By David Ford-Coates, Alliance Association Bank

When managing your association’s funds, the number one concept to remember is, it is not your money! You are a fiduciary who is responsible for the funds of a non-profit corporation, owned by all the individuals in the association. Your first priority should always be safety of principal, with return on investment as a secondary, or even tertiary objective. It is all too common where HOA’s flip these priorities.  

The temptation for boards to “chase a higher yield” is always there and it can create more inherent risk, especially if it leads to the association making unsuitable investments. Chasing yield has been more prevalent over the past 12+ years, for several reasons. The most important being that as a society we have dealt with a historically low interest rate environment. This has affected savers a great deal (both corporate and individual). Even as we head into a rising interest rate environment, we will likely see bank interest payments on deposits lag behind. This is because there are also historically high levels of cash and banks are carrying these deposits. Therefore, the banks are not currently incented to increase interest payments to drive in deposits. The good news is this is cyclical. Interest rates will eventually rise, and if the principal is safe, your HOA will benefit. On the flip side, it can be tough to replace a market loss when making unsuitable investments. That’s why we always need to stay focused on priority number one – safety of principal. 

It is a best practice for community association boards to establish and maintain a clearly defined Investment Policy, so the treasurer and community association manager always know what actions to take with the association’s funds. This keeps the board from having to meet every time there is a surplus of funds or a CD comes due. The Investment Policy will address the amount of money to be held in the operating account and what happens when the account goes over or under the target balance. It will also address how the reserve funds should be invested. Areas to consider when developing or updating the IPS should include safety of principal, time horizon for investing, liquidity needs, and target return on investment. You may notice that I listed return on investment last. 

For example, some associations elect to keep funds invested in FDIC insured CD’s with maturities less than one year. This is a conservative approach, but it keeps funds liquid, generates some interest, and FDIC insurance is considered the “Gold Standard” when it comes to principal protection. For large balances over $250,000, some banks offer excess-FDIC programs like the IntraFi Network (Formerly ICS & CDARS), which offers liquid and certificate of deposit options to keep up to tens of millions of dollars in deposit balances FDIC insured. This eliminates the need to run all over town looking for another bank to place a $250,000 account and dealing with multiple signature cards. 

Another common investment strategy for associations is to ladder certificates of deposit (CDs), which can maximize interest income, while at the same time maintain an ideal level of liquidity. Since we are likely heading into a rising interest rate environment, it’s currently common practice to keep the duration to less than 12 months. If you have $100,000 to invest, you could consider opening a 3-, 6-, 9-, and 12-month CD each for $25,000. As they mature, roll them into a 12-month CD. In nine months, the association will have four 12-month CD’s that mature every 90 days.

Associations that keep high balances in their checking accounts and spend more than $250,000 per month might consider utilizing a sweep account. In a sweep account the association can set a target threshold for their checking account that is constantly met by sweeping funds in and out of a separate investment account. These funds are often invested in money market instruments and backed by the full faith of the federal government. Many excess-FDIC programs offer this feature, as well. 

In closing, I recommend being “boring” with banking and investments and “aggressive” with reserve contributions and capital planning. That simple philosophy will help you maintain a financially stable community in this ever-changing environment.

David Ford-Coates is Vice President of HOA Banking for Alliance Association Bank in Colorado.

By Steve Walz, RealManage

1. Bringing proposals for consideration from a company either owned by a Board Member or relative/close friend.  According to the Professional Manager Code of Ethics, ‘Managers shall disclose all relationships in writing to the client regarding any actual, potential or perceived conflict of interest between the Manager and other vendors. The Manager shall take all necessary steps to avoid any perception of favoritism or impropriety during the vendor selection process and negotiation of any contracts.’
2. Voting for a community improvement that would directly benefit them, while not benefitting others. This might include making repairs to only their deck or doing siding replacement on only their building, even if another building has more damage and should be addressed sooner. It’s the board member’s duty to do what’s best for the community as a whole. 
3. Choosing which homeowners should be sent to attorney for collections.  Each homeowner should be treated equally as it relates to the rules and regulations.  If a board member is lenient with a homeowner (perhaps because they’re friends) they have to allow the same leniency with all homeowners. Having set policies in place and following them for every homeowner will eliminate the potential for favoritism.  
4. Selective enforcement of who receives covenant violation notices. This is very similar to the aforementioned in #3, above.  Once again, the BIG rule of thumb to remember here, is treat everyone the same! If you’re going to violate someone for have grass over 3” in height, you better violate everyone who has grass over 3” in height.  If you don’t, it could potentially be a violation of the Federal Fair Housing Act. 
5. Changing rules and regulations for personal reasons and not taking into account the needs and wants of the community.  Each HOA community has (or should have) set standards included in their governing documents as it relates to architectural, appearance, landscaping, maintenance, restrictions, etc. These standards set the tone for the community.  When buying a house in an HOA community, you’re also buying into HOA’s governing documents.  If the governing documents require each home to have one tree in their front yard, and someone on the Board has a dead tree in their front yard, they can’t just expunge that regulation simply because they don’t want to have to buy a new tree.  

