By David Graf and Tim Moeller, Moeller Graf, P.C.
When Governor Jared Polis effectively ended Colorado state licensing of community managers, he also ended the statutory obligation for community managers to disclose fees and other remuneration that community managers might receive through their management of a particular community. This statute, C.R.S 12-61-1004.5, took effect on January 1, 2015 and was thought by many in the community association world to be a significant step towards increased transparency. In my conversations with certain management company owners, they also felt that the statute would help dispel the “urban legends” of certain management companies taking kickbacks and preventing legitimate management companies from giving away a competitive advantage due to their honesty in disclosing of ancillary sources of revenue.
That statute is no longer in effect. However, the Community Associations Institute has long had ethics standards governing community managers who are members of CAI. Specifically, the Professional Manager Code of Ethics (“Code”), in Rule #6, requires that managers disclose in writing any actual, potential, or perceived conflict of interest between the manager and other vendors. This Rule goes on to require that the manager take all necessary steps to avoid any perception of favoritism or impropriety during the vendor selection process and negotiation of any contracts.
The comment to Rule #6 provides a scenario where a manager may have a financial interest in a vendor and as long as disclosure of that interest is in writing and is made “sufficiently in advance of the selection process to allow full consideration of the possible conflicts and any alternatives,” then the manager has fulfilled his or her duty under the Code. The fact that the Code requires disclosure of not only actual or potential conflicts, but also perceived conflicts of interest shows CAI’s commitment to a high-level of ethics and transparency among its manager members. These conflicts would typically be disclosed to the Board of Directors.
With respect to volunteer leaders (also known as board members or directors), conflicts of interest as nonlawyers might view them, are not regulated by state statute, presumably because being a volunteer leader in a small or even a larger community could result in perceived conflicts of interest among neighbors, friends, golf buddies, or the like. In some communities where there is a sense of “community,” some people will naturally know many others within that community and trying to regulate those interpersonal relationships in any meaningful way and still have people volunteering to serve would be difficult. Instead of trying to regulate interpersonal relationships, state statutes have two areas of concern related to volunteer leader conflicts of interest. The first is the mandate that an association have a conflicts of interest Responsible Governance Policy under CCIOA, found at C.R.S. 38-33.3-209.5, which requires that the policy describe the circumstances under which a conflict of interest may exist and set forth procedures to follow when a conflict of interest does exist. The second is the provision of CCIOA that references the “conflicting interest transaction” provisions of the Colorado Revised Nonprofit Corporation Act, found at C.R.S 38-33.3-310.5 and C.R.S. 7-128-501.
The provisions of the Nonprofit Act with respect to conflicting interest transactions, paraphrased, define a conflicting interest transaction as a contract or a financial relationship between an association corporation and a member of the Board of Directors-- or between the association and a party related to a member of the Board of Directors or between the association and an entity in which a member of the Board of Directors is a director, officer, or has a financial interest. This statute is designed to address profiteering by a member of the Board of Directors and is not intended to get into nonfinancial “conflicts of interest” that may arise among people who live in a community and may know each other socially or otherwise.
The Nonprofit Act provision addressing conflicts of interest states that no conflicting interest transaction shall be void or voidable solely because of the existence of a conflicting interest transaction or because the conflicted board member participates in a discussion of the conflicting interest transaction or even votes on behalf of it if any one of three criteria have been satisfied:
This means that a court could find that the contract was fair to the association, in which case the failure to disclose the existence of the conflicting interest transaction would be irrelevant. Of course, there can be a significant credibility problem if a board member fails to disclose the existence of a conflict of interest, notwithstanding the fact that a court may decide that the contract was fair to the association. Some Boards of Directors will disclose actual or potential conflicts at the start of any or even every meeting in an effort to head off any appearance of impropriety among members of that board.
