Stienstra v. Cedar Ridge HOA: Analysis of Rehearing Decision

Executive Summary

This document provides a comprehensive analysis of the Rehearing Decision in the case of Steven D. Stienstra v. Cedar Ridge Homeowners Association (HOA), No. 19F-H1918033-REL-RHG. The central conflict, which initially concerned violations of the HOA’s rental restrictions, evolved into a dispute over the validity of attorney’s fees the HOA sought to impose on the homeowner.

The Administrative Law Judge (ALJ) ultimately ruled in favor of the petitioner, Steven Stienstra, finding that the HOA had failed to follow the proper enforcement procedures outlined in its own Covenants, Conditions, and Restrictions (CC&Rs). The HOA misapplied Section 1.1 of the CC&Rs to justify its demands for legal fees and bypassed the required due process steps outlined in Section 18. Despite the homeowner’s initial violations, the ALJ concluded that his subsequent compliance rendered the HOA’s escalating enforcement actions and fee demands unauthorized. The final order requires the HOA to reimburse Mr. Stienstra for his $500.00 filing fee, underscoring that an HOA’s reliance on legal counsel does not absolve it of its obligation to adhere strictly to its governing documents.

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1. Case Background and Timeline

The dispute originated from rental activities at a property purchased by Steven Stienstra in August 2017 within the Cedar Ridge HOA in Sedona, Arizona. The case progressed through an initial hearing, a decision in favor of the petitioner, and an HOA-requested rehearing.

Aug 2017

Steven Stienstra purchases a residence in the Cedar Ridge HOA.

Dec 2017 – Apr 2018

Stienstra’s son manages the property, which is used by family, friends, and eventually generates revenue from short-term rentals via a VRBO listing.

Apr 2018

HOA President Bill Ferguson calls Stienstra about the short-term rental activity, which violates the CC&Rs. Stienstra testifies that he agreed to stop, and his son subsequently deactivates two of three VRBO listings and sets the third to a 30-day minimum.

Apr 26, 2018

The HOA makes its first noted contact with an attorney regarding the matter.

May 11, 2018

The HOA’s attorney sends the first Cease & Desist letter to Stienstra, demanding cessation of all rentals under 30 days within a ten-day period, citing Section 1.1 of the CC&Rs.

Jun 1, 2018

A second Cease & Desist letter is sent. While acknowledging Stienstra’s written statement of compliance, the letter demands payment of $1,500 for attorney’s fees.

Jun 17, 2018

A third Cease & Desist letter is sent, alleging new violations via a Facebook Marketplace ad for renting individual rooms. The demand for attorney’s fees increases to $2,600.

Sep 4, 2018

Three HOA Board members hold an “unofficial” meeting with Stienstra at his request.

Nov 2018

Stienstra files a formal petition with the Arizona Department of Real Estate, alleging the HOA violated its own CC&Rs.

Oct 7, 2019

The initial administrative hearing is held.

Nov 15, 2019

The ALJ issues a decision in favor of Stienstra.

Dec 19, 2019

The HOA files a request for a rehearing, claiming the initial decision was “arbitrary, capricious, and an abuse of discretion.”

Mar 12, 2020

The rehearing is conducted before ALJ Kay Abramsohn.

Apr 1, 2020

The ALJ issues the final Rehearing Decision, again finding in favor of Stienstra.

2. The Central Dispute: From Rental Violations to Legal Fees

The core of the legal conflict shifted from the homeowner’s initial non-compliance to the HOA’s methods of enforcement and its subsequent demands for reimbursement of legal fees.

Initial Violations

• Short-Term Rentals: From approximately December 2017 to April 2018, Stienstra’s son listed the property on VRBO and engaged in rentals for periods of less than 30 consecutive days, a direct violation of CC&R Section 1.1.

• Partial Property Rentals: After the initial phone call from the HOA President, Stienstra’s son posted an advertisement on Facebook Marketplace to rent out individual parts of the home (e.g., a “basement unit”), which violated the Section 1.1 requirement that an owner may not lease less than the “entire lot.”

Homeowner’s Stated Compliance

• Following the April 2018 phone call from HOA President Bill Ferguson, Stienstra testified that he immediately instructed his son to cease all short-term rentals. His son took down two of the three VRBO listings and modified the remaining one to prevent bookings of less than 30 days.

• When informed of the Facebook Marketplace posting via the June 17, 2018 letter, Stienstra stated he was previously unaware of it and immediately had his son take it down. He further stated no leases resulted from that posting.

HOA’s Position and Escalation

• The HOA Board did not believe the violations had ceased after the initial phone call. Their position was based on:

◦ The fact that one VRBO listing “remained active” online.

◦ The observation that the “presence of vehicles outside the home changed on a regular basis.”

• HOA Secretary Vic Burolla expressed deep distrust, stating in a hearing, “there’s no reason to suspect we would have been told the truth.”

• Based on this suspicion and the advice of their attorney, the Board chose to pursue enforcement, leading to a series of cease-and-desist letters and escalating demands for attorney’s fees, which became the primary issue of the case.