Steve Walz, CMCA, is the Vice President of Operations – Colorado for RealManage. Steve recently joined the CAI-RMC Editorial Committee. His self-care includes hanging out with his dogs, playing piano, cooking and a glass of wine on his balcony.

By CAI Headquarters

CAI encourages all designation holders to review the revised Designation Ethics Enforcement Procedures and the Professional Manager Code of Ethics and Certified Insurance & Risk Management Specialist (CIRMS®) Code of Ethics.

• CAI Professional Manager Code of Ethics and Clarification Document – affects designees holding an AMS®, PCAM®, LSM® or an AAMC®.
• CIRMS Code of Ethics and Clarification Document
• Designation Ethics Enforcement Procedures – impacts designees holding an AMS, PCAM, LSM, RS®, CIRMS or an AAMC.

The CAI Board of Trustees approved revisions to the Professional Manager Code of Ethics by:

• Expanding Code 2 to define duties owed to CAI.
• Making clarifications to Code 8.
• Further defining the management and mismanagement of Client funds in Code 10.
• Further defining unprofessional behavior in Code 13.
• Making clarifications changes to Code 14.

And revisions to the Professional Manager Code Clarification Document by:

• Creating a Preamble.
• Simplifying the applicability of the Code under the Definitions.
• Further providing amplification and clarification to Codes 2, 4, 14 and 15.

The Board of Trustees also approved revisions to the CIRMS Code of Ethics by:

• Clarifying continuing education as required in Code 2.
• Simplifying Code 5.
• Eliminating Codes 7 and 10 from Code of Ethics and renumbering the Codes.
• Adding Code 9 that provides: CIRMS shall “Deliver insurance policies and loss history(ies) in a timely manner.”

And revisions to CIRMS Code Clarification Document by:

• Referencing the actions in the eliminated Code 7 falls under Code 1.
• Simplifying the amplification of Code 5.
• Removing the amplification of the eliminated Codes 7 and 10.
• Amplifying the new Code 9.

The Board of Trustees approved revisions to the CAI Code of Ethics Enforcement Procedures by:

• Further defining the application of the Code under the Scope and Allegations.
• Clarifying the nominating and appointment process for members of the Designation Ethics Committee (the “Committee”).
• Further providing guidance on the appointment of a Hearing Panel.
• Providing guidance on the filing of a complaint by a member of the Committee or the Committee itself.
• Clarifying the Inquiry processes.
• Clarified the process for recommending Sanctions.
• Removed the non-payment of designation fees from the list of special situations.

The revised changes and documents are effective upon publication. Please maintain your integrity—keep up to date on these important changes. Please click here for more information on professional credentials.

By Justin Bayer, Knott Laboratory, LLC 

When it comes to the reconstruction and restoration of HOA communities, the civil and structural engineers who make up a part of this niche market are accustomed to working behind the scenes. After all, there’s nothing high-profile and flashy about designing repair plans, pulling permits, or writing up engineering reports about potential issues within a community.  Some recent, tragic events have flipped that script around and shone the spotlight directly on the engineering side of this industry.  The collapse of Champlain Towers South and the even more recent failure of the Forbes Avenue Bridge in Pittsburgh have created an awareness into a topic that engineers have long feared was falling on deaf ears; deferred maintenance in our communities can lead to catastrophic consequences. 

Clearly, these are extreme circumstances, and not every situation is dire straits when it comes to deferring maintenance and its impact on structures.  That being said, the awareness these current situations have created can go a long way toward preventing catastrophes due to deferred maintenance in the future. 

There are many ways that a civil or structural engineer can assist a community, and this article will aim to point community managers, Board members, and contractors toward some situations in which you can or should contact an engineer. (It should be noted that most engineers within our CAI community are more than happy to be a resource and answer questions for the communities we serve, so never hesitate to ask!) 

