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  • 02/01/2020 3:09 PM | CAI Rocky Mountain Chapter (Administrator)

    By Kerry Wallace, Goodman and Wallace, P.C.

    Your Common Interest Community (“CIC”) just discovered a construction defect (“Defect”) resulting from initial construction or an improvement project. What do you do? Welcome to the complex world of construction defects in Colorado. Time is not on a CIC’s side and it is important that a CIC insure a timely and professional investigation of the Defect, compliance with applicable Colorado statutes and preservation of claims. This article provides a generalized overview of a complex process that involves interrelated statutes. Seeking professional guidance is a good idea. 

    Applicable Statutes

    There are four main statutes applicable to Defects: (1) The Colorado Construction Defect Action Reform Act (“CDARA”) codified at C.R.S. § 13-20-801, et seq. which provides for statutory processes, guidelines, and limitations for Construction Defect Actions (“Defect Actions”); (2) The Homeowner Protection Act of 2007 at C.R.S. 13-20-806 which voids as against public policy waivers or limitations on certain homeowner rights related to Defect Actions; (3) C.R.S. 13-80-104 which addresses limitation of actions against construction professionals;  and (4)The Colorado Common Interest Ownership Act (“CCIOA”) at C.R.S. 38-33.3-303.5 which addresses Defect Actions, the current version of which became effective May 2017.

    CDARA and CCIOA both have pre-lawsuit filing processes that a CIC needs to follow before filing a Defect Action. CDARA’s Notice of Claim Process (“CDARA Process”) requires advance notice to the construction professionals of the Defect and provides for a period of time for informal negotiation. CDARA applies to “new improvements” to real property that are “essential and integral to the function of the project.” Arguably, certain remedial work, renovation, and remodel projects constitute new improvements.  

    CCIOA requires a complicated notice, hearing, record keeping, and vote process before a CIC can pursue a Defect Action (“CCIOA Process”). Failure to strictly follow the CCIOA Process could impact the ability to pursue a Defect Action and a CIC needs to be diligent about adherence to the CCIOA Process. The CCIOA Process includes majority owner approval before pursuing a Defect Action. For purposes of calculating the vote approval percentage, the following votes are excluded: (1) Votes of a “development party”; (2) Votes allocated to banking institution-owned units; (3) Votes allocated to units of a product type that does not contain alleged defects, in a community whose declaration does not impose shared common expense liabilities between the product types; and (4) Votes allocated to units owned by owners who are deemed nonresponsive. The statute does not define the term “nonresponsive.” 

    CCIOA also provides for two exceptions to the requirement of an owner vote: (1) if the Defect relates to a facility intended and used for nonresidential purposes, if the cost to repair does not exceed $50,000; and (2) if the Association was the contracting party for the performance of labor or purchase of services or materials. “Nonresidential purposes” is not defined in the statute but likely applies to common amenities, such as clubhouses, swimming pools, or facilities dedicated strictly to commercial use, such as the commercial portions of a mixed-use CIC. The second exception appears to be directed at Defects involving post-initial construction projects contracted for by the CIC, such as a roof replacement. 

    Often it makes sense to pursue the CDARA Process first to allow the CIC and construction professionals to work on informally resolving the issues. This can avoid the time and expense of the CCIOA Process. If the CDARA Process is not successful the CCIOA Process can be pursued. 

    Statute of Limitations

    Defect Actions have limited time periods when a claim can be brought and after that time period passes all legal rights are time barred. This is called the Statute of Limitations (“SOL”). C.R.S. 13-80-104 concerns limitation of actions against design and construction professionals. There is a two year SOL and a six year statute of repose (“Repose”). The two year SOL requires a Defect Action to be filed within two years of the manifestation of the defect (“Manifestation”). Manifestation is when there is evidence of an issue even if the reason for the issue is not yet known. For example, cracking cement could indicate a soils issue. The Repose provides for a time related overall deadline for expiration of Defect Claims which is six years after substantial completion of the improvements. The exception is a Manifestation that occurs during the fifth or sixth year after substantial completion, then a Defect Action may be brought two years after the Manifestation but no later than eight years from substantial completion. It is imperative for a CIC to document when a Defect first Manifests as that date triggers the start of the two year SOL. 

    Upon Manifestation of a Defect, a CIC should determine SOL deadlines and proceed accordingly to preserve claims. The statutory pre-filing requirements of CDARA and CCIOA can assist in claim preservation. CDARA tolls or “stops” the running of the SOL during the CDARA Process for the time periods spelled out in CDARA. The SOL is tolled for all Defects listed in the CCIOA Process notice from the mailing date of the notice until the 90 days after the owner voting period ends or until the requisite vote is achieved, whichever occurs first. This tolling can only occur once and cannot be extended. The CDARA and CCIOA processes should be used diligently to avoid any gap in the tolling of the SOL in order to preserve claims.

    What to Do

    Do not delay. If a Defect Manifests it needs to be immediately investigated and the SOL determined in order to make sure that any potential claims are preserved. The CDARA and CCIOA processes need to be adhered to in order to create authority to file a Defect Action. Dates need to be calculated to insure preservation of claims and maximization of SOL tolling opportunities. The best investigation and determination of liability is worthless if the claims become time barred. Time waits for no CIC and diligence in the observation, identification, and preservation of a Defect Action is critical to a CIC’s potential to achieve remuneration for a Defect.

    Kerry Wallace is a shareholder at Goodman and Wallace, P.C., a law firm located in the Vail Valley providing legal guidance for mountain resort communities for 30 years. For more information go to www.goodmanwallace.com    

  • 02/01/2020 3:07 PM | CAI Rocky Mountain Chapter (Administrator)

    By Heidi E. Storz, Esq., Kerrane Storz, P.C.