3. Analysis of HOA Enforcement Actions and Failures

The ALJ’s decision provides a detailed critique of the HOA’s enforcement strategy, concluding that it fundamentally misapplied its own governing documents and denied the homeowner required due process.

The Choice of an Improper Enforcement Path

The HOA had two primary enforcement mechanisms available in its CC&Rs: Section 1.1 (specific to leases) and Section 18 (general enforcement). The Board made a strategic decision to proceed exclusively under Section 1.1.

• HOA’s Rationale: Board Secretary Vic Burolla testified that the Board chose Section 1.1 because it “seemed more expeditious, to be able to collect” legal fees compared to the process in Section 18.

• ALJ’s Finding: This was a critical error. The ALJ concluded that Section 1.1’s provision for cost recovery applies only in a specific circumstance: when an owner fails to take legal action against a non-compliant occupant (tenant), forcing the HOA to step in and sue the occupant on behalf of the owner.

• The Reality: Stienstra did take action by instructing his son to stop the violating activities. The HOA never took legal action against an occupant. Therefore, the expenses incurred by the HOA (i.e., its own attorney’s fees for writing letters to the owner) were not recoverable under the plain language of Section 1.1.

Failure to Provide Due Process under Section 18

By avoiding Section 18, the HOA bypassed a clear, multi-step due process requirement. Section 18 mandates that the Board must:

1. Notify the owner in writing of the breach.

2. Give the owner 30 days to appear before the Board to respond.

3. Provide a reasonable time (not to exceed 60 days) to remedy the breach.

The HOA failed on all counts:

• The initial April 2018 phone call was deemed an “informational call,” not the required formal written notice.

• The HOA explicitly denied Stienstra was entitled to a formal meeting, though it granted an “unofficial” meeting on September 4, 2018. The ALJ found this did not satisfy the requirement to “appear before the Board of Directors.”

Unauthorized Demand for Fees

The ALJ found the HOA’s demands for payment to be improper and punitive.

• The June 1, 2018, letter demanded “$1,500.00 to recover attorney’s fees and costs,” but then specified this was a “number authorized by the Board as a flat amount to resolve the matter.”

• The ALJ concluded this was not a demand for actual fees incurred but was functionally “either a settlement offer or as some sort of fine, which is not authorized under Section 1.1 but only under Section 18.”

4. Key Legal Arguments and ALJ Conclusions

At the rehearing, the HOA presented several legal arguments to defend its actions, all of which were systematically dismantled by the ALJ.

HOA’s Argument

ALJ’s Conclusion

Reliance on Legal Counsel: The Board acted in good faith by discharging its duties based on the advice of its attorney, as permitted by A.R.S. § 10-3830.

Following an attorney’s advice does not absolve the Board of its duty to comply with its own CC&Rs. The actions taken were outside the parameters of the CC&Rs, making the legal advice irrelevant to the outcome. The remaining letters were “not within the purview of Section 1.1 or Section 18.”

Petitioner’s “Unclean Hands”: Because Stienstra initially violated the CC&Rs, he should not be able to seek relief from the Department for the HOA’s subsequent actions.

This equitable defense was rejected. The ALJ clarified that the remedy Stienstra sought was monetary (reimbursement of a filing fee), not equitable. The homeowner’s initial violation does not permit the HOA to violate its own enforcement procedures in response.

Justification for Action: The HOA’s belief that violations continued was reasonable based on the active VRBO listing and the presence of multiple cars.

The HOA acted on suspicion rather than confirmed facts. It had a duty to investigate further rather than simply disbelieving the homeowner’s claims of compliance. The ALJ noted that despite Stienstra’s explanation, the “HOA determined to continue enforcement action.”

Contradictory Testimony: At the initial hearing, the HOA Secretary claimed to be “not aware of any specific instructions in the CC&Rs” for enforcement. At the rehearing, he testified that the Board had discussed the options under Section 1.1 and Section 18.

The ALJ found it “implausible that the Board’s Secretary was ‘unaware'” of the CC&Rs’ enforcement procedures, suggesting the Board knowingly chose to bypass the proper channels.

5. Final Order and Implications

The Final Order: The ALJ ruled that Steven Stienstra is the prevailing party. The Cedar Ridge HOA is ordered to reimburse Stienstra for the $500.00 filing fee.

Implications: The decision serves as a powerful reminder that homeowners associations are bound by the explicit procedures laid out in their own governing documents.

• Adherence to Due Process: An HOA cannot selectively choose enforcement mechanisms to achieve a desired financial outcome, particularly if it means bypassing clear due process requirements for homeowners.

• Limitations of “Reliance on Counsel”: While seeking legal advice is prudent, it does not provide a shield for actions that are explicitly contrary to the association’s CC&Rs.

• Enforcement Based on Fact, Not Suspicion: An HOA’s belief or suspicion of an ongoing violation is not, by itself, sufficient grounds for continued punitive action when a homeowner has provided evidence of compliance. The burden is on the HOA to verify, not just assume.