The most common way to engage an engineer is when your community is in need of a repair/reconstruction project. This would be for things like deteriorating framing of stairs, decks, and patios, as well as foundation issues, severe cracking, negative drainage, moisture intrusion, and a myriad of other similar issues. It’s always a great idea to start with engineering because this gives the community a chance to have their potential problems assessed by a third-party, independent expert.  This allows for the community to get a report and/or design plans which can then be sent to general contractors to bid. 

Another way to engage a civil or structural engineer would be for construction defect concerns.  An engineer will often work with an attorney to diagnose issues with new build construction, which is then used in mediation or in court to fight for a settlement that the community will use for repairs.  Once a construction defect case is settled, a community will bring on a civil/structural engineer to work with the Board to prioritize repairs (life safety, building safety, community concerns, and aesthetics). Once repairs have been prioritized, the engineering team will design the repair plans for general contractors to be able to provide pricing to conduct the repairs. 

There has been an influx of requests over the last 7 months (and rightfully so) for facility condition assessments.  This is essentially having an engineer provide a report about the current state of the building(s).  The eye-opening tragedy in Surfside, Florida has led many communities to gain a new-found concern for the level of deferred maintenance that their aging infrastructure may have. An engineer will be able to provide a report that details the visible building systems and informs the community on when those systems should be investigated further. For example, let’s say the engineer noted in the report that the stairs are in a deteriorated state, and that this should be addressed as soon as possible.  Now the community can work with the engineer and a contractor of their choice to further investigate the root-cause of the stair issue.  Keep in mind, destructive testing is often the only way that engineers can truly see what is happening inside of something like a ceiling, foundation, staircase, or balcony. A facility condition assessment can give a community a reason to investigate further, which can assist with knowing which items suffering from deferred maintenance should be addressed, and in what order.  

So, now you know a bit more about when to call an engineer, why it is a great resource for the community to have an engineering firm representing their best interests, and where the engineering role falls into place as it concerns reconstruction projects. 

Let’s wrap up with some terms which you may see when dealing with engineers on your projects:

• Civil Engineering - Civil engineers design, build, and supervise infrastructure projects and systems. In this instance, civil engineering often refers to engineering involving the land surrounding a building, which includes drainage, grading, pipe networks, etc. 
• Structural Engineering - Structural Engineering is a specialty within Civil Engineering. Structural Engineers create drawings and specifications, perform calculations, review the work of other engineers, write reports and evaluations, and observe construction sites. A Professional Engineer’s license is required in order to practice both Civil and Structural Engineering. A license can be obtained only after completing a prescribed amount of education and work experience and taking a 2-day exam.

• Building Envelope – This term refers to the “shell” of the building, which aims to provide climate control, water and water vapor resistance, and protection from the elements.  This term encapsulates the roof, foundation, exterior walls (including windows and doors), and insulation. 

• Value Engineering – Value engineering is the consideration of wide-scale, holistic, project-wide conditions to achieve the most cost-effective and functional design. Essentially, this term refers to ways in which creative solutions between the engineer, owner, and the contractor can save the community money and stretch those resources to be able to accomplish more. 

• Destructive Testing – Destructive testing is utilized to understand the cause of the failure of a building’s systems and components. This process involves taking apart a portion of a building to gain an understanding for how/why the material or system is failing, or to understand how it was constructed.  

Knott Laboratory has been in operation for over 40 years and is the premier resource for forensic engineering in the HOA, Apartment, and Commercial industries in Colorado, Arizona, and Texas. Justin Bayer, Director of Business Development, currently serves on the Board of Directors for the CAI-Rocky Mountain Chapter. 

By Bryan Farley, Association Reserves, CO LLC

When looking at the component list on the Reserve Study, the reader will need to understand that there are generally five ways a component can fail. Just because the Reserve Study indicates that a specific component needs to be replaced, does not mean that it has to be replaced. Rather, the Reserve Study is indicating that the component has reached the end of its useful life. 

However, there are specific components that should never be deferred. This includes life safety equipment (elevators, fire control panels) as well as protection projects (painting, asphalt sealing). 

When considering project timelines for your property, here is a guide that can help your board establish what projects should be prioritized. 