    For some, “developer” is a bad word.  For others, a “developer” provides new business opportunities.  Before a homeowners association has transitioned from developer to homeowner control, community managers have to work with people in both camps and must walk the difficult tightrope between them.  This article describes the one and only tried and true method that will assist community managers in keeping both the developer and homeowners happy (or at least keep people from blaming the community manager for their problems) while the developer is still in control of a community association. That method is through fostering communication.

    In a newly constructed community, homeowners are instructed to report outstanding warranty items to the developer by the end of the warranty period.  When homeowners make warranty claims and do not receive a timely response from the developer’s warranty manager or if the warranty manager sets up meetings that their subcontractors then “blow-off,” homeowners rightly become frustrated and angry.  Moreover, developers often experience high turnover in the warranty manager positions.   The high turnover adds to the frustration, as homeowners are then forced to report items multiple times and often get different responses from different warranty managers.  For example, one warranty manager may promise to take care of something, while the subsequent warranty manager tells the homeowner the issue they are reporting is not covered by the warranty.  

    On the developer side, warranty managers can understandably become frustrated with homeowners (and there is always at least one) who incorrectly believe that the warranty manager is their own personal “handyman” or that insist that the removal of the toy their two-year old stuffed down the toilet should be covered by the warranty.  Some homeowners are ultimately unable to be satisfied, and no amount of remedial work will make them feel as though their issues were resolved. 

    When these frustrations boil over to include the community manager, what is a manager to do?  Simply and without fanfare - community managers should do their best to help these people communicate with one another.  Any time communication breaks down between people in a dispute, those people start talking to other people instead of one another.  With homeowners, that often means talking to their neighbors, then talking to people who read online reviews or watch Tom Martino, and eventually talking to lawyers.  

    So how can a community manager help people in this scenario who are frustrated with each other communicate better?  Easier said than done for sure, but here are a few suggestions:

    1. Keep the contact information (including phone number and e-mail address) for the developer’s current warranty manager at the ready so that you can provide it to homeowners when they call.  This way, homeowners are not wasting time trying to contact people who will no longer return calls and cannot help them.
    2. Make sure the developer’s warranty managers are informed of and invited to all homeowner meetings.  That way, the warranty manager can field homeowner questions about their homes and the community manager won’t have to.
    3. Obtain a copy of the developer’s warranty standards so that you can refer homeowners to those if they have questions regarding warranty coverage.
    4. Advise the developer-appointed board members of inquiries that you are receiving from homeowners regarding warranty issues so that they can follow-up with the warranty managers.

    For most people, their home is their biggest investment, and people feel strongly about protecting that investment.  As such, it is no surprise that homeowners become emotional if they believe developers aren’t treating them fairly.  It is never easy to deal with frustrated people that feel powerless in their situations.  Community managers, however, are uniquely positioned to help dissipate the frustration that can arise between homeowners and developers when you give people real tools to work with.  As the old adage goes, “information is power” and information is the tool that can help people move beyond their dispute to solutions.  

  • 02/01/2020 3:02 PM | CAI Rocky Mountain Chapter (Administrator)

    By Trip Nistico, Burg Simpson Eldredge Hersh Jardine, P.C.

    In construction defect lawsuits brought by HOAs, it is not uncommon for the defendants (often the developer and builders of the community) to request to take a deposition of any property management company that has worked with the association. These depositions of companies—as opposed to individuals—are referred to as 30(b)(6) depositions because they are governed by Rule 30(b)(6) of the Colorado Rules of Civil Procedure. 

    Because property management companies are unlikely to be a named party in a construction defect lawsuit, non-party property management companies that have received a Rule 30(b)(6) deposition notice often question whether they must comply with such a request. While this is somewhat of an open question under Colorado law, federal courts interpreting Rule 30(b)(6) of the Federal Rules of Civil Procedure—which is identical to the Colorado rule—have held that both parties and nonparties must comply with Rule 30(b)(6). Nonparties, however, will only be required to submit to a 30(b)(6) deposition if they were properly subpoenaed.

    A property management company that receives a valid Notice under Rule 30(b)(6) is expected to designate one or more witnesses who can speak to the organization’s “knowledge” on a list of potential deposition topics that will be included in the Notice. In theory, what the organization “knows” is a combination of the information learned by its officers, directors, agents, employees, or others, as well as other knowledge residing in the company’s records. 

    It is not unusual, however, that a property management company no longer employs any of the individual property managers that worked with the HOA. But even if the property management company no longer employs any individuals with first-hand knowledge of the deposition topics, the company is expected, if reasonably possible, to “create” a witness or witnesses from information reasonably available to the company. The company may not simply respond that there is no witness available who has personal knowledge concerning the areas of inquiry. Nor may it simply designate a witness that will not be reasonably prepared to provide relevant information on the designated topics.

    Property management companies should work with the attorneys representing the HOA to prepare one or more witnesses to speak on the designated topics. These attorneys will be able to determine if the company was properly subpoenaed, who should be designated as deposition witnesses, how best to prepare the witness, and whether a protective order (explained more below) should be sought.

    A company that fails to take its Rule 30(b)(6) obligations seriously puts itself at risk. Rule 30(b)(2) allows courts and arbitrators to issue various sanctions against companies that fail to comply with these obligations. Possible sanctions include:

    • Holding the company in contempt of court
    • Requiring the company to pay any reasonable expenses, including attorney’s fees, that the party issuing the 30(b)(6) Notice incurred because of the company’s noncompliance

    Who can be designated as a witness in a Rule 30(b)(6) deposition?

    Rule 30(b)(6) states that a corporation or other entity may designate any officer, director, managing agent, or any “other person[] consenting to appear and testify on its behalf with respect to the matters reasonably available to the organization.” 

    This includes former employees who consent to serve as witnesses—particularly when no current employees have relevant firsthand knowledge of the events in question. However, while a company may designate consenting former employees in these situations, it is not required to do so. “The burden under C.R.C.P. 30(b)(6) is to produce witnesses who are knowledgeable, not to produce an exhaustive list of witnesses to testify as to each and every factual assertion made by an organization.” 

