This article was delayed due to the difficulty encountered during its writing process. Just when it was believed that all the information had been gathered, new revelations would surface. Undoubtedly, it has been a revealing journey, to say the least.
FOLLOW THE MONEY, They Say…
If you have never been here before, it is highly recommended that you go through the previous articles leading up to this one. It will surely help put things in perspective as to how we (as a Community) got to this point.
Continuing from where it was left off, three weeks prior to the Annual Meeting, a group of homeowners came together to discuss the reasons behind their long-standing frustrations with our current management and the bullying tactics from our legal counsel, Law Firm of Carpenter, Hazelwood, Delgado, Bolen (“CHDB”).
When things feel as though it is convoluted, controlling, and secretive, it is apparent to homeowners that it was time to “FOLLOW THE MONEY!” And wow, what was uncovered is an eye-opener! Unfortunately, this may be only a scratch on the surface.
https://vimeo.com/925289118?share=copy
The Numbers Do Not Lie
Sometime at the beginning of February 2024 and after thorough review of the ONLY known financial statements provided to homeowners up until that point, that included actual expenses, which were given to the Knolls homeowners only, as opposed to the Master Association homeowners, it was discovered that legal fees had gone through the roof by 6 times the budgeted amount!
Note: The referenced financial statements included only YTD October 2023.
As of October 2023, we (The Power Ranch Community Association) had expensed $144,744.52 toward LEGAL FEES while our budget was only $24,996. for the entire year.
From a management perspective, allowing such a significant overage without Board approval is highly unusual. Alarm bells started ringing, which prompted further “digging.”
What was even more concerning was that, after conducting several interviews with homeowners who have resided in Power Ranch for over 10+ years, it became apparent that nobody knew the reason behind the Community’s budget overrun. This lack of knowledge contributed to the increase in homeowners’ dues. It seemed baffling that we were incurring expenses of six figures to pay the attorney, Carpenter, Hazelwood, Delgado, Bolen, without any clear understanding of why.
After requesting over 3000 pages of documents including financials, it was discovered that from January 1 through December 31, 2023 – Power Ranch Community Association paid a total of $167,268.77 to CHDB – in other words, $142,272.77 over budget.
Question: who approved this??
Next question was why did the current board at the time (2022-2023) not disclose this fact to homeowners? While there is law surrounding executive sessions to discuss pending litigation, it is unethical and unlawful to not provide homeowners updates AND intentionally omitting disclosure that the Association had an open case to new homeowners who purchased homes in Power Ranch as of January 2023-current. It was uncovered and confirmed that in at least 3 incidents when a real estate transaction closed escrow and the disclosure form omitted information regarding the pending lawsuit.
Arizona Statute requiring HOA’s to disclose pending litigation to new homeowners.
See ARS 33.1806 -(g) “A statement of case names and case numbers for pending litigation with respect to the unit filed by the association against the member or filed by the member against the association. The member shall not be required to disclose information concerning such pending litigation that would violate any applicable rule of attorney-client privilege under Arizona law.”
Bad Legal Advice (?)
Here’s what we found out when we started examining the reasons for the rising legal fees (stay focused, lots of legal stuff coming):
Under the guidance and advice of legal counsel, Carpenter, Hazelwood, Delgado, Bolen (“CHDB”) the Power Ranch Community Association decided to file a lawsuit against Woodcrest East, LLC.
Woodcrest East is a condominium development situated at the Southeast corner of Germann and Ranch House Pkwy.
The recorded plat map from 2007 also states that it is a 120-unit condominium project that can be either rented or sold.
Litigation began in January 2023.
To date, the Power Ranch Community Association has paid Carpenter, Hazelwood, Delgado, Bolen over $170k in legal fees.
In January 2024, Woodcrest East, LLC fought back by filing a counterclaim in the amount of $13 million against Power Ranch.
Power Ranch does not have $13 million dollars to defend itself; therefore, an insurance claim was filed to defend the countersuit.
In most cases, when an Association files an insurance claim, the insurance company chooses a different law firm to handle the case. However, it is strange that the same law firm (CHDB) is also being paid by Power Ranch’s insurance company to fight the counterclaim. In other words, no matter how you look at it, CHDB is the law firm benefiting from both lawsuits.
The initial lawsuit was based on the argument made by Power Ranch’s attorney, Curtis Ekmark from CHDB. He claimed that Woodcrest East, LLC recorded their CC&R’s without Power Ranch’s approval.
When Ego Gets in the Way
According to court documents, the Power Ranch Board of Directors rejected the Woodcrest East CC&R’s because they received inadequate legal advice and was not provided an opportunity to review the CC&R’s. The Board argued that Woodcrest East planned to convert the property into rental apartments instead of selling them, which is untrue.
The Board of Directors were misinformed because Woodcrest East has always been condominiums and can be rented or sold. There are no restrictions on owners renting out their condo units, whether it is one owner or multiple owners.
The Declarations allow for a condominium development to be converted into an apartment development with Board approval. This would have allowed Woodcrest East to operate solely as an apartment rental development and relieved Power Ranch from any financial and maintenance liabilities. However, the Board voted against this conversion. But why?
Becky Cholewka testified that she believed approving the conversion of Woodcrest East into apartments would give Woodcrest East 120 votes. This is ridiculous and shows her lack of understanding of real estate and association law. In reality, if she and the rest of the 2022-2023 Board had supported the approval of the apartment conversion, Woodcrest East would be entitled to only one vote as an apartment development. In its current state which are approved condominiums, it is entitled to 120 votes.