Inconsequential

• • An inconsequential failure is when a component like a garage opener/operator fails. This type of failure can be fixed when it is non-operational or can be replaced fairly quickly. Other examples include fan belts, tiled carpet replacement, pool heater exchangers. 

Re-Evaluate

• • A re-evaluation failure is when a component has reached the end of its life, but could probably be replaced in the next year or two. This could include the somewhat wobbly perimeter fence that surrounds the neighborhood. The board could fix the problem areas now, and re-evaluate the full replacement next year. 

Obsolescence 

• • An obsolescence failure is when a component has subjectively reached the end of its useful life but still serves its purpose. Examples include outdated furniture in a lobby or exercise equipment that still ‘works’ but is past its prime. In other words, the component can still be utilized but is now outdated. 

Protection

• • A protection failure is when a maintenance project is deferred leading to larger problems. Examples include: failing to seal the asphalt, neglecting to paint the wood trim on the buildings, or not painting the metal fencing around the pool. If these components are deferred and not taken care of, the board will now need to prematurely replace these components or these components may not reach their expected lifespan. The cost difference between a replacement project can be as much as 10x-20x more than the protection project. 

Catastrophic

• • A catastrophic failure is when the replacement of a life safety system is not anticipated which could then lead to potentially life-threatening situations. Examples include failure to plan ahead for the eventual modernization of the elevators (which could cause month-long repair delays, which is unfortunate for a 30-story building), boiler systems (hot water going out on Christmas!), or water intrusion due to a leaky roof. 

This guides your project timing decisions… do it now or delay. Bottom line: Don’t delay Protection or Catastrophic projects! 

Bryan Farley is the president of Association Reserves, CO LLC has since completed over 2000 Reserve Studies and earned the Community Associations Institute (CAI) designation of Reserve Specialist (RS #260). His experience includes all types of condominium and homeowners’ associations throughout the United States, ranging from international high-rises to historical monuments.

By Arthur Beisner, RowCal

Many homeowners association boards shy away from addressing day-to-day maintenance needs and may be unwilling to spend assessment funds for preventative maintenance. That apprehension is often motivated by a genuine desire to keep HOA dues low or simply due to indecision from a good faith desire to make only the right decisions. Whatever the motivation, failure to address a community’s maintenance needs has long term consequences for the community, consequences which inevitably are more costly.

In an effort to keep HOA dues low and to save a nominal monthly sum, a community will experience first devolving aesthetics, leading to heightened frustration lessening the sense of community, and ultimately decreased property values—and, if left unchecked, more severe structural or infrastructural problems will not be uncovered until an emergency repair costs more in a day than years’ worth of preventative maintenance would have cost. A few dollars saved today may be a few thousand dollars spent tomorrow.

A lack of carefully planned preventative maintenance increases the need for regular, day-to-day maintenance, and failure to address regular maintenance needs results in deferred maintenance, which becomes increasingly more costly the longer it is left unaddressed. To make matters worse, as maintenance gets consistently deferred, the community’s needs snowball until identifying clear priorities and funding becomes a challenge.

The challenging decisions boards face is understandable: how do you keep HOA assessments cost-effective in the present for your neighbors when both the cost of maintenance and age of the community are increasing every year?

Ultimately, boards as volunteers will often rely on professionals to guide them through these challenges. Just as board members have a fiduciary responsibility to their communities, professionals in management have a duty to offer responsible and thoughtful guidance. While the easy road is to nod in agreement when the consensus is to keep assessments low, professionalism requires arguing for unpopular opinions, and painting a clear picture of what years of deferred maintenance becomes.

Fortunately, there are a few strategies up front that HOA boards can use to lessen the impact of paying for and taking care of proper maintenance, however they all require consistency:

• Yearly budget increases that mirror (at a minimum) the inflation rate will lessen the likelihood of large increases every several years to play catch up.

• Obtaining a reserve study (and funding reserves accordingly) every few years will lessen the likelihood of large special assessments when entropy has run its course on a given capital component.

• Preparing, budgeting for, and following a preventative maintenance plan will put the community in a cash-positive position to ensure upkeep is done from touching up paint to maintaining an old boiler system. Proper preventative maintenance extends the life of a property and stretches reserves dollars.

Of course, these tools are only as good as the consistency with which they’re used—a reserve study, for example, is just another expense as long as the association refuses to fund reserves. As professionals in management, recommending and following through with the use of these strategies can make all the difference.

But what should a manager do if a board pushes back against funding and performing necessary maintenance for the community?