    The company is not required to designate a witness with first-hand, personal knowledge of the designated topics. The designated witness just needs to be reasonably prepared. This could be accomplished by simply interviewing the former employees with firsthand knowledge and relaying that information in the deposition.

    If there is nobody inside the company that has relevant knowledge of the deposition topics, it may be appropriate to designate somebody outside of the company. Courts have allowed companies to designate outside consultants as 30(b)(6) deposition witnesses. In one case, a federal court allowed an entity to designate one of its litigation attorneys as a Rule 30(b)(6) witness. 

    While there is risk in designating an attorney that is directly involved in the litigation as a Rule 30(b)(6) witness—as it is possible that this attorney would later be disqualified from representing any party in the trial—the fact that courts have allowed this shows that a company can designate practically anybody as its 30(b)(6) witness. In fact, it is likely that most courts would allow the same person to be designated as the Rule 30(b)(6) witness for both the HOA and a property management company that managed it, as long as this witness has completed the necessary preparation to answer on behalf of both entities. 

    In addition, nothing in Rule 30(b)(6) precludes the company from providing “contrary or clarifying evidence” when a designated witness either does not remember or misstates facts in the deposition. This could include designating additional 30(b)(6) witnesses, providing affidavits and other evidence, and, if necessary, subpoenaing witnesses with relevant information that were unwilling to serve as a 30(b)(6) witness. It is still crucial, however, to make sure each witness is as prepared as possible, as each witness’s testimony—even if later supplemented or corrected—can still be used in litigation.

    Note on the “Apex” Doctrine:

    Challenges based on who companies designate as 30(b)(6) witnesses are almost always unsuccessful: there is no requirement, for instance, that the entity designate an employee of the company or someone with first-hand knowledge of relevant facts. Sometimes, defendants will seek to depose a CEO or other high-level officer of a company (often referred to as “apex” depositions because these officers are at the apex of the corporate hierarchy) that was not designated as a 30(b)(6) witness—even when these officers have no relevant information to provide. In these situations, courts will sometimes step in to prevent these depositions under the “Apex doctrine.” 

    Although officers of a corporation are not immune from being deposed, apex depositions are potentially harassing, particularly where apex officers have little or no relevant information. Courts are therefore likely to grant a protective order under Rule 26 to prohibit depositions of senior officers with little or no relevant information. 

    To overcome this doctrine, the party seeking to depose the high-level officer must show that (1) the official has “unique or superior” personal knowledge of relevant information, and (2) that there is no less-intrusive way the party could obtain this information. It is unlikely that a party could establish that a high-level officer of a property management company that did not manage the HOA involved in the construction defect lawsuit has “unique and superior” personal knowledge of relevant information that cannot be obtained by other means. 

    What if it is impossible to prepare a witness to testify on the designated topics?

    Sometimes, after reviewing all available documents that might contain information relevant to the designated deposition topics, and after interviewing (or attempting to interview) any former employees or others who might have relevant information, the organization is still not able to prepare a witness to that can testify on these topics. When that is the case, the company (through assisting legal counsel) should inform the party that requested the deposition that it will not be able to produce a witness to testify on those topics, and it should do so well before the deposition.

    If an agreement cannot be reached with the other party’s attorneys, the attorney advising the company may then seek a protective order. If the company convinces the judge or the arbitrator that it has no reasonable means of preparing a witness to testify on one or more of the designated topics, the judge or arbitrator may grant a protective order, excusing the company from being deposed on these topics and from any related sanctions. 

    It is important, however, that a company that finds itself in this situation seeks a protective order before the deposition. Where the parties are unable to agree to narrow the deposition topics, the failure to seek court clarification before the deposition begins could result in the judge or arbitrator finding that the company waived any objections to the scope of the deposition topics. On the other hand, judges have generally been willing to strike topics that were overbroad or not specific enough when they were presented with this issue before the deposition. 

    Conclusion

    Rule 30(b)(6) depositions can be burdensome for any company. Determining the best response to a 30(b)(6) Notice requires familiarity with the applicable rules and the experience to know how to conduct a proper investigation, who to designate as the witness or witnesses, how to prepare these witnesses, and if any challenges should be brought. 

    While these obligations are burdensome, companies risk incurring significant penalties—and even liability—if they ignore these obligations by either failing to produce a witness or producing a witness who is unprepared. Even property management companies that managed the HOA years before the lawsuit began should take these obligations seriously and either work with the HOA’s legal counsel or other legal counsel that is familiar with these matters.

    Trip Nistico is an associate with the Construction Defect Group of Burg Simpson Eldredge Hersh Jardine PC. The group represents commercial and residential property owners, homeowner associations and unit owners, and construction professionals and insurers in construction defect, product liability, and insurance coverage disputes.

    1. D.R. Horton, Inc. v. D&S Landscaping, LLC, 215 P.3d 1163, 1167 (Colo. App. 2008) (noting that federal decisions interpreting Fed R. Civ. P. 30(b)(6) are highly persuasive in Colorado courts because Colorado decisions interpreting C.R.C.P. 30(b)(6) are sparse and because the federal rule is “identical” to the Colorado rule).

    2. See, e.g., Price Waterhouse LLP v. First Am. Corp., 182 F.R.D. 56, 61 (S.D.N.Y. 1998).

    3. See, e.g., Estate of Esther Klieman v. Palestinian Auth., 293 F.R.D. 235, 245 (D.D.C. 2013). For the rules governing subpoenas in Colorado, see C.R.C.P. 45, which is similar—but not identical—to the federal rules governing subpoenas discussed in Klieman.

    4. See Martin D. Beier, Organizational Avatars: Preparing CRCP 30(b)(6) Deposition Witnesses, 43 Colo. Law. 39, 39 (Dec. 2014).