Another argument that the 2022-2023 Power Ranch Board tried to justify for their decision is that Power Ranch Community Association would not benefit from the $2,500.00 per transaction capital improvement fee for each of the 120 units if the units remain unsold and used as rentals. While that could potentially be viewed as a reasonable argument, it could have been easily resolved through negotiations and the amount recaptured and triggered through a sale, and prevented the expenditure of $170,000+ in legal fees and now the potential risk of a $13M judgement that currently threatens Power Ranch. The decision made by the Board is irresponsible and fails to take into account the financial liability on homeowners.
Woodcrest East Condo Development
Location
Southeast corner of East Germann and South Ranch House Pkwy. Part of the Woodcrest Village at Power Ranch as proposed in tract declarations recorded in 2005 as condominiums.
Example of other similar projects and the proposed plans show luxury Class A condo units.
WHAT ARE THEY FIGHTING ABOUT ANYWAY?
ARGUMENT #1: Can Woodcrest East lease out its condo units?
ANSWER: This may be going off on a tangent but THIS is the reason why Power Ranch Community Association need real estate, legal, and association management specific experience on the Board. The legal counsel representing the Power Ranch Association is more concerned with padding its pockets than to advise the members away from lawsuits. The answer is YES, condo units can be leased, and here is why:
The Woodcrest condo tract was filed in 2005. The original condo CC&R’s for Woodcrest were filed in 2007 as a condominium development. Under Arizona law, condominiums can be sold or rented.
Check out ARS 33.1260.01 – “A unit owner may use the unit owner’s unit as a rental property unless prohibited in the declaration and shall use it in accordance with the declaration’s rental time period restrictions.”
NOTE: The Power Ranch Board of Directors have been led to believe that condos can only be sold and not rented. As a result, they hold a mistaken belief that Woodcrest is engaging in some forbidden activity. However, the truth is quite the opposite. Woodcrest is completely within their rights to rent out their units, as the Woodcrest East and master CC&R’s do not prohibit homeowners from doing so. Therefore, this should not be any different for Woodcrest East.
What does the Woodcrest East and Master CC&R’s say exactly?
THE POWER RANCH MASTER CC&R’s, recorded (1999): 1.) no rental restriction policy, 2.) contains language allowing leases.
WOODCREST CC&R’s, recorded (2007): 1.) No lease shall be of less than the entire unit, 2.) Any agreement for the lease of all of any portion of a unit must be in writing and shall be a period of not less than ninety (90) days. Transient occupancy or hotel use shall be prohibited.
In other words, as of 2007, Power Ranch recognized through the filed CC&R’s that Woodcrest can lease condo units, as well as have leasing offices.
Woodcrest East has never and have no intentions of utilizing the units as Short Term Rentals. It is confirmed by Woodcrest East that the development will consist of long-term rentals, with professional, onsite management.
Woodcrest East was acquired in 2019 and subsequently filed revised CC&R’s, following Power Ranch’s request, to accommodate the altered design elevation, necessitating a new plat map. This adjustment resulted in the reduction of the condo units from 3 stories to 2 stories. While carrying out this revision process, Power Ranch raised an objection to the CC&R’s, claiming that Woodcrest would be prohibited from leasing its condo units. Unfortunately, Power Ranch’s argument holds no legal foundation.
ARGUMENT #2: Can Power Ranch require Woodcrest East to add language prohibiting it from renting out their condo units?
ANSWER: No, because it is considered unreasonable.
The Power Ranch Master Declarations were first recorded in 1999.
The Tract Declaration for Woodcrest was filed in 2005. This tract declaration (“tract”) was the first step in creating condominiums that are known as Woodcrest East and Woodcrest West. The tract declarations state:
“The Lots hereafter…shall be developed and used for residential Condominium Development…and for no other purpose.”
Section 5 of the Master Declarations explains that any future sub-association documents (i.e. Woodcrest East CCR’s) must be approved by the Board, with this specific language: “The approval of the Board required by this Section 5 shall not be unreasonably conditioned, withheld, or delayed.”
In 2022, Power Ranch’s Board of Directors through legal counsel advised the Board and then ultimately withheld the approval of the Woodcrest East CC&R’s solely on the basis that Woodcrest East would not agree to add a rental prohibition. The approval is considered unreasonable as the previously approved Declarations for Woodcrest East allowed rentals.
A few things to consider:
1.) The Knolls and the Village, which as sub-associations within Power Ranch allow a condo unit owner to rent their condo units.
2.) Power Ranch Master Declarations allow rentals throughout the Power Ranch Community.
2022-2023 BOARD OF DIRECTORS
In many ways, it is understandable why the former members of the Board, particularly Becky Cholewka and Matt Dominy, felt compelled to hold onto Board positions. Because remaining on the Board will provide them legal protection through the Power Ranch Community Association umbrella. Both of these Board Members were deposed due to the ongoing legal proceedings earlier this year.
Other former Board Members named in the lawsuit: Stephen Whitworth, Heather Parker, Gary Whechel.
WHAT ARE YOUR THOUGHTS?
Last modified: July 13, 2024
There have been many shady dealings and harassment going on for quite sometime. It’s also unbelievable that our fees have gone up approximately 5 times in almost 3 1/2 years. Cynthia Badger drives around non stop trying to fine people and sending out unnecessary letters. This has created very bad and suspicious feelings within this community of neighbors.
That intersection is already a nightmare. What’s going to be done to handle the additional traffic?
Beyond ridiculous! How do we stop the bleeding? I am tired of our HOA fees increasing due to others stupidity. Having someone drive around to send letters regarding fines isn’t going to make up for money lost due a lawsuit that should/could have been avoided to begin with
So as home owners in Power Ranch what are the recommendations to resolve the issues? Very concerning to have our fees continue to rise and amenities taken away such as no funds to heat one Knolls pool although we pay extra fees for this amenity. I believe most board members want to improve and support the community they live in and pay dues themself. The payment amount for legal is substantially over budget, yes very concerning. Where do we go from here?