At the risk of sounding too reductive, the answer is simple: be honest.

The popular answer might keep the smiles and good vibes going in the board meeting. Agreeing that the siding that’s starting to fade or even rot can wait till next year so the budget won’t go up may make board members feel good. Convenience may call for just painting over some of those old ugly water stains that won’t go away. But applying band aids where surgery is required is disastrous in the long run. As professionals, we know this to be true and taking the neutral position of order-takers for the board does a disservice to the communities we serve.

So, be honest. Be honest and share anecdotes gained by every-day experience. Share the real-life stories of astronomical special assessments, 2 A.M. emergency mitigation calls, denied insurance claims due to preexisting damage, and even receiverships. We see the consequences every day of bad decisions made a decade ago, and we have a responsibility to guide the communities we serve to make decisions that will bring success over the next decades.

It doesn’t feel good to raise assessments 5, 10, or 20%. But it’s worse to keep dues artificially low. As professionals, we should be offering strong guidance to our communities. And when board members push back, whether from cost-concerns or otherwise, argue with conviction and don’t be shy to remind them that they’re paying a professional with experience for a reason. It’s not always easy, but it’s always right. It’s either pay a little now or pay a lot later.

As the old saying goes, an ounce of prevention is worth a pound of cure.

RowCal is an HOA Management Company that delivers full-service management and maintenance solutions, through empowering Community Managers who are supported by a team of subject matter experts. At RowCal, we assist boards in preparing and following preventative maintenance plans and our efficient monthly maintenance programs keep communities ahead of maintenance issues.

Arthur Beisner began his career in the HOA industry managing a high-rise condominium building in Miami Beach, Florida, and has been with RowCal in Colorado since December, 2020.

By Chris Marion, 3.0 Management

It is common knowledge that community associations often struggle to adequately fund property maintenance and upkeep. The unfortunate outcome is something that no manager, board member, or HOA resident wants, yet it continues to happen year over year. At best, the property appears unkept and unsightly. At worst, the property may experience serious hazards or safety concerns due to deferred maintenance. 

Board members and community managers alike always speak to the importance of being proactive, rather than reactive when it comes to property maintenance. Being a responsive manager is undoubtedly important in this proactive endeavor. Work orders need to be received and issued in a timely manner. Vendors need to be scheduled and given the right amount of information to complete the work successfully. However, the deferred maintenance scenario is not always a result of poor management. Rather, many times, an association’s lack of financial planning is the true cause.

In this article, let’s look at five ways to adequately plan for property maintenance from a financial standpoint:

1. Understand the difference between maintenance and capital expenses.
   Capital expenses are larger construction projects that require major renovation, repair, or complete replacement of a common element. Maintenance on the other hand, refers to scheduled and unscheduled activities to maintain the common elements, but does not require a comprehensive repair. Maintenance expenses are typically funded by an association’s annual operating budget, whereas capital expenses are almost always funded through association reserves, or a custom financing scheme.
   

It is important to acknowledge the difference between these two categories and to understand when good money is being thrown at bad. A quick sealcoat might enhance the appearance of a parking lot for example, but if the asphalt needs a more comprehensive repair like a mill and overlay, the maintenance money would be better appropriated towards the larger capital improvement project.

1. Analyze previous year’s financials.
   Board members and managers should aim to utilize all available information when it comes to budgeting. Studying previous years’ financial statements are a great place to start. Try to get a feel for noteworthy maintenance expenses on the property. Is the association historically overbudget in one category of expenses or another? Are there any obvious explanations? Don’t forget to look for extraordinary events that caused overspending like a large supply-line leak that damaged several units, for example.
   
2. Evaluate frequency of work orders.
   Evaluating work order reports should increase the understanding of maintenance expenses on the property. Let’s say a multi-building townhome complex is overbudget on plumbing expenses every year. By scanning the work order history, we find that a particular building on the south side of the property is the main offender, with an average of two sewer backups every month. A sewer scope finds the drainpipe to be fractured in a few places, allowing debris and tree roots to constrict the pipe diameter. The full repair is expensive, but it also greatly reduces the frequency of sewer backup events, which keeps the association back within budget on an annual basis.
   
