Arizona Court Rejects HOA’s Attempt to Charge Legal Fees Without Court Authority

Crosby v. Mesa Desert Heights Homeowners Ass’n, No. CV-24-0003, Court of Appeals of Arizona, First Division, October 10, 2024

Harper Hall PLC recently secured a significant victory for homeowners’ rights in the Arizona Court of Appeals, successfully challenging a homeowners association’s attempt to unilaterally impose legal fees on a homeowner during a pre-litigation architectural dispute. The decision in Crosby v. Mesa Desert Heights Homeowners Association establishes crucial limitations on associations’ ability to charge owners for legal expenses without court authorization.

The Core Issue

At its heart, this case addressed a concerning practice we frequently encounter in our HOA practice: associations attempting to circumvent traditional fee-shifting provisions by using special assessment or other claimed authority to impose pre-litigation legal fees on homeowners. In this case, the Association demanded payment of legal fees incurred during an architectural review dispute, even though no lawsuit had been filed and no court had awarded such fees.

How the Dispute Unfolded

The dispute began during what should have been a routine architectural review process. After exchanging correspondence about proposed building plans, the Association chose to retain counsel and demanded approximately $2,000 in legal fees from the homeowner. When our client rightfully refused to pay these unauthorized charges, the Association responded by unilaterally imposing a $2,500 Special Assessment on the client’s property.

The Association’s sole claimed authority for this assessment came from a standard provision in the CC&Rs allowing recovery of attorney fees by the prevailing party “in the event any action is instituted.” In an aggressive overreach, the Association attempted to stretch this typical fee-shifting provision beyond its clear meaning, arguing that pre-litigation disputes qualified as “actions” under the CC&Rs.

The Court’s Analysis: Plain Language Prevails

The Court of Appeals conducted a meticulous analysis of the term “action” within Section 12.09, examining both the provision’s context and relevant legal authorities. The Court’s reasoning centered on the provision's language, which spoke clearly of litigation through its references to “prevailing party,” “recover,” “judgment,” and “costs of suit.” These terms, the Court recognized, all point to formal legal proceedings, not preliminary disputes.

To reinforce this common-sense reading, the Court turned to established legal definitions. Arizona statutory law explicitly defines “action” as “any matter or proceeding in a court,” while Black's Law Dictionary confirms that an “action” means “the exercise of a claim before a judge.” Since no lawsuit existed when the Association imposed the Special Assessment, Section 12.09 provided no authority for recovering legal fees.

The Association’s attempts to find alternative justification proved equally unsuccessful. When the original basis for the assessment faced scrutiny, the Association attempted to justify it under Section 5.07 of the CC&Rs, which authorized Special Assessments for “bringing an Owner and his Lot into compliance” with community standards. The Court firmly rejected this post-hoc rationalization, particularly noting that the Association had never cited this provision in its pre-litigation demands. More fundamentally, the Court recognized that the lot was always in compliance because no non-compliant structure ever existed - the dispute centered entirely on proposed plans, not actual violations.

A Victory for Homeowner Rights

This decision marks a significant advance in protecting Arizona homeowners from unauthorized legal fee demands. The Court’s ruling establishes that associations cannot use special assessment or other authority to impose legal fees before litigation unless their governing documents specifically authorize such charges. Any attempt to recover legal fees must be grounded in specific governing document provisions actually authorizing that particular type of recovery.

The decision also reinforces important principles of document interpretation in the HOA context. Words with established legal meanings in CC&Rs will be interpreted according to their legal definitions, not associations’ preferred interpretations. Similarly, special assessment provisions for “bringing lots into compliance” apply only to actual violations, not potential or theoretical non-compliance.

Practical Impact for Arizona Homeowners

For Arizona homeowners, this ruling provides essential protection during architectural review and other pre-litigation disputes with their associations. Associations must now wait for court authorization before imposing legal fees on owners, and they cannot use special assessments as leverage during routine architectural disputes. Perhaps most importantly, associations must have clear, specific authority in their governing documents for any special assessments they impose, and post-hoc rationalizations for unauthorized assessments will face heightened scrutiny.

This decision represents a significant check on associations’ ability to use special assessments as a weapon in routine disputes. By requiring clear authority and proper procedure for imposing legal fees, the Court has helped ensure that homeowners can engage in good-faith disputes with their associations without fear of unauthorized financial penalties.

At Harper Hall PLC, we specialize in protecting homeowners’ rights in disputes with their associations. This victory demonstrates both the importance of challenging unauthorized association actions and the value of experienced counsel in HOA disputes. Our deep understanding of Arizona HOA law and commitment to homeowner rights enables us to successfully challenge overreaching association conduct. If your association has attempted to impose unauthorized legal fees or other charges, we encourage you to contact us to understand your rights and options.