statutes (A.R.S.) § 33-1806 regarding disclosure obligations in planned communities.
Key Concepts and Case Summary
The central issue of this case was whether a homeowners association is legally required to disclose existing violations to a potential buyer when the community contains fewer than 50 units.
Background and Dispute
In February 2012, the Petitioners contracted to purchase a unit in Eighth Street Square, a community in Phoenix, Arizona. The unit was previously owned by ING Bank FSB, which had acquired it through foreclosure. During the escrow process, the Respondent provided "CondoCerts" information and other documents but did not provide a specific statement regarding whether association records reflected alterations or improvements that violated the community’s Declaration.
After closing escrow, the Petitioners alleged that the Respondent violated A.R.S. § 33-1806 by failing to provide notice of existing violations.
Legal Thresholds and Findings
The Administrative Law Judge (ALJ) determined the following:
- Unit Count: Eighth Street Square consists of 48 units (numbered 1 through 49, excluding unit 13).
- Statutory Requirement: Under A.R.S. § 33-1806, the obligation for an association to provide a statement regarding violations only applies to planned communities with 50 units or more.
- Burden of Proof: The Petitioners bore the burden of proving a violation by a preponderance of the evidence, which they failed to do because the community fell below the 50-unit threshold.
- Outcome: The Petition was dismissed, and the decision was certified as final when the Department of Fire, Building and Life Safety took no action to modify the ALJ’s recommendation.
Short-Answer Practice Questions
1. What is the specific unit count of Eighth Street Square, and why is that number significant in this case? The community has 48 units. This is significant because A.R.S. § 33-1806 dictates different disclosure responsibilities for associations with fewer than 50 units compared to those with 50 or more.
2. Who was the seller of the unit, and how did they acquire the title? The seller was ING Bank FSB. The bank acquired the title to the unit through foreclosure.
3. According to A.R.S. § 33-1806(G), who is generally responsible for providing disclosure documents in a sale? The "member," which is defined as the seller of the unit title. However, this definition specifically excludes a trustee of a deed of trust selling property in a trustee's sale.
4. What was the Petitioners' primary argument regarding the Respondent's partial disclosure? The Petitioners argued that because the Respondent provided some documents required under the statute, they were obligated to provide all required documents, including the statement on violations. They also argued they were unaware the community had fewer than 50 units.
5. What is the "preponderance of the evidence" standard used in this hearing? It is evidence that is of greater weight or more convincing than the evidence offered in opposition; essentially, it shows that the fact sought to be proved is more probable than not.
Essay Prompts for Deeper Exploration
1. The 50-Unit Disclosure Threshold Analyze the implications of the 50-unit threshold established in A.R.S. § 33-1806. Discuss how this threshold shifts the burden of due diligence between the buyer, the seller, and the association. In your response, consider the ALJ’s ruling that the association had no obligation to notify the Petitioners of violations, regardless of whether the seller was aware of them.
2. Disclosure Obligations in Foreclosure Sales Examine the complexities of real estate disclosures when a property is sold by a bank following foreclosure (as seen with ING Bank FSB). How does A.R.S. § 33-1806(G) impact a buyer's ability to obtain information about property violations, and what protections, if any, does the statute provide to associations in these scenarios?
3. Equitable Reliance vs. Statutory Language The Petitioners argued they relied on the Respondent’s act of providing some documents as an indication that no violations existed. Evaluate the conflict between "equitable reliance" (the idea that one's actions create an expectation) and the strict interpretation of statutory language as applied by the ALJ in this decision.
Glossary of Important Terms
| Term | Definition |
|---|---|
| A.R.S. § 33-1806 | The Arizona Revised Statute governing the resale of units in a planned community and the required disclosure of association records. |
| Administrative Law Judge (ALJ) | An official who presides over hearings and adjudicates disputes involving government agencies. |
| Covenants, Conditions, and Restrictions (Declaration) | The legal documents that establish the rules and regulations for a planned community or homeowners association. |
| CondoCerts | A service or document providing specific association information, often requested by escrow companies during a property sale. |
| Escrow | A legal arrangement where a third party holds funds or assets until specific conditions of a contract (like a home sale) are met. |
| Preponderance of the Evidence | The legal standard of proof in most civil cases, meaning the claim is more likely to be true than not true. |
| Planned Community | A real estate development which includes common areas and is governed by an association of homeowners. |
| Trustee's Sale | A foreclosure sale of real property conducted by a trustee under a deed of trust. |
| Violation | An alteration or improvement to a unit that does not comply with the community’s Declaration or rules. |
Understanding the "Rule of 50": A Cautionary Tale of HOA Disclosures and A.R.S. § 33-1806
1. Introduction: The Hidden Risks of the "As-Is" Purchase
For many real estate investors and homebuyers, a foreclosure property sold "as-is" represents a prime opportunity for equity. However, when that property is situated within a planned community, a specific statutory threshold—which I call the "Rule of 50"—can transform a perceived bargain into a legal minefield. In Arizona, the size of your community is not just a matter of density; it is the legal pivot point that determines who is responsible for disclosing property violations.
The case of Emry & Muriel Varhely vs. Eighth Street Square Townhouse Association serves as a sobering reminder of how disclosure expectations can clash with statutory realities. The Varhelys discovered that "not knowing" the law is no defense when a community falls below the 50-unit threshold. In such cases, the burden of disclosure shifts away from the Association, often leaving buyers in the lurch during distressed sales.
2. The Dispute: A Surprise Violation After Closing
The Varhelys' legal journey began with a purchase from ING Bank FSB, which had acquired a unit in the Eighth Street Square community through foreclosure. Like many bank-owned sales, the transaction was handled with a degree of distance that left the buyers vulnerable.