3. Identify opportunities for contracted work.
   Evaluating work orders can also highlight other maintenance trends that could be addressed more efficiently. Instead of paying for a trip charge, time, and materials for a lightbulb change for example, an association may choose to utilize an onsite or day-porter service a few times a week to complete the same task at a better cost.  Maintenance issues that need to be completed on a recurring or seasonal basis, are always great candidates for planned, contracted work. 
4. Develop a preventative maintenance program.
   The goal of a preventative maintenance program is to organize each of these moving parts into a unified effort. By doing so, a level of predictability can be achieved where maintenance costs are anticipated and planned for ahead of time. A good program is typically built around skilled onsite staff, partnerships with construction firms, tasks that are actionable, and outcomes that can be measured and evaluated on a monthly or annual basis. 

Maintenance issues are not going anywhere in the community association industry. It is an issue that we will continually learn to solve in creative ways.  Many communities are realizing the benefits of diligent analysis and the ability to look at community comprehensively. By investing time and effort into these types of planning activities, we’re seeing greater levels of predictability and confidence in HOA maintenance spending. 

Chris Marion is the Chief Strategy Officer and founder of 3.0 Management. Chris is continually motivated to help HOAs develop comprehensive plans that enable communities to thrive both today and for many years into the future.   

By Matt Blackmer and Rachel Schmidt, Higgins & Associates, Inc.

Preventative maintenance for water management around commercial and residential buildings is commonly overlooked unless an active leak is occurring from a roof or from a lower level basement area.  Active water intrusion issues are primarily due to the lack of preventative maintenance on the exterior of the building.  These overlooked conditions typically exist at the roof level in the form of roof covering or flashing maintenance, at the wall claddings (siding, stucco, etc.) due to a lack of sealant maintenance, and at the ground level due to a lack of surface water control.  

Another problem area is the grading adjacent to foundation walls when improperly sloped and thus, does not provide for quick drainage of water away from the backfill zone.  In addition to these flat or low-sloped areas, downspouts from the roof gutters are not always extended well away from the building and this backfill zone.  Relative to preventative maintenance, flat or low-sloped areas of grading should be addressed to provide slope away from the building as required by the site-specific geotechnical (soils) report or as required by the International Building Code (IBC) or the International Residential Code (IRC), whichever is more stringent.  For older buildings, the requirements of the IBC and IRC typically apply for preventative maintenance slopes.  The IBC and IRC require a minimum 5-percent slope and specifically require that “Lots shall be graded to drain surface water away from foundation walls.  The grade shall fall a minimum of 6 inches (152 mm) within the first 10 feet (3048 mm).”  

In addition to addressing in low or flat spots in the graded landscaped areas adjacent to buildings, the roof downspouts should be adjusted, and downspout extensions should be added to discharge roof water at least 5 feet away from the building.  Roof downspouts should not direct water over sidewalks or walkways to prevent icing during the winter and other potential slip hazards.  Downspouts should also be adjusted to discharge well away from window wells or other areas where water could infiltrate to lower levels of the building.  As part of preventative maintenance, water management around the building should be observed and repaired regularly as required to prevent water infiltration and other damages to the building and site components such as concrete flatwork.

Wall claddings should be observed regularly to assess and repair any necessary sealants at control joints, at window and door perimeters, and any other locations where sealants may have aged, pulled out, or otherwise failed.  Flashings at windows and doors should also be reviewed regularly and repaired as necessary if damaged during the winter season by wind, snow, or ice.  Regular maintenance of sealants and flashings at the wall claddings can help prevent windblown water from entering the building interior during rain events.

Similar to wall claddings, roof coverings, flashings, and gutters should be reviewed regularly and repaired as required.  Gutters should be cleaned-out at least twice a year so that roof water is adequately drained off the building.  We have seen numerous roof damage claims, including roof collapses, where the gutters were plugged with debris from trees and water and/or ice was allowed to backup onto the roof.  It is also common for metal flashings to be pulled apart or otherwise damaged from snow and ice over the winter.  These damaged flashing areas then become areas for water intrusion during summer rain events.  Roof coverings, flashings, and gutter systems should ideally be reviewed at least in the spring and fall to provide ongoing protection of the interior building components from water intrusion.

With a regular preventative maintenance plan, building owners and homeowners can protect their properties from water intrusion with some basic and cost effective repairs.  These annual reviews and repairs can help prevent potential significant damage if left unchecked.  In an ideal situation, preventative maintenance can occur so that repairs are not only performed in response to emergency water leakage events. 