    5. Id.

    6. See id.

    7. D.R. Horton, 215 P.3d at 1168.

    8. See id. at 1167.

    9. Or, if the HOA is the party seeking to depose the property management company, the company may prefer to work with the attorneys representing the developer. This may be the case where the property management company primarily worked with the HOA prior to turnover or where the developer has claimed that the property management company was its agent.

    10. While arbitrators do not have the authority to issue contempt citations (see C.R.S. § 13-22-217(4)), it is possible that this matter could be referred to a judge who has such authority.

    11. See C.R.C.P. 37(b)(2)(A)–(E) for the complete list of possible sanctions.

    12. C.R.C.P. 30(b)(6) (emphasis added).

    13. See D.R. Horton, 215 P.3d at 1168.

    14. Camp Bird Colo., Inc. v. Bd. of County Comm’rs of Ouray, 215 P.3d 1277, 1290–91 (Colo. App. 2009).

    15. See, e.g., Reed v. Bennett, 193 F.R.D. 689, 692 (D. Kan. 2000).

    16. ACE USA v. Union Pac. R.R. Co., Inc., 2011 U.S. Dist. LEXIS 80793, at *9 (D. Kan. July 25, 2011).

    17. See D.R. Horton, 215 P.3d at 1169.

    18 Cartier v. Bertone Group, Inc., 404 F. Supp. 2d 573. 574 (S.D.N.Y. 2005), injunction granted, 2005 U.S. Dist. LEXIS 35053 (S.D.N.Y. Dec. 20, 2005).

    19. See New Jersey Spring Corp., 2010 U.S. Dist. LEXIS 14890, at *14 (D. Kan. Feb. 19, 2010).

    20. Camp Bird, 215 P.3d at 1291.

    21. See Great Am. Ins. Co. of N.Y. v. Vegas Constr. Co., 251 F.R.D. 534, 542 (D. Nev. 2008).

    22. See D.R. Horton, 215 P.3d at 1170.

    23. See id. at 1169.

    24. See id. at 1170.

    25. See Reed v. Bennett, 193 F.R.D. at 692.

    26. See, e.g., Jones Co. Homes, LLC v. Laborers Int’l Union of N. Am., 2010 U.S. Dist. LEXIS 136911, at *6 (E.D. Mich. Dec. 28, 2010).

    27. 1 Discovery in Construction Litigation P 7.01 (2019).

    28 See id., n. 1.4 (citing cases and other authority and providing additional information about this doctrine).

    29. See, e.g., Jones Co. Homes, 2010 U.S. Dist. LEXIS 136911, at *6.

    30. See Calzaturficio S.C.A.R.P.A., s.p.a. v. Fabiano Shoe Co., 201 F.R.D. 33, 38 (D. Mass. 2001).

    31. Dongguk Univ. v. Yale Univ., 270 F.R.D. 70, 74 (D. Conn. 2010); C.R.C.P. 26(c).

    32. See D.R. Horton, 215 P.3d at 1169–70.

    33. See Int’l Brotherhood of Teamsters, Airline Div. v. Frontier Airlines, Inc., 2013 WL 627149, at *6 (D. Colo. Feb. 19, 2013).

    34. See, e.g., Stransky v. HealthOne of Denver, Inc., 2013 WL 140632, at *2–3 (D. Colo. Jan. 11, 2013).

  • 12/01/2019 3:39 PM | CAI Rocky Mountain Chapter (Administrator)

    Homeowner Leader Q&A - Legal Experts Answer Your Questions

    Q: Our Board of Directors can't come to an agreement regarding resident comment at Board Meetings.  Is there a better time during the meeting to allow for comment or do we allow for comment after each point or topic?  How do we limit (and should we) length of comment?  Are comments better outside of the meeting, after adjournment?   We all agree that community input is very important as it keeps people engaged, informed and we remain transparent.  While we value input we want to keep the meeting professional and organized.  We need some direction - please help!

     

    A: Pursuant to CCIOA, associations are required to have 9 good governance policies. One of those policies is a conduct of meetings policy. This policy should dictate how the meetings are run and the expectations of the owners and the board regarding the behavior at such meetings. Typically, boards will have an owner forum either at the beginning or end of each meeting. This will allow for owners to present any general concerns or comments they have for the board. Most policies will limit the time for any owner to speak to 3 minutes, which can be extended by the board. The board should note that if you are extending the time for one owner, you should extend the time for all owners. After the open forum, the floor should be opened to any owner for comment before any decision is made by the board. Again this comment section should be limited to a uniform time for any owner wishing to speak. The open forum should take place after the board has discussed whatever they are planning to vote on, but before the vote actually takes place.

    Having transparency and input from the members of an association is paramount to a successful association. The board should listen and taken into consideration the thoughts and concerns of those members who attend board meetings. The board should also consider that it is often a small minority who attend board meetings and way their concerns against those members who may not regularly attend board meetings. Ultimately the board does not serve just those vocal members who attend board meetings but the association as a whole when coming to a decision.  

     


    Q: Are we required to share Association Contracts with owners?  I ask because an owner wants to see and review our landscaping contract as she "knows someone" who might do it cheaper.  This has made our Board question how we handle sharing contracts with our community in general.  What are the best practice standards?

    A: Colorado Common Interest Ownership Act (CCIOA) (and specifically Section 38-33.3-317) provides guidance to Associations by clarifying what are, and are not, association records.  The section provides that “current written contracts to which the association is a party and contracts for work performed for the association within the immediately preceding two years” are records of the association for purposes of document retention, and more importantly and as it relates to your question, subject to production to owners.  As such, you must provide association contracts to owners when requested.

    An association may require a unit owner to request production of an association record in writing, describing with reasonable particularity the records sought, at least 10 days prior to inspection or production of the documents.  Additionally, examination and copying times can be limited to normal business hours or the next regularly scheduled board meeting if the meeting occurs within 30 days after the request.  Finally, a reasonable charge may be imposed and can be collected in advance to cover the costs of labor and materials incurred for the production of requested documents (but the charge may not exceed the estimated cost of production of the records).