CAI has homeowner leader resources to promote professionalism and transparency among homeowner leaders. The first is the Civility Pledge, which is downloadable from the CAI National website. The second is CAI’s Rights and Responsibilities for Better Communities, which sets forth principles for all those who interact with or live within the community to follow with respect to better governance and general principles of fairness. While these guideline documents are not legally binding, they are helpful for volunteer leaders to be familiar with as they make decisions on behalf of their homeowner constituents. These documents are also helpful for owners to be aware of and to take to heart when dealing with their neighbors, with their volunteer leaders, and with their community management professionals. Lastly, CAI has the [board leadership development program] which is a daylong class intended to train volunteer leaders on issues of basic community governance.
David Graf has practiced community association law exclusively since 2001. In this time, he has represented a wide range of communities throughout the State of Colorado. David is one of the most sought-after community association industry trainers and speakers in the United States. He is a national faculty member of the Community Associations Institute’s Professional Management Development Program (“PMDP”) and travels throughout the United States to facilitate multi-day corporate trainings for professional community managers. In 2015, he was named CAI’s National Educator of the Year.
Tim Moeller has practiced community association law since 1999. Tim supports associations in such areas as collection of delinquent assessments and enforcement of covenant matters, which includes litigating covenant violation and collection cases, and bringing foreclosure and receivership actions. Tim has extensive experience in creating and amending governing documents, preparing opinions concerning the many different matters facing associations in Colorado, and drafting and reviewing contracts.
By Bryan Farley, RS, Association Reserves - Colorado
Within a month, the country has seemingly gone from “business as usual” to “no business at all” for many sectors. This is a time when decisions will matter for your community. The way a community’s board members act now will set the tone for the future.
With so much uncertainty, the board will need to make wise financial decisions to take care of its owners and its property. On one hand, board members must be sensitive to those who have had the rug pulled out from under them, but also, board members must fulfill their fiduciary responsibility as representatives of the community.
How can a board make a fair and balanced financial decision?
In regards to a property’s Reserve account and budget choices, we have a few ideas that may help the board's Reserve decisions during this time.
1) Prioritize your Reserve expenses in 2020:
Consider a potential scenario: the board has been planning to remodel and upgrade the entry lobby. In addition, the board was anticipating the need to replace the roof of the building in late summer 2020, based upon recommendations from their Reserve Study provider and roofing specialist.
It is important to note that we may be entering a time where delinquencies become more common, therefore, the board should not plan to defer projects that could cause unwanted maintenance issues or carry an extra expense. In this case, a deferred roof replacement may cause a higher replacement cost due to potential roof failure if left deferred. A failed roof allows potential water intrusion into the substructure, which may then require costly and invasive mitigation. On the other hand, a deferred lobby remodel carries no structural risk, only potential aesthetic issues.
The board members should review their 2020 Reserve Study budget and prioritize which assets may be safely deferred. We would advise that safety or protection components should not be deferred. Safety and protection components include elevators, fire safety systems, domestic heating and water systems, and structural envelope systems, to name a few.
2) Recalculating the 30-year Reserve Plan:
If your board has access to client-facing Reserve Funding software, then now is an excellent time to run ‘what-if’ scenarios on the contribution rates, so that the board can test whether or not they may defer Reserve contributions for a few months without causing long term budgetary problems.
If the board does not have access to cloud-based Reserve software, then ask your Reserve Study provider for the more affordable, No-Site-Visit update service. A ‘No-Site-Visit’ update typically costs anywhere from 50%-80% of a ‘Full’ Reserve Study. This will allow the board to not only update their old Reserve Study with fresh information, but will also allow them to talk to their provider about running some alternate funding scenarios. This will give the board a few options on potential contribution amounts, and what the consequences will look like if they proceed with a given plan of action.
3) Take advantage of temporarily depressed pricing:
Certain industry sectors are offering huge savings at this time, particularly the retail sector. At the time of writing, there are over 70% sales on pool furniture, indoor furniture, security systems, and other consumer goods. If the board has the cash available, with no other pressing projects to complete, this may be a good time to take advantage of temporary sales.