Higgins & Associates, Inc. is a multi-disciplined forensic engineering firm providing the highest quality service to property owners, contractors, insurance companies, and attorneys. We offer comprehensive forensic engineering and expert testimony services specializing in the areas of structural, geotechnical, civil, mechanical and electrical engineering. Our firm also conducts cause-and-origin investigations of fire and explosion losses.

By Jesus Burciaga, CP&M (Community Preservation & Management, Inc.) 

Grading and drainage are critical aspects of both multifamily and single-family residential development that are often overlooked despite the importance of proper grading and drainage. Parking areas or common areas of multifamily developments sometimes are not adequately graded, resulting in damages ranging from shortened parking lot life to catastrophic building damage, even liability hazards such as:

• Heaving concrete
• Poor common area drainage
• Foundation damage
• Abnormal sloping toward a building
• Rear and side swales of building holding water
• Unsuitable high grading around the building

Poor grading/drainage is not always evident. When walking the property, the following can be a red flag that there are underlying issues: 

• Unstable soil is caused by water absorption into the ground. The more water the ground takes on, the less stable the ground will be. The ground surface may look as it should but walking through the landscape may bring the waiting water to the surface.
• Landscape Drainage Issues – water will run towards the parts of the lowest and least protected landscape areas. 
• Puddles/ponds indicate where your landscape fails to drain. 
• Dying grass or landscape can rot plant roots due to excessive water. 
• Mosquitoes – standing water is a breeding zone for mosquitoes. 

A moderate amount of time is needed to address poor/negative grades to avoid significant property damage. Drainage corrections can consist of numerous solutions defined by specific grading and drainage issues. 

• Xeriscape concepts help solve drainage problems, save water, and improve aesthetics. 
• Laser leveling technique to grade
• Grass/Cobble/Surface drainage swales
• French Drain/underground pipes and area drain.
• Custom built chase or grate system protect drainage systems and drive water away from  buildings and down into a rock-filled area. These rock areas blend in with landscaping and protect the buildings compromising landscape design. 
• Concrete pans  
• Infrared patching, crack sealing and seal coat to fix less damaged areas.
• Gutters and downspouts should be free of obstructions to stop pooling around the perimeter of the building. 
• Waterproofing your foundation can keep water away from goods.

While doing annual walks to inspect exterior aspects of a community are an industry standard, grading and drainage are often overlooked during these inspections. Grading and drainage issues are not evident to the naked eye. Ensuring that someone is looking out for the above issues can help extend the life of your community and buildings and avoid costly damages created by negative grading and drainage. 

Jesus Burciaga has been with CP&M (Community Preservation & Management, Inc.) and its many entities for over three years. Being part of the growth of CP&M, a full-service General Contractor along with its in-house roofing division, R3NG, has been a fantastic journey. CP&M specializes in providing solutions for Commercial Property Managers, HOA-managed multi-family & single-family communities, REO rehabilitation, apartment industries, and government housing entities.  

By Jamie Cotter And Jacob Hollars, Spencer Fane

The short answer is because the distinctions between Metro Districts and HOAs are murky to say the least.  Additionally, people who are not integrally involved with Metro Districts often don’t use precise language.  All of this leads to understandable confusion around the similarities and differences between Metro Districts and HOAs.

Metro Districts v. HOAs – How each are created.

Putting aside all of the legalese that we lawyers are famous for, the decision to create a Metro District or an HOA usually goes something like this:  

A developer buys a vacant piece of property where it intends to develop a new residential community.  The developer has two choices at this early stage.  First, the developer can fund the costs associated with constructing all of the infrastructure and then build those costs into the price of every new home, resulting in a higher price for the new homes.  This option also usually involves the creation of an HOA that is initially controlled by the developer. The HOA usually funds maintenance and improvements on HOA property.  That is, while the infrastructure is usually dedicated to either a city or town, the HOA remains responsible for maintaining community resources (open space, parks, etc.).  HOAs also routinely adopt covenants that the HOA then enforces through a board of homeowners.  Homeowners pay for the maintenance and covenant enforcement through dues and special assessments.   

The second option is to create a Metro District.  A Metro District is created by the approval of a “Service Plan” by the local municipality (usually a city, town, or county).  The Service Plan outlines the guideposts for the development.  The Service Plan recites what powers the Metro District has, how much debt the Metro District can incur, and whether the Metro District will continue after such time as the development is built and the debt is paid off.  Once the locality approves the Service Plan, a court must create the Metro District as a quasi-governmental entity and an election is held to determine who will serve on the board of directors.    