    It’s important to remember that transparent governance is key to having a successful and thriving community.  The Colorado HOA Information and Resource Center reports that transparency issues continue to be a primary inquiry and/or complaint received by their office. 

    Further (as I’m sure you’re aware), cheaper isn’t always better.  If members of your community take issue with the contracts that the Association’s board members have entered into, remind them that they have the opportunity to attend board meetings and provide comment on board decisions.  As fiduciaries of the Association, your board members have the obligation to consider what is in the best interest of the Association as a whole and not its individual members.  Make sure that your board is practicing due diligence when reviewing contracts to ensure that your selected vendor is the best suited for the needs of your community (and know, they may not necessarily be the cheapest!).

    And finally, make sure that you have a policy regarding the Inspection of Records policy in place in your community. It’s one of the required governance policies required by CCIOA.  If you’re unsure of whether your policy is compliant, contact your attorney for review.  Thanks for your question!

  • 12/01/2019 9:06 AM | CAI Rocky Mountain Chapter (Administrator)

    Community Associations Institute (CAI), the leading international authority on community association governance, management, and education, would like to present a few facts with respect to fees charged during the sale of real estate.

    The term “transfer fee” is loosely used to describe three different fees, or a combination thereof, some or all of which would be applicable to any community association.  Because these fees are collected at the closing where property is bought and sold, they are generally referred to as “transfer fees” and are as follows: 


    1. Resale Disclosure:  State law and good business practices suggests or requires that a community association disclose important documents and financial information about the community association prior to closing so that buyers understand the respective rights and responsibilities of owners and of the community association. This will also involve a questionnaire being responded to in writing by the community association or its agent, which varies by lender and involves risk to the responding party. It is critical this information is accurate, complete, and up-to-date; therefore, CAI members support the preparer's right to charge a reasonable fee to compile and produce such documents.
    2. Owner Transfer: When there is a transfer of ownership in a community, an administrative process is undertaken to ensure a smooth transition of records and ownership in the community association.  Each community may differ in what is required during the transition process and therefore the related fees will vary.  This takes time and effort by those providing this service.  CAI members believe that the market should determine the related fees. 
    3. Long-Term Reserve Fund:  The term transfer fee may also be used to describe a fee paid to fund a long-term capital reserve fund.  This fee is charged by some communities as a mechanism to fund reserve accounts used to increase the possibility that monies are  available in the future to fund capital improvements like roof replacement, private street maintenance, common areas, drainage systems, and the like.

    Many community associations engage professional managers and / or management companies to fulfill and comply with their obligation to provide financial reports and documents for a successful resale of a home within their community.   These services cost money. If they are not charged to the parties who are buying and selling the property at issue, then they will be borne by all of the other owners within the community association who are not selling their property.

    With nearly 2 million people in Colorado living in community associations, there are bound to be some complaints.  However, the legislative framework in Colorado is comprehensive and balanced.   We urge you to consider the facts.  According to the Foundation for Community Association Research, 90 percent of people living in community associations say their community association’s rules protect and enhance property values (62%) or have a neutral effect (28%); only 4% say the rules harm property values.

    80% percent of residents surveyed nationally oppose additional regulation of community associations.  Importantly, 86% percent of residents rate their community association experience as positive (63%) or neutral (22%).  

    It is indeed important that homeowners fully understand the community association housing model and their respective rights and responsibilities.  Homeowners can do so by visiting CAI’s Rocky Mountain chapter for additional resources. 

    https://www.cai-rmc.org/ 

    https://www.caionline.org/Advocacy/Resources/Documents/Infographics/CO_FactsFigures_Info.pdf 

  • 12/01/2019 9:04 AM | CAI Rocky Mountain Chapter (Administrator)

    By Mary Sarah Schweiger, Citywide Banks

    Imagine you live or manage an HOA covenant community and the summer has been busy with hailstorms. The buildings are already damaged and are continuing to get worse right before your eyes. Or, the community has a sewer system beneath the buildings that is slowly but surely falling apart, causing backups. Or, the roads and the parking lots have lived their best lives and are in need of serious repair. What does an Association do? Does the Reserve account carry a high enough balance to complete these projects? Can the community continue to afford the band aid solutions that just keep prolonging these projects? 

    One possible solution to consider is obtaining a loan with a local bank to complete the entire project all at once. If you are like most HOA’s, you have put aside money in your Reserve account regularly; however the project could cost more than what you have saved. Plus, it would be dangerous to deplete the reserves in the event there is an emergency in the future. Obtaining a loan can get the job done faster, lessen the strain on your Reserve account, and allow the Association to pay over a period of time to lessen the strain on the homeowners.

    This is not always the easiest task and it can take some time. Here are some initial questions and answers to help you decide if your association should seek a loan and how to get started:

    • First step is always to speak to your local banker. 
      • Each bank is different with their loan requirements. It is a good idea to understand the information you will need to start the process and build that relationship with your banker early on in the project.
    • Check your governing documents. 
      • It is essential that the association’s documents allow for the Board of Directors to borrow money and pledge future assessments and enforcement rights to the bank to secure the loan. If this is not in your governing documents, you may need to do an amendment. I would seek an opinion from your attorney.
    • Who can approve obtaining a loan?
      • Usually borrowing money requires a vote of the homeowners. Does that mean 2/3 of the homeowners? Or does that mean a majority of the homeowners present at a special meeting? Can you do this at the annual meeting of the members? Or does it have to be a special meeting with special notice requirements? Your governing documents will guide you. 
    • What is the financial health of your association? 
      • Are you a healthy association with few to no delinquencies? Are you able to meet your operating budget on a monthly basis with the monthly dues you collect? Or are you dipping into your reserves on a regular basis to make ends meet? Could your operating budget afford a loan payment? Or do you need to increase dues or special assess to repay the loan? 
      • Remember, the income of the Association is what the homeowners pay to the Association. What comes in must be able to pay the expenses, i.e. water, electricity, management fees, trash, landscaping, etc., including the transfer to the Reserve account. You will want to continue to transfer to the Reserve account because it ensures future projects will be supported as needed, and the Association will continue to stay healthy above and beyond the loan.
    • What is the entire scope of the project?
      • Do you have a clear picture of the entire project and all parties needed to complete the scope? What is the timeline of the project and what is the estimated cost for completion? Do you have a company that you know and trust and want to work with? Have they provided a complete bid to do the work? Are they reputable in the community?
      • It is always best practice to obtain 3-4 bids for comparison. Try to compare apples to apples. Ask for references. Get to know these companies. What is their customer service like after the project is completed? Ask questions.

