Limitations on Arizona HOA's Ability to Collect Legal Fees

Arizona homeowners associations regularly charge homeowners for legal fees incurred collecting amounts allegedly owed by homeowners, even when no court has awarded those attorneys’ fees to the HOA. The imposition of these charges is typically based on language in the Covenants, Conditions, and Restrictions (“CC&Rs”) governing the Association that allows for the recovery of legal fees by the Association in the event of any legal dispute with a homeowner. Arizona also has a statute (A.R.S. § 12-341.01), which allows for the recovery of legal fees by a prevailing party in litigation involving a contract. That statute applies to most HOA disputes because the CC&Rs constitute a contract between and among the Association and all of the homeowners.

The problem arises when HOA charge for legal fees without any oversight of what is reasonable. It is not uncommon that homeowners find themselves defending a lawsuit filed by an HOA for a few hundred dollars in missed assessments, fines, and late fees, plus thousands of dollars in alleged attorneys’ fees. Even where there has been no lawsuit, HOAs apply legal fees to homeowners' ledgers, impose liens, and collect those fees upon the sale of the subject properties. Another common practice is for HOAs to collect additional attorneys' fees from homeowners after imposition of a judgment based on included language providing for the recovery on legal fees incurred collecting on the judgment.

The problem with these practices by HOAs and their lawyers is that they fly in the face of a long line of legal precedent involving the award and collection of legal fees. Many of those cases arise in connection with the interpretation of A.R.S. § 12-341.01, which includes certain guidelines including the mandate that any awarded fees must be “reasonable.” Courts have extended those guidelines to apply to fee requests on other bases as well, and the implication is clear that attorneys’ fees claims must be approved by a court before they may be collected.

HOAs regularly ignore these guidelines and demand payment for unawarded legal fees - and in our experience the fees sought by homeowners associations often exceed the bounds of reasonableness.

Fortunately, the Arizona Court of Appeals, in an April 3, 2018 decision, has provided support for the notion that many of these HOA practices are unlawful. The Court in Bocchino v. Fountain Shadows Homeowners Association, 244 Ariz. 323, 418 P.3d 1096 (Ct. App. 2018), addressed the circumstances under which an HOA is allowed to collect attorneys' fees from a homeowner. Bocchino involved an Association’s effort to collect fees it claimed it had incurred in obtaining an Injunction Against Harassment against a homeowner, despite the HOA not seeking, and the court not awarding, any fees in the Injunction Against Harassment case.

Relevant to many HOA disputes, the HOA in Bocchino argued that the court’s approval of its fees purportedly incurred was not necessary because the CC&Rs “authorized the unilateral imposition of the fees it incurred” and that “no judicial approval of fees is necessary.”

In reaching its conclusion, the Court of Appeals observed:

Even a contractual entitlement to "all" attorney fees incurred can be overcome by an evidentiary showing that the fees were "clearly excessive." Moreover, the Association has cited no authority for the proposition that it was permissible to simply charge Bocchino's Association account for attorney fees it incurred without first receiving an award from the court. Requiring the tribunal that resolves the litigation to evaluate attorney fee claims—as generally required by our statutes and rules constitutes sound policy. Courts play a significant role in assessing and awarding attorney fees incurred in judicial proceedings

Unfortunately, the Bocchino opinion has not ended the practice of HOAs demanding, and in many cases collecting, unawarded fees from homeowners without first seeking and obtaining approval of such fees from a court. In our experience, challenging the propriety and reasonableness of such fees can often significantly reduce a homeowner’s claimed liability, even where the underlying claims have merit.