The board should use the Reserve Study as a tool to shop around for the needs of the property. Are there any upcoming projects identified on the Reserve Study? Potentially there is a need in 2021 for pool furniture? If so, could the board move that project up a year? Take a look at the Reserve Study to see if there are any upcoming projects and potentially, find a few deals.
In summary, there are uncertainties ahead, however, the board has the opportunity to not only help the owners at their community, but also improve their community.
Bryan is the president of Association Reserves - Colorado & Utah. Bryan has completed over 2,000 Reserve Studies and earned the Community Associations Institute (CAI) designation of Reserve Specialist (RS #260).
Homeowner Leader Q&A - Legal Experts Answer Your Questions!
1) We have requirements for a five member Board of Directors. Two members resigned recently and one is not engaged and does not contribute to the Board. We have trouble getting any type of community engagement and we're not getting any volunteers to join the Board. What should we do? Is it legal to have a three member Board even though our bylaws call for five?
Yes, its legal to have a three member board, as the Board still has a quorum. However, the Board should canvas the community for additional Board members, which may be appointed by the remaining Board to fill the remainder of the terms of the members who resigned. The Board may also consider amending the number of Board members, if this may be done without a vote of the members. Any action taken during the period of time when the Board was not fully constituted should be ratified by the Board once it is fully constituted.
2) I've been told that communication is the key to operating a successful HOA. Our Board of Directors understands this but we're a little lost in how to best communicate given that people rarely read emails that are actually important and they bypass anything sent in the mail or physically posted. In a world of over communication how do Boards best communicate effectively and responsibly?
Communication is key – in our personal and professional relationships, with our neighbors and communities, in everything we do. So, how can our Boards effectively communicate in order to build strong community and encourage engagement and activism? As you stated in your question, people rarely read emails and they also bypass anything sent in the mail and/or physically posted within the community. Don’t forget about the number of people that don’t have easy web access and/or don’t use email (they do exist!!). And you can’t always rely on those owners who do attend meetings to pass along important information. So what’s left? How does a Board communicate with its membership most effectively? And also important, how will your board gauge the success of its communication?
The following is a list of common types of communication within a community and your Board may need to implement a few strategies to accomplish its goal of effective communication.
Community Newsletter – A newsletter, while it can be a lot of work, can be an effective tool in getting information distributed to your membership. It can be sent via regular mail and/or electronic mail. Again, the issue is getting people to read the information, but if you talk it up in meetings and with neighbors, and include relevant and engaging information for your community, in time, hopefully you will see more active members in your community (or at least showing up to meetings).
Website – If your community doesn’t already have a website, consider creating one. And if your community does have a website, review it and make sure that it is easy to navigate, provides relevant information about the community to owners (governing documents, meeting minutes, etc.). Ask for feedback about the community through the website (online engagement which could lead to engagement at meetings and within your community). While there may be owners that shy away from use of online technology, such as the Internet or e-mail, there is a large percentage of the population that wants an easy place to find all of the information about their community, and a website is a great place to house that type of information!
Social Media – Social media platforms, such as Facebook, Next Door, and Twitter are (and have been) taking over the way that many people communicate (and get their news!). The use of social media (responsibly) can certainly be a tool to build community and engage your members, but there are also risks. As this is a large topic with a lot of information, check out the article titled Social Media: Building Community and Avoiding Pitfalls in our October 2018 issue of Common Interests (which can be found on the website) or talk to your attorney about the pros and cons of your community having a social media presence.
Email Communication – Many of us are already drowning in email communication. Despite the average person receiving over 100 emails per day (!!), email does remain an effective communication tool. Make sure that you are using specific subject lines to grab the reader’s attention and try to keep the emails as short as possible, while still conveying the necessary information. The longer emails are, the less likely they are to be read.
Verbal – There’s a lot to be said for verbal communication. Make sure that your Board is talking to its members, your neighbors. Especially when it comes to big issues in the community, going door-to-door and/or engaging your community members at community events or on your nightly walks, can go a long way.