    This will help start the process. Your next course of action will depend on the answers to these questions. Maybe you will need to start with amending the documents and cleaning up delinquencies. Or maybe you just need to amend the budget and set a special meeting for the homeowners. Always feel free to reach out to your local banker with questions or concerns. That is what we are here for! 

    A little about me; I have been a banker at Citywide Banks for the last 15+ years. I have sat on an HOA board for 6 years and have experienced a lot during that time! I am always happy to help and share my experiences and knowledge.

  • 12/01/2019 9:02 AM | CAI Rocky Mountain Chapter (Administrator)

    By Cylinda Walker, CMCA, AMS, PCAM, GRI, Westwind Management

    If you are like me, you are happy to have the calendar budgets completed and a new year ready for great things with your Associations! Working through your budget for 2020 and using the reserve study to aid in factoring the projects needed and available to do for the upcoming year for the Association can make you feel accomplished.  But how do you begin to determine which projects happen at what time and how they will be implemented? 

    In Colorado, we are certainly at the mercy of the seasons.  However, we can’t simply just turn over the project plan to our business partner and say run with it, there should be a level of strategic planning for each project you choose to implement.  Start by creating objectives for each project and keep them SMART. SMART goals are Specific, Measurable, Attainable, Relevant, and Time Based. 

    We all want to believe that we tackle each project in a SMART way…but do we? Let’s take an example of asphalt work for an Association.  How would we implement the SMART goal theory with this type of project? Let’s list the goals below:

    1. Specific – complete an asphalt overlay project in a particular section of the community and finish on time and within budget.
    2. Measurable – create an actual timeline for the project identifying the start date, the responsibilities of all stakeholders, important stakeholder meetings before, during, and post project.
    3. Attainable – can this project be completed in the time frame allotted? Will Colorado weather be a factor?
    4. Relevant (or Results Oriented) – put placeholders in your timeline for assessment of the progress of the project.
    5. Time-Based – set a hard completion date and hold the stakeholders to that date. 

    Now that we know what our SMART goals should be for the project, let’s determine what our timeline for this project will look like:


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    Although I have chosen to use an asphalt project for this example, these tools can be used for any projects you have for your Association.  The key is to get in front of each project by using SMART goals and project timelines to ensure success for all stakeholders.  


    Cylinda Walker CMCA, AMS, PCAM, GRI is an Association Business Manager with Westwind Management.  She has been serving Associations since 2004 and has a Master’s degree in Strategic Organizational Management.

  • 12/01/2019 9:01 AM | CAI Rocky Mountain Chapter (Administrator)

    By Suzanne M. Leff, Esq., Winzenburg, Leff, Purvis, & Payne, LLP

    Community association declarations may seem like template documents—and often they are. But not all covenants are created equally, and each community’s covenant needs are unique. Anyone shopping for homes in different covenant-controlled communities (and inclined to read the documents) will run across declarations that contain the same general terms. Those general terms tell a familiar story: a common interest community is created, owners must pay assessments, the association will take care of some things, owners are required to do other things, certain things no one can do, and owners may change things if enough people agree. Beyond the general terms, the nuances of these recorded declarations impact the lives of homeowners within individual covenant-controlled communities. The ways in which covenants affect owners can sometimes warrant review and revision of the documents. Even though recorded covenants function like mini-constitutions for the communities they benefit, and, thus, are hard to change, communities should consider getting a vote of the people to change the covenants in the following circumstances:


    Mean What You Say and Say What You Mean. Sometimes the law changes, but a community’s governing documents do not. An example of documents not updated to align with new mandates involves budget approvals. In 2018, the Colorado legislature extended a requirement for budget meetings and owner votes on board-approved budgets to certain communities formed prior to July 1, 1992. These communities must now comply with the state statutory requirement for budget approval by owners even though their documents do not give any indication that the requirement applies. While a board serving in 2018 may have received educational materials about the change to state law, newer board members may not have that same resource and may not understand the association’s legal obligation because the documents themselves give the board sole authority to adopt the budget. 


    An amendment to the bylaws or declaration to include the statutory budget procedures would help to ensure that the association operates in accordance with state law on an ongoing basis, without requiring board members to read and apply state statutes on their own. Other examples within this category include covenants that prohibit satellite dishes, clotheslines, or solar panels or restrict the size of families living in a home: various laws preempt the covenants in these areas and, without amendments to the declaration, may result in legally actionable missteps by association members who think they can enforce what the covenants say.


    Keep Up with the Joneses. Trends happen in the world of covenant-controlled communities. When one community can do something desirable that a nearby community with the same market-base cannot do because of what the covenants say, word tends to travel. Owners may advocate for trending changes to the covenants, and community association managers and association attorneys also recommend them in circumstances where amendment trends serve to solve common problems without the need to reinvent the wheel. 


    This type of amendment may relate to architectural control issues and restricting or allowing certain types of improvements, like fence styles and trash enclosures, or may concern use restrictions related to parking or leasing. Trends may include provisions that disclaim an association’s responsibility for mold when owners fail to report and mitigate leaks or, as seen in mountain condominium communities, require owners to permit inspections or access by management to help reduce costly insurance claims resulting from thermostats left too low and broken pipes. Other trends—for older communities especially—involve changes to insurance coverage requirements for associations and owners and allocation of insurance deductibles and removal of caps on how much an association can charge in annual assessments.


