By Wes P. Wollenweber, Resolve ADR Group
As someone who has litigated community association legal disputes for many years, and now mediates those conflicts, I have a strong bias in favor of alternative dispute resolution (ADR) for these cases. As to why, disputes over property rights, property values, and people's homes tend to be among the most emotionally charged cases I have handled in my career. As a result, people in the dispute spend thousands of dollars in litigation where they often regret going to the mat. All too often, those who win a covenant or other common HOA disputes lose financially in the end. HOA litigation creates financial burden to the members of a community, causes significant interruptions in peoples' lives, including those community managers that are dragged into the litigation, and poses financial risk when the outcome is weighed against the money spent. With that, ADR provides opportunities to control both the outcome and cost of a dispute. There are pros and cons to ADR but for community association disputes, the advantages are significant.
Types of ADR for Associations
The two common forms of ADR that pertain to community disputes are mediation and arbitration. As many know, mediation is a confidential settlement process where a neutral third party facilitates settlement negotiations between the parties to the conflict. More and more, courts are requiring mandatory mediation in all types of civil litigation cases. So, in a community legal dispute, the chances of being forced to mediate the case are high. Is that a good thing? When a case is mediated and the parties do not settle, then no one feels like it is a good thing because of the perception that money has been wasted on the mediator for a case that may go all the way to trial. However, good mediators help the parties understand the strengths, weaknesses, and points of risk in their cases. So, there is always an advantage to mediation, even when the case does not settle: it helps the parties evaluate their situations going forward and the parties get heard.
The second common ADR format is binding arbitration, where the parties choose an arbitrator to serve as a private judge. Arbitration is very similar to going to court, except the parties in a dispute do not pay the judge. In arbitration, you pay for the arbitrator's time and possibly for the administration of the private dispute. Some arbitrators provide non-administered arbitrations to keep the cost down. Many community construction defect cases go to arbitration. The process is faster than court, or should be, and while it can be more expensive, arbitration often increases the chances of a faster outcome and more certainty of getting some or all of what you hope for. In addition to these formats, facilitation and med-arb exist for associations. Facilitation is a process sometimes used to help boards with deadlocked decisions. Med-arb is a hybrid of mediation and arbitration, and while controversial, can work well for smaller HOA disputes.
ADR Today
In the 2024 legislation session, Colorado passed HB 1337. Among a variety of statutory changes to the association collection process, this bill amended ยง 316 of CCIOA and requires an association to attempt mediation with a homeowner before filing a judicial foreclosure claim in a lawsuit. These changes allow an association to judicially foreclose if the delinquent homeowner does not agree to mediation or fails to cooperate in selecting a mediator. This legislative action signifies our legislature's view that mediation is important in association disputes. Similar bills could follow.
As to whether mediation or arbitration makes sense, HOA general counsel and community managers all know that litigation can greatly impact a community's budget. Worse, letting a judge or jury decide a case is a major roll of the dice. When determining whether litigation will be worth it, a crucial consideration is whether either party to a dispute can recover their attorneys' fees. Compared to all other types of litigation, HOA cases are the riskiest in terms of judges awarding attorneys' fees. Judges do not always award a prevailing party all its attorneys' fees. It is hard to be made whole in these cases. Mediation is a great way to avoid the risk of those upside-down expenses and fashioning your remedy without that risk. When cases are settled in mediation, the parties are done spending money on attorneys' fees and control their financial bottom line.
The parties in an HOA dispute, such as owners, board members, community managers, need to be heard. More importantly, they often must live together long after the dust settles. Mediation gives them a voice, explores their real interest in the dispute, and can bring about a resolution that builds a permanent solution among neighbors. Mediation negates risk and empowers the parties to figure out their own solution and not gamble on a judicial outcome. Arbitration can save major time, and even expense if done right. As our world changes, ADR is a great leveler - keeping the parties in control of their pocket book and outcome.
Wes Wollenweber is a 26-year trial attorney, as well as a credentialed mediator, and arbitrator. He is the founder of ReSolve ADR Group in Lakewood. After 26 years of litigating complex HOA disputes, employment cases, construction, real estate, and other similar maters, Wes focuses his ADR practice in these areas.