Talk with your Board and manager about the specific needs and goals for your community. Decide how you will gauge that your community is effectively communicating. Is it a general feeling within the community, are more members attending meetings, are people engaging more at community events? Whatever it is, it may require a combination of the above types of communication. And, you still may not reach some owners. But just asking the question, means that you care about effectively running and building a strong community. Kudos to you!
By Molly Foley-Healy, Esq., Winzenburg, Leff, Purvis & Payne
Whether you are a homeowner, serve on the board of directors of your community association, manage, or are an attorney specializing in community association law, it’s probably a safe bet that you either have experienced smoke migrating in your community or are dealing with complaints about it. While years ago tobacco was the primary type of smoke which migrated between units or onto the common elements, today we can add marijuana smoke and the vapors which are exhaled by folks who are smoking e-cigarettes or using other vaping devices to the list.
Years ago, when I first started receiving requests from clients for guidance on how to address issues relating to smoke migration, I mistakenly assumed that this was a problem that could only be experienced in older or poorly built condominiums. While it’s true that smoke migration is largely an issue experienced in stacked condominiums or homes attached by party walls of any age or quality of construction, I have also found that smoke migration onto the common elements can also be an issue in single family home communities where the homes are built very closely together.
Adopting Rules Regulating Smoking on the Common Elements
While smoke migration is largely an issue in condominiums and communities with attached homes, it’s important to understand that boards in any type of common interest community in Colorado have the legal authority to adopt rules regulating smoking and vaping on the common elements, which includes the limited common elements.
In deciding whether to adopt rules regulating smoking on the common elements in your community, here are some questions each board of directors should consider:
1. Is smoking on the general common elements a problem in our community? Are smokers properly disposing of cigarette butts? Should the association provide receptacles on the general common elements for disposing of cigarette butts? Is smoking on the general common elements making it difficult or impossible for non-smoking residents in our community to also use and enjoy the general common elements? If there are issues with smoking on the general common elements, what are the least restrictive rules we could adopt to reasonably address these issues?
2. Is smoking on the limited common element decks or patios causing problems in our community? Is smoking on decks or patios causing smoke to migrate onto other decks, patios, or into the windows of neighboring units? Is smoking on decks or patios migrating to such an extent that it is making it difficult or impossible for others to use and enjoy their patios, decks or even their unit? If there are issues relating to smoking migrating from patios and decks, what is the least restrictive rule we could adopt to address these issues?
3. Whenever the board is considering adopting a rule, remember that you must be willing to enforce the rule, it must be reasonable, and it cannot trump a provision of your association’s declaration.
Treating Smoke Migration as a Nuisance
In addition to adopting rules to regulate smoking on the common elements, most declarations of common interest communities have a provision which regulates or prohibits nuisances in the community. Depending upon the particular facts of a smoke migration complaint from a resident, the overwhelming and offensive smell of the migrating smoke, and the negative health effects of the smoke can adversely impact the use and enjoyment of their unit and the common elements.
If there is sufficient information in the complaint to establish that there may be a smoke migration nuisance, the board of directors and management should follow their enforcement policy to give notice of the alleged violation and consider the option of levying fines for this offense. However, associations are not permitted under Colorado law to levy fines unless they have an enforcement policy in place which provides notice and an opportunity for a hearing prior to levying the fine and the fine schedule is included in the enforcement policy.
In extreme cases, where a resident is so addicted to smoking that they just pay the fines and continue to create the smoke-related nuisance, the levying of fines will not fix the problem. In such cases, associations should consult with their legal counsel to determine whether it makes sense to file a lawsuit against the violating resident to compel their compliance with the nuisance provision of the declaration. Your legal counsel will be able to advise you on the strength of the association’s case, what steps the association should take to build the case, the costs of pursuing legal action, and the likelihood of success.
Under Colorado law, owners also have the authority to enforce the nuisance provision of the declaration against the violating resident. However, before passing off the enforcement obligation to the resident who is being adversely impacted by the smoke, the board of directors should consult with legal counsel about their obligation to enforce the nuisance provisions of the declaration on behalf of the resident being affected by the migrating smoke.