Now comes the “cool” part (and yes, I recognize that the bar for what constitutes “cool” according to we lawyers is VERY low): the Metro District can sell tax-exempt bonds to fund the infrastructure costs.  Because the bonds are tax-exempt, the cost to fund the infrastructure is less than if the developer had to obtain private financing to construct the infrastructure.  When the Metro District sells tax-exempt bonds, a mil levy is assessed against the property in the Metro District.  The mil levies are paid as taxes by the residents based on the assessed value of their property.  And in most circumstances, a homeowner’s payment of their annual property taxes is tax deductible. This arrangement results in a lower home price because the developer does not have to recoup the costs of a private loan.  Once the bonds have been repaid (i.e. the costs of the infrastructure have been satisfied), the Metro District must decide whether to dissolve or continue in order to maintain the community and undertake covenant control.  When a Metro District continues to provide maintenance and covenant control, it fills the role of a typical HOA, resulting in confusion.

With that background, let’s dive into a couple of topics where the powers and responsibilities of Metro Districts and HOAs differ.  For purposes of this discussion, let’s assume that the community is managed and maintained by either a Metro District or an HOA.  It is common for a community to have both a Metro District and an HOA, but for simplicity we are going to consider an either/or situation.  

Ownership and Maintenance of “Common Areas”

The main difference between Metro Districts and HOAs with respect to common areas relates to how those services are paid for and the tax advantages available to Metro Districts as owners of property.  If a Metro District owns and/or maintains property within its service area, it can charge the homeowners who benefit from that ownership/maintenance for the resulting costs.  This can be done either by the imposition of an operations and management mil levy or fees.  If these costs are paid by an O&M mil levy, those costs are typically tax deductible to the homeowners.  If the costs are paid through the imposition of fees, those fees would be treated similarly to HOA dues.  A Metro District can impose fees for services that are rationally related to the costs of providing those services.  The Metro District must set its fees through a resolution adopted at a public meeting.  However, there is no formal “vote” of the homeowners at an election. Conversely, HOAs can impose fees and assessments in accordance with their declaration and covenants and the provisions of CCOIA.   

Building Additional Infrastructure or Public Improvements

After the development has been completed and the community is operational, it is possible for the community to need to obtain additional property for new infrastructure or public improvements.  For example, this can happen when a community grows to such an extent that it needs a new rec center or park.  In that instance, if the community is managed by a Metro District, Metro Districts have the power of eminent domain.  That means that a Metro District can take private property without an owner’s consent.  The Metro District must pay just compensation for the property, but it does not need the owner’s cooperation to obtain the property.  Conversely, HOAs do not have the power of eminent domain.  Therefore, the HOA would have to find private property to purchase.  Any purchase would have to be done voluntarily.  The ability to condemn property for a public purpose is a major benefit inuring to Metro Districts but not to HOAs.

Collection of Fees

Both Metro Districts and HOAs can engage in covenant control and can impose fees related to those covenants.    When a Metro District assesses a fee for services and that fee is not paid, the outstanding fees automatically become a perpetual, statutory lien against the property served.  That is, the Metro District obtains a lien against the property by operation of law.  That lien is also considered a tax lien and is superior to all prior liens except prior tax liens.  When an HOA assesses a fee for services and that fee is not paid, the HOA can also obtain a lien against the property served.  While a portion of the HOA lien may have priority over prior-recorded interests, like mortgages, it is junior to any tax lien, any Metro District lien, and any liens recorded before the recording of the declaration.  The portion of an HOA lien that is superior to a first mortgage on the property is limited to the extent of six months’ worth of common expense assessments that would have become due before the filing of a foreclosure lawsuit.  In short, Metro District liens are “easier” to foreclose given their priority.

Conclusion

Metro Districts and HOAs are responsible for maintaining numerous residential developments in Colorado.  They both serve important purposes and often work together rather than the “either or” situation discussed in this article.  While Metro Districts and HOAs are similar, they have key differences of which developers and homeowners should be aware.  

Jamie Cotter, Esq. and Jacob Hollars, Esq.  Jamie and Jacob are both litigators at Spencer Fane.  They specialize in helping municipalities, special districts, and other quasi-governmental entities that are facing litigation by advising them on how to pursue or defend against claims so that they can move through the litigation process as efficiently and successfully as possible. They have a keen understanding of the specific laws affecting these entities and represents them in the district court and appellate court level.