While the Association provided "CondoCerts" to the escrow company—which noted the existence of general violations—the Varhelys did not receive a formal, detailed statement regarding specific unapproved alterations or improvements before they closed. It was only after taking possession that the gravity of the property's non-compliance became clear.
Timeline of the Dispute:
- February 2012: Petitioners enter into a contract to purchase the unit from ING Bank FSB.
- March 13, 2012: The Association provides "CondoCerts" to the escrow company. These documents mention violations but lack a formal statement on specific improvements violating the community’s Declaration.
- March 13, 2012: Escrow closes, and title is transferred to the Varhelys.
- October 22, 2012: Realizing the impact of the undisclosed issues, the Varhelys file a petition with the Department of Fire, Building and Life Safety.
- February 13, 2013: An administrative hearing is held to determine if the Association breached its duties under A.R.S. § 33-1806.
A critical fact established during the proceedings was the exact size of the community. While units were numbered 1 through 49, unit number 13 does not exist, bringing the total count to exactly 48 units. This single missing unit changed the entire legal landscape of the case.
3. The Legal Turning Point: A.R.S. § 33-1806 Explained
The resolution of this dispute hinged entirely on the interpretation of A.R.S. § 33-1806. This statute dictates the disclosure obligations during the resale of a unit within a planned community, and it draws a hard line at the 50-unit mark.
Disclosure Obligations by Community Size
| Communities with < 50 Units | Communities with 50+ Units |
|---|---|
| The "Member" (the seller) is legally responsible for mailing or delivering the disclosure documents to the purchaser. | The Association bears the primary burden of providing the statement of violations and other required documents. |
| The Association has no statutory obligation under A.R.S. § 33-1806 to provide a violation statement directly to the purchaser. | The Association must provide a statement as to whether its records reflect any alterations or improvements that violate the declaration. |
Under A.R.S. § 33-1806(G), a "Member" is defined as the seller of the unit title. While this definition excludes a trustee in a trustee's sale, it applied to ING Bank FSB in this instance, as the bank had already acquired title and was acting as the seller.
4. Why the Homeowners Lost: The Association’s Defense
In administrative proceedings, the Petitioners bear the burden of proof by a preponderance of the evidence. This means the Varhelys had to prove it was more probable than not that the Association violated a specific legal duty.
The Association’s defense was built on statutory immunity. Because Eighth Street Square consisted of only 48 units, the Association had no legal obligation under A.R.S. § 33-1806 to provide the specific violation statements the Varhelys sought. The Administrative Law Judge (ALJ) dismissed the homeowners' arguments based on the following:
- Irrelevance of Buyer Knowledge: The Varhelys argued they did not know the community had fewer than 50 units. The ALJ ruled that the statute applies based on the factual unit count, regardless of a buyer's awareness.
- The "Partial Disclosure" Fallacy: The Varhelys claimed that because the Association provided some documents (the CondoCerts) to escrow, they were then obligated to provide all documents. The ALJ rejected this, noting that providing voluntary information does not create a statutory mandate where none exists.
- The "Double Jeopardy" Clause: Crucially, A.R.S. § 33-1806(A)(3)(e) contains a warning for all buyers. It states that even if the Association is not required to disclose, the seller is not relieved of their obligation to disclose violations. Furthermore, the Association is not precluded from taking enforcement action against a buyer for violations that were "apparent at the time of purchase," even if they weren't in the records.
5. The Final Verdict: Dismissal and Certification
The Petitioners ultimately failed to establish a violation by the Respondent. On March 1, 2013, ALJ Tammy L. Eigenheer issued a recommended order for the dismissal of the petition, concluding that no action was required of the Association.
As the Department of Fire, Building and Life Safety took no action to modify or reject this recommendation by the April 5 deadline, the decision achieved administrative finality. On April 10, 2013, the decision was officially certified as the final administrative decision.
6. Key Takeaways for Arizona Homebuyers
- Verify the Statutory Threshold: Do not assume a community is "large." Verify the unit count personally. If the community has 49 or fewer units (remembering to check for "missing" unit numbers like Unit 13), your primary legal recourse for non-disclosure is against the seller, not the HOA.
- Foreclosure Disclosure Gaps: In a foreclosure-resale scenario, the bank is the "Member" and is responsible for disclosures in small HOAs. However, banks often have no "actual knowledge" of violations. This creates a "disclosure vacuum" where the bank doesn't know and the HOA isn't legally required to tell you.
- Beware of "Apparent" Violations: Under A.R.S. § 33-1806, an HOA in a small community can still fine you for violations that were visible at the time of purchase, even if they never mentioned them during escrow. Your due diligence must include a physical inspection specifically aimed at HOA compliance.
- Sue the Right Party: The Varhelys’ case was dismissed largely because they targeted the Association. In communities with fewer than 50 units, any legal challenge regarding a failure to provide A.R.S. § 33-1806 disclosures must generally be directed at the seller.
Navigating the complexities of HOA law requires more than just reading a contract; it requires an understanding of the statutory thresholds that protect Associations from liability. When buying into a small community, the mantra must be caveat emptor—buyer beware.
Case Participants
Petitioner Side
- Emry Varhely (petitioner)
Spelled 'Varhaly' in Source 2 mailing list - Muriel Varhely (petitioner)
Appeared on behalf of Petitioners
Respondent Side
- Nikita Patel (attorney)
Carpenter, Hazlewood, Delgado & Bolen, PLC
Represented Respondent
Neutral Parties
- Tammy L. Eigenheer (ALJ)
Office of Administrative Hearings - Gene Palma (Director)
Department of Fire, Building and Life Safety - Cliff J. Vanell (Director)
Office of Administrative Hearings
Signed Certification of Decision - Joni Cage (administrative staff)
Department of Fire, Building and Life Safety
Listed c/o for Gene Palma