Amending the Declaration to Create a Smoke-Free Community
In some condominium communities, the construction of the condominiums may make it nearly impossible to stop smoke from migrating between the units or onto the common elements. In these cases, boards of directors can consider creating a smoke-free community by prohibiting smoking in the units and on the common elements. As discussed above, through the adoption of a rule, boards have the authority to regulate smoking on the common elements – which can include prohibiting smoking on the common elements. However, this rulemaking authority does not extend to prohibiting smoking in the units which would have to be accomplished through an amendment to the declaration of your community.
When contemplating whether to propose an amendment to the declaration creating a smoke-free community, boards of directors should consider the following:
1. Should owners and residents of condominium units at the time the amendment becomes effective be grandfathered in? In other words, should these folks be permitted to continue to smoke in their units as long as no smoke migration complaints are submitted to the association?
2. Even though smoking on the common elements can be regulated through rulemaking, is there any need to prohibit smoking on the general common elements or limited common elements and should this be included in the amendment to the declaration?
3. Should a location be designated on the common elements where folks are permitted to smoke?
While on its face creating a smoke-free community may sound like a great solution, amending the declaration may not be so easy. From a purely political perspective, owners may feel that amending the declaration to prohibit smoking in the community is too extreme to approve. Assuming you can get over this political hurdle, you may run into issues with determining what the consent requirement is to approve such an amendment and whether you are able to obtain the required consents.
Since amending the declaration to create a smoke-free community would be classified as amending an existing use restriction or creating a new one, the requirements to amend the declaration of your community can become complicated. Amendment requirements for use restrictions can be based upon when the declaration for your community was originally recorded. As a result of this complexity, it is essential to consult with your legal counsel to determine the amendment requirements for your community, to discuss the scope of the amendment, and to have your counsel draft the amendment and documents to utilize for the approval process.
If the board of directors for your community decides to propose an amendment to the declaration creating a smoke-free community and it is approved, remember that the current board and all future boards will be required to enforce the requirements in the amendment creating the smoke-free community. Individuals purchasing a unit in these communities will be relying upon the fact that the community has been designated as smoke-free. A refusal by directors to enforce these requirements could result in a lawsuit against the board and individual directors for breach of fiduciary duty. As a result, proposing an amendment to the declaration to create a smoke-free community should not be taken lightly.
Stopping the migration of smoke in community associations is no easy task. However, the tools outlined in this article will give boards and management a good starting point in considering how to best tackle this issue in your communities. Just remember that as long as they are effective, utilizing the least restrictive and most easily enforceable means to stop the migration of smoke will be your best bet.
Molly Foley-Healy is an attorney specializing in community association law, is a Fellow of the College of Community Association Lawyers and practices with the law firm of Winzenburg, Leff, Purvis & Payne.
By Marcus T. Wile, Esq.
Denver, Colorado played host to the 2008 Democratic National Convention and with it fifty thousand plus media members, politicos, supporters, and demonstrators descended upon a city unable to accommodate the crowd. The confluence of convention attendees and the lack of available lodging gave a fledgling little start up the perfect opportunity to soft launch what would become the juggernaut booking site Airbnb. In the intervening years, innumerable alternative sites have sprung to life and forever changed the hotel and lodging industry. Meanwhile, community associations across the state have struggled to keep up.
Short-term rentals, typically encompassing everything from nightly stays to leases of six months or less, result in a number of issues. Boisterous parties, parking issues, common area abuses, and “stranger danger” have left boards of directors attempting to regulate the issue while legislation catches up. The piecemeal municipal codes vary wildly. Many municipal codes require little more than registration and payment of relevant taxes. Others are more onerous. Denver’s code, for example, requires that the property owner occupy the property as their principal residence. If facing an issue with a short-term rental, it never hurts to consult the association’s attorney and determine whether the short-term rental is compliant with local law. With a little luck, the local authorities may be able to address the issue. However, most short-term rental issues fall outside the scope of the local municipal code and regulation is left to the association.
