What if association is not as declared?

The declaration of CC&R's for our development was recorded in 1996. The declaration stated that there would be an association and that the association would be "cooperative and non-profit." It did not state explicitly whether the association would be incorporated.

Shortly after recording the CC&R's, the developer filed articles of incorporation for the association. The developer apparently decided to write the articles himself without aid of an attorney. The articles are a mishmash of provisions, some applicable only to a for-profit business corporation and others applicable only to non-profit corporations. The Arizona Corporation Commission (ACC) interpretted the articles as being for a business corporation and not a non-profit.

The developer ran the association for the next seven years. He held no announced board meetings, no annual member meetings, and no elections. In the annual reports he filed with ACC he claimed sometimes to own more than a 20 percent interest in the corporation and at other times reported that the corporation had issued stock. Everything the developer did was consistent with operating a for-profit corporation and not a non-profit corporation.

Arizona law (ARS 33-1801 et seq.) governs HOA's. The statutes define HOA's as either unincorporated associations or as non-profit corporations.

I am preparing to file suit to declare the CC&R's invalid regarding the provisions for the association as the developer failed to establish the type of association set forth in the CC&R's and the fact that the association is of a type not recognized by state law.

Has anyone else run into a situation like this before?

Larry,

I'm not an attorney and I do not work within the legal profession. Based on your posting, if the Association owns any common area at all, I doubt that the CC&Rs would be invalid.

Why not just have the Association just rewrite the CC&Rs properly (basically one large amendment/restatement).

Typically, the Articles of Incorporation would be the document that establishes the type of Corporation the Association is registered as and not the CC&Rs.

Tim

When I purchased my property I entered into a contract with the developer. The developer told the world that the association was a non-profit. The articles of incorporation the developer filed for the association, however, were for a business corporation, the opposite of a non-profit. The developer had ample opportunity to amend the articles of incorporation and did not do so. In fact, for seven years he filed annual reports claiming that he owned the corporation.

I did not get what I bargained for, nor did any of the other buyers. I have brought this matter to the attention of our current board and they have done nothing.

Because our association is not a non-profit, we cannot lawfully levy assessments, file liens, or pursue foreclosures. Our current board continues to pretend that we are a non-profit and continues to exercise powers that it lacks. Until someone challenges them in court nothing will happen.

I was on the board for two years and I fear that I could be held liable for damages. I would not count on the association's insurance to cover me because the association misrepresented itself when it obtained the insurance.

As to the comment about having a fool for a client: The association uses the law firm of , who claim to specialize in HOA law. In a published opinion, Division One of the Arizona Court of Appeals ridiculed that law firm for arguing one thing in the trial court and the exact opposite on appeal. The court also noted that during oral arguments that could not explain their client's position. In another case, Division Two ruled that the trial judge properly fined client for bringing a frivolous lawsuit and then fined them again for bringing a frivolous appeal. My point is that there are plenty of clients who have fools for attorneys.

Yes, the developer turned the association over to the owners in 2003.

LarryB13

Finally I found the subject message, did you get any anwers or additional informationon the subject?

Thank you

Islam:

To date I have not been able to locate any case law that would answer the question of what happens when the declarant or developer promises in his declaration that he will deliver an association incorporated as a non-profit, but instead delivers something else. In the case of my POA the developer incorporated the association as a for-profit business and filed various annual reports with the state alleging that the association was his personal property.

Other threads on this site have described some similar stories. In one case, the developer's articles of incorporation for the association were rejected, possibly because the name he selected was already in use by another corporation. The developer continued on as if the articles had been lawfully filed.

What is the situation with your board? From your message I assume that you are on a BOD and defending the association from similar allegations. What authority did you find that would support a dismissal? I would love to hear more about your case, including the outcome of your motion to dismiss.

Your words and I quote: “The declaration of CC&R's for our development was recorded in 1996. Shortly after recording the CC&R's, the developer filed articles of incorporation for the association.”

Therefore the association is an HOA with governing documents and I assume each year since has filed an 1120H under the EIN number given by the IRS....then what?

Once the documents are recorded you are an association.

Given the developer's past performance I have no reason to believe that he ever filed any tax returns prior to the time he turned the association over to the owners. Off hand I do not know what tax returns have been filed since the owners took over in 2003, however the HOA has a CPA so I assume that the proper returns have been filed. Let me restate that: I assume that 1120H's have been filed even though technically we are not a non-profit.

One of the problems with all Arizona HOA's is that the CC&R's, stating that there will be an incorporated association, gets recorded with the county recorder. The Articles of Incorporation are filed with the state corporation commission. There is no one in government whose job it is to verify that the CC&R's and the articles of incorporation say the same thing.