    Clean Up Messes. Simply put, some documents get recorded in a half-baked state and do not serve communities well from the outset due to imprecision, inaccuracy, and mistake. When a declarant remains on the scene, the declarant can amend the documents to correct certain types of problems. But declarants do not hold the keys to all document problems and may require owner participation to amend the documents. Other communities do not come to understand the messiness of their documents until years after development is complete. 


    Examples in this category include those documents brought to Colorado by developers from other states without attention to compliance with Colorado laws, and declarant use of the same documents as a neighboring community without asking legal counsel whether the terms apply to the current project. Sometimes a planned community gets a document made for a condominium and vice versa. Documents may not properly allocate owner interests or may not include reference to parcels intended as part of the common interest community. Amendments alone may not suffice for some of these scenarios. Association legal counsel can help identify whether owners can control the outcome through a vote to amend or if a court must assist.


    Put Out Fires. Sometimes associations get sued and an option for resolving the dispute requires an amendment to the declaration. For example, a party may assert easement rights across association property. Depending on the powers granted to the association under the documents, the association may not have the ability to enter into a settlement agreement related to easement rights without amending the declaration to gain that authority.


    General Housekeeping and Updating. A well-maintained 1960s bathroom can function for all intended purposes, but that bathroom’s bubblegum pink porcelain fixtures may not appeal to every owner. Similarly, covenants recorded in the 1970s may continue to serve a community on many levels but also draw criticism for their out-of-date status. Many modern communities like to review their declarations after all development ends and the declarant no longer holds power under the documents. 


    Common housekeeping amendments involve scrubbing references to the declarant and development rights from documents and removing provisions related to initial purchasers of units. While other circumstances may prompt these housekeeping and update amendments, they often get included when other amendments are undertaken.


    While no hard and fast rules apply to when communities should amend their covenants, any of the situations listed above should at least lead to consideration of a document amendment project. Boards that identify the need for amendments must look beyond the substance of what the association may amend in the declaration and determine, minimally, whether the community can (1) bear the expense, (2) give the time and commitment to the process, and (3) ultimately gather sufficient owner approvals to make the efforts worthwhile. In other words, knowing that a document needs fixing does not mean it will get fixed—or that it will get fixed in the way the board wants.


    Document amendment projects typically cost thousands of dollars for attorney drafting and meetings with the board and owners to educate each other on the issues and tailor covenants to community needs within legal parameters. This process for a complete amended and restated declaration can easily take a year’s time and requires devoted leadership to shepherd the process on the community side. Early discussions about any document amendment project must consider the realities of the membership’s willingness to support the requested amendments. Community covenant amendments necessitate board and volunteer involvement akin to a political campaign. Those seeking support for the amendments will need to understand the substance, anticipate vote counts, and work to gather approval from other owners.


    With an understanding of the substantive need for amendments and the process required for owner approval, boards can better answer the question “Should the declaration get amended?” for their own communities. Professional management and legal counsel can assist with tailoring document amendment projects to the specific needs of a community while educating on options for how to navigate this process.

  • 12/01/2019 8:56 AM | CAI Rocky Mountain Chapter (Administrator)

    By Patricia A. Book, Ph.D.

    Self-Governance 

    Our community is self-governed by an elected Board of five members with staggered three-year terms.  We are guided by our Declaration of Covenants, Conditions and Restrictions (C, C&Rs), By-Laws as amended and Rules, Regulations, Architectural Guidelines, Enforcement Policy and Procedure.  These are published on our Website and importantly define the notice and information sharing requirements between the Board and our homeowners.  We have processes for any changes in these documents with a very high standard of community participation in any proposed changes in our C, C&Rs.  Our Board has set transparency as a high priority in carrying out our fiduciary duty to our community.

    Creating Opportunities for Engagement

    We have formally chartered a Pond Committee and a Social Connections Committee to engage additional volunteer expertise in our community in addition to our established Architectural Control Committee (ACC).  There is a Board liaison to our newly chartered committees as well as a Board liaison with our landscape contractor.  The meetings of our Board and Committees are open to all homeowners and minutes are published on our website.

    The Pond Committee’s purpose is to develop a recommended management master plan for the Association’s pondin part to mitigate sedimentation with an eye to delaying or deferring costly dredging. Volunteers have expertise in pond management, engineering, and related fields and have become “pond stewards” as well, visible with their blue vests educating homeowners about the pond, catch and release fishing, fish species, etc. 

    The Social “Connections” Committee's purpose is to facilitate interaction among Willow Spring homeowners through a variety of planned social events designed to appeal to a wide cross section of the Willow Springs residents. The intended result is improved neighborhood camaraderie, fellowship and sense of community.  Pool parties, garden tours, neighborhood day out, and a host of activities are developed by this Committee to have neighbors get to know each other and have a good time.

    The Pond and Social Connections Committee have now formed a bond, co-organizing a Fishing Derby for youth in our neighborhood.

    These opportunities for community engagement go beyond the specific events and tasks the Committees are charged with undertaking.  We believe they provide opportunities for neighbors to get to know each other, open communication channels, share resources, and improve overall sense of belonging.  We believe, for example, that the results could affect behaviors of speeding on the neighborhood streets—when you know the kids and the retirees and families in a neighborhood, aren’t you less likely to speed by them on your way to work or to an important engagement?  Another benefit of community engagement is that we do want our homeowners to hear from their volunteer board and their neighbors about the good things happening in our community.  We don’t want to be perceived as the police or tax collectors only heard from at a time of violation or when assessments are due.   