One of the primary problems associations face in attempting to regulate short-term rentals is that the covenants restricting property use were often drafted long before there ever existed the technology to make the short-term rental industry possible. Without language in the declaration specifically addressing short-term rentals, associations have attempted to rely in its stead on “residential use” and “commercial use” declaration provisions or by amending the association’s rules and regulations. Colorado courts have explicitly rejected these approaches.
The Colorado Supreme Court addressed such a situation in Double D Manor, Inc. v. Evergreen Meadows Homeowners’ Association. The Double D Manor case involved a group home for developmentally disabled children in a single-family residential dwelling. The association argued that the group home violated the declaration’s residential use restriction because the property owner generated revenue from the property. The court, however, reasoned that the group home was consistent with the residential use restriction because the children had beds of their own, shared chores, cooked and ate meals, and otherwise undertook activities at the property classically associated with residential use.
The Colorado Court of Appeals, in Houston v. Wilson Mesa Ranch Homeowners Association, Inc., endorsed the conclusions of Double D by stating, “that receipt of income does not transform residential use of property into commercial use.” The Houston case involved an association that argued its declaration’s commercial use prohibition effectively prohibited short-term rentals. The Houston court disagreed, ruling that “short-term vacation rentals such as Houston’s are not barred by the commercial use prohibition in the covenants.” The receipt of money is insufficient to transform the character of the use from residential to commercial. The Houston court ruled further that, “[f]or short-term vacation rentals to be prohibited, the covenants themselves must be amended … the board’s attempt to accomplish such amendment through its administrative procedures was unenforceable.”
Unable to rely on existing commercial or residential use restrictions in their declarations, and knowing that administrative procedures such as amending the rules and regulations is insufficient to address the issue, associations have only one viable option to address short-term rentals - amending the declaration. This recourse is mirrored in the language of the Colorado Common Interest Ownership Act (“CCIOA”). §38-33.3-205(1)(l) of CCIOA requires that, “[a]ny restrictions on the use, occupancy, and alienation of the units [must be contained in the declaration].”
Once an amendment to the declaration is in place, associations are not yet in the clear for enforcement of short-term rental restrictions. Reporting and confirmation of suspected short-term rental violations and the subsequent trials create their own level of uncertainty that associations should approach with caution.
Unless an association discovers an owner is advertising his or her unit as a short-term rental, proving that an owner has violated a prohibition against short-term rentals can be very challenging. There are many theoretical explanations of a suspected short-term rental violation that do not run afoul of the covenants. Were friends simply coming to visit for the weekend? Was someone housesitting for the owner? This means that, if it gets to that stage, actually litigating short-term rental violations can be a discovery heavy process with subpoenaing records, bank statements, and witnesses thereby driving up the cost of the litigation and the potential liability to the association if it is wrong as to the nature of the alleged violation.
In the coming years, municipalities will undoubtedly continue to refine their regulations of short-term, and the courts will also provide more insight on the regulation of short-term rentals. In the meantime, associations must proceed with caution in their enforcement efforts. Like with so many issues in associations, clear guidelines through a declaration amendment, structured procedures, and thoughtful and serious communication with suspected violators will go a long way to avoiding headaches for all persons, and association budgets, involved in uncertain litigation.
Marcus T. Wile, Esq., has been representing and advising community associations since 2018. His experience includes counseling associations in the areas of collection, interpreting and amending governing documents, contract negotiation, and covenant enforcement.
1 D.R.M.C. § 33-48(f) (2019)
2 Double D Manor, Inc. v. Evergreen Meadows Homeowners’ Ass’n, 773 P.2d 046 (1989).
3 Houston v. Wilson Mesa Ranch Homeowners Association, Inc., 360 P.3d 255 (2015).
By Jonah G. Hunt, Orten Cavanagh & Holmes, LLC
In Colorado, community associations have a legal obligation to enforce covenants in order to protect and preserve the value of properties in the community. However, enforcing covenants is rarely as routine as it seems, largely due to a subset of owners who abide by the philosophy that rules are made to be broken or disregarded.
Associations act by and through a board of directors, whom, in the event of a violation must first determine what remedies are available under the community’s governing documents (i.e. covenants, rules, etc.) and what procedures must be followed. Available remedies can include fines, suspension of an owner’s voting rights or use of recreational facilities, covenant liens, self-help, mediation, and lawsuits. Of these remedies, self-help is generally the most controversial.
The governing documents should clearly authorize the association to enter onto an owner’s property to correct a violation. Ideally, they would also expressly permit the association to recoup any costs it incurs. The powers of an association are delineated in the community’s covenants, and if the covenants do not provide specific authority for self-help, this approach should not be undertaken. Associations should never simply assume they have this power, as having a board member, manager, or other agent enter onto an owner’s property without permission could expose the association to liability. Stated differently, if an association’s agents enter onto property without authorization, it could be construed as trespass, and if they remove or tamper with property, it could be theft or vandalism. The owner could call the police or get confrontational. This should be avoided.
Self-help should be utilized with restraint. Only true life, safety, and health issues warrant employing self-help. Matters that are merely an annoyance typically do not meet this standard. An association’s legal authority or ability to exercise self-help does not necessarily mean that the association must take that action. Overly aggressive or rogue enforcement of covenants can lead to protracted litigation, liability exposure, hostility towards board members and the manager, and even threats of physical violence.
Because acting beyond the scope of an association’s powers when employing self-help can cause adverse legal issues, the board must ensure they are not overstepping the mandates in the governing documents. For instance, associations should give their owners notice before entering onto properties, regardless of whether this is a requirement or not. If there are specific notice requirements in the governing documents, those should be followed.
So, should self-help be avoided at all costs? No, if the governing documents permit it and it is truly an emergency situation, self-help can be a valuable remedy. In other instances where an owner has not responded to multiple violation notices from the association, the association should consider legal action in the form of an injunction. Injunctive relief seeks a court order compelling the owner to comply with the covenants. If the owner fails to do so, the order would permit the association to enter onto the owner’s property to correct the violation. If there is a risk of an adverse interaction with the owner, the sheriff can be asked to “keep the peace” while the remediation is being performed. Injunctive relief, including the recovery of attorney fees and costs, is authorized under Colorado law and typically under the governing documents as well.
While the legal process is lengthier than simply entering onto someone’s property, it is far less risky. In addition, most owners will ultimately comply when they receive a letter from the association’s attorney, even if they’ve ignored prior notices from the association.
If there is a truism for all community associations, it is that voluntary compliance is always preferred over self-help or litigation. When enforcing covenants, associations should always act reasonably and in the best interests of the community. The exercise of common sense is also advisable.
Jonah G. Hunt is a community association attorney and partner at Orten Cavanagh & Holmes, LLC, providing strategic general counsel and litigation services to associations throughout Colorado.
By Trisha K. Harris, White Bear Ankele Tanaka & Waldron
You live in a community with three car garages and ample driveway parking space, but your neighbor insists on filling his garage with junk and parking all of his cars on the street, some in front of your house. It may be annoying and an inconvenience to you, and maybe even an eyesore, but is it a covenant violation that your association can become involved with?
It’s an age-old question that we get asked frequently in the course of our work with associations. Can an association enforce parking restrictions contained in the declaration on streets that have been dedicated to the city or the county? Unfortunately, the answer is not clear cut, courts across the country have decided the issue in differing ways. Generally, however, the following is a summary of the analysis typically followed in analyzing this question.
As the above discussion illustrates, enforcement of private parking restrictions on public streets is a complicated issue and one that no association should undertake without first consulting with legal counsel to discuss the above analysis, risks, liability exposure, etc.
White Bear Ankele Tanaka & Waldron was formed in 1997 to serve the needs of residential, commercial and mixed use projects throughout the State of Colorado, and in particular to provide advice and counsel to project developers, property owners and residents on a wide range of issues. The firm has an experienced team of professionals dedicated to meeting the needs of the its clients in a timely and cost-effective manner.