    Transparency Creates Support

    The Board meets bi-monthly at our Club House but calls special meetings of the community to get feedback on a range of issues, from review of a draft Reserve Study, to traffic calming, or what to do about emerald ash borer treatments.   We conduct surveys gathering information about perceptions of the quality of life in our community and beliefs and attitudes about a host of issues that come to the Board’s attention from individual homeowners. We share these results and use them to form plans and set goals for our community. We send out email blasts to alert the community to mosquito spraying, e.g., or upcoming events.  We post signage to announce events.  We conduct periodic Reserve Studies or Reserve Updates and share these with the community and revise them based on feedback received.   

    We called a special annual meeting to explain to the community our need to contribute more to our Reserves.  Our prior Reserve Study (2015) had us at 23% funded, a poor condition.  At regular annual meetings, we started to build the case for future needs of what is now an aging infrastructure with comparative bids explaining large ticket items for future planning.  These include pond dredging, irrigation pump replacements, fencing maintenance and replacement, pool resurfacing, among other capital projects.  The Board wisely took the time to educate our homeowners about future needs, explaining how to interpret an appropriate level of Reserve funding, and provided a five-year budget plan on what it would take to achieve a stronger Reserve foundation.   We also did an annual assessment benchmark study of comparable communities that showed our assessments were on the low side for the amenities we enjoy.  Because of the communication, information sharing, and transparency, the community overwhelming voted for a one time assessment increase of 20% (using the process required in our C, C&Rs), followed by four years of 6% increases (the maximum permitted in our C, C&Rs) to achieve a stronger Reserve and to maintain and preserve our community common elements to a high standard.  Our 2018 Reserve Study Update had us at 47.4% funded, a much improved medium condition.

    In Summary

    In summary, we follow our governing documents, communicate plans and decisions, and engage our homeowners in major decisions affecting our community.  The Willow Springs Community is much like other self-governed homeowner communities in Colorado.  We have a high level of satisfaction with the quality of life in our community and the Board enjoys considerable support from the community.  It’s a two-way street.  The community also expects us to enforce the rules, fairly and without prejudice.  We’ve hired a professional management company to enforce our community standards with good result.  A community as large as ours requires, and can afford, contracted management services to support the administrative, financial, and legal issues Homeowner Association (HOA) Boards face.  We were careful to choose a management company that has achieved "Accredited Association Management Company" (AAMC®) designation from the national Community Associations Institute (CAI) with licensed association business managers.  The Willow Springs Executive Board now holds Board membership in the Community Associations Institute—Rocky Mountain Chapter (CAI-RMC) as part of its commitment to ongoing education to better enable us serve our community.

    Patricia A. Book, Ph.D. is President of the Willow Springs Community Association Executive Board in Fort Collins, Colorado.  Willow Springs has 460 units—single family, patio homes and condominiums—with 33 acres of green space, over 500 trees, a pool and club house, tennis courts, playground and pond stocked with fish for catch and release recreation.  The community was established in 1995.”

     

  • 10/01/2019 3:41 PM | CAI Rocky Mountain Chapter (Administrator)

    Homeowner Leader Q&A - Legal Experts Answer Your Questions!

    Q: I have asked to inspect records of my association multiple times.  When I do, I'm met with this utter exasperation as if my request is the end of the world and I'm a huge pain in the rear.  I know it's within my right to inspect records and I go about it the right way.  Why then would the manager and the board of directors do everything they can to make it difficult?  Are they afraid I'll find something out?  I have to make a formal request (which seems silly in the first place) and then we have to schedule a time and a place and someone has to watch me.  Shouldn't records be readily available and easy to access?  Why the hassle?

    A: As an owner you have the right to inspect association records. However, what constitutes association records is specifically defined by state statute and in some cases by the governing documents, so not everything you request may be a record that is available for review. Often times managers and the board of directors will have to reach out to the association’s attorney to determine what are association records and what can be turned over to an owner. Because the association is in possession of information regarding owners that may be personal and sometimes private, it may seem like a manager or the board of director’s is being difficult, when in fact they are simply making sure they follow the law and protect individual homeowner’s privacy. If an owner is requesting something simple like a copy of the Declaration or the Rules and Regulations then the manager should easily be able to make those documents available. However, if an owner wants to know if other owners have received fines or are delinquent, these are records that state statute specifically allow the association to withhold. While we know it can be annoying or not as convenient to have to schedule a time and place to look at the documents the association is simple following the state statutes and making sure that the association is protecting all homeowner’s information in a consistent manner.


    Q: We just hired a new management company and I want to make sure that we're not going to fall into the same situation that we did with our last.  As a board of directors, are we supposed to be "hands on" or do we simply back off and let the manager handle everything?  We like to know what's going and we've been told that we micromanage too much.  For me, I love the community which is why I'm on the board.  I don't think that asking for summaries and follow-up is too much.  It seems like we simply don't know how much we should ultimately trust our manager.  I don't want to end up with things falling apart or not being done because we didn't want to annoy our manager or management company.

    A: First of all, thanks for your service on your community association board.  As you know, being on a community association board is a lot of work (even with the assistance of professionals working with your community) and to volunteer your time to ensure that your community is prosperous can sometimes feel overwhelming.  The short answer to your question is that while a qualified and experienced professional manager can certainly go a long way to guide a board of directors, his/her job is not to handle everything for the association. 

    You may have heard that the board operates in a fiduciary capacity for the homeowners, and as such, has a fiduciary duty.  This simply means that the board has an ethical and legal obligation to make decision in the best interests of the entire association.  And in doing so, the board has an obligation to be “hands on.”  You have the obligation, as a board member, to protect the association’s assets, budget responsibly, plan for the future, invest wisely, etc.  And while you may have a community association manager that can aid the board in furtherance of these obligations, the board is ultimately responsible for the oversight of association operations.  The manager works closely with the Board – as an advisor – not a board member or decision maker. 

    So don’t be afraid to run your business (because the association is a non-profit corporation!) accordingly.  You have the right to request summaries and follow-up about community business – your board shouldn’t feel like pests in doing so!

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