By Tim Moeller, Moeller Graf, P.C
As a community association attorney over the last 20 years, I have been tasked with handling hundreds of “neighbor to neighbor” disputes. These disputes come in many flavors. Some believe that their upstairs neighbor is tap dancing on the tile floor with ski boots in the middle of the night; some believe that Snoop Dogg himself must be living below them due to the amount of pot smoke drifting into their unit; others fight belligerently over dog poop. While the nature of the disputes vary wildly, one common thread runs through these types of disputes – one or more of the owners desire to have the community association step in to make their problem disappear.
Associations, through their Boards, are reticent, at best, to intercede in what appears to be a personal dispute between two homeowners. After all, why should they spend the money of the entire community to deal with some neighbors who can’t seem to get along? Furthermore, are they even obligated to step into such a quagmire?
While it is easy to wipe our hands of these types of disputes and demand that the homeowners handle their own petty squabbles, community associations must not immediately ignore such complaints. Ultimately, if there exists a violation of the governing documents, which includes the rules and regulations, the Association has some level of obligation to enforce those governing documents.
A Colorado Court of Appeals case gave us some direction on the obligation of the community association to step into a dispute. The case arose from a homeowner who insisted on picketing within the community complaining that a builder refused to do warranty work on the homeowner’s new home. The HOA was asked to prevent the homeowner from picketing. However, no action was taken for an extended period of time.
Eventually, the builder grew tired of waiting and filed a lawsuit against the homeowner. As you can guess, the HOA and its management were roped into the case as well. In the appeal it was argued, among other things, that the HOA owed a duty to the builder, who was also a lot owner, to enforce the restrictive covenants.
The appellate court ruled that covenant enforcement may require the exercise of discretion as to both the timing and the manner of enforcement. In other words, the Association is obligated to enforce its governing documents through the exercise of reasonable business judgment. While this was not a neighbor to neighbor dispute in the context that we normally see, we learned that the community association has an obligation to enforce its governing documents through the lens of the Board’s business judgment.
Enforcement may fall into many categories. Many covenants contain general nuisance provisions that may require the community association to get involved with complaints pertaining to smoke intrusion and noise, for example, if they are sufficiently harmful to the enjoyment of neighboring units. If the governing documents contain covenants or rules pertaining specifically to a matter to which a complaint has been levied, the Board must take the complaint seriously and make its best business judgment as to whether it must intervene. In some instances, this judgment call should be made with the assistance of legal counsel.
Outside of violations of the governing documents, some complaints are merely about bad actors in the community who may be bullies or just plain mean. Certainly, these types of complaints can be relegated to the neighbors to work out . . . or can they? Some community associations may find it alarming to learn that HUD, in 2016, issued a final rule that creates liability for housing providers for occurrences of “hostile environment harassment.” The rule prohibits hostile environment harassment because of a resident’s protected class. It imposes direct liability on housing providers more broadly for discriminatory practices. The impact of this rule is the possible imposition of direct liability on the community association for the conduct of third parties if the association knew or should have known of the discriminatory housing practice, had the power to correct the practice, and failed to take prompt action to end such practice.
One example of the affect of this Rule on community associations is found in a case out of Washington D.C., where the condominium association paid $550,000.00 to an African-American homeowner to settle charges that the association did not go far enough to protect her from racial and sexual harassment. The association eventually wrote letters to the harasser, but ultimately failed to stop the outrageous and harassing behavior. The facts in the case paint a horrible picture, but suffice it to say, Boards should take seriously complaints of discrimination within the community, even if it smacks of a neighbor to neighbor dispute.
Tim Moeller is one of the founding partners of Moeller Graf, P.C. Tim currently serves on the Colorado Legislative Action Committee for the Community Association Institute.
1 Colorado Homes, LTD v. Loerch-Wilson, 43 P.3d 718 (Colo.App. 2001).
2 Reeves v. Carrollsburg Condominium Unit Owners Assn. 1997 WL 1877201.
By Danaly Howe, Centennial Consulting Group
If you are searching for new home in Colorado, chances are that you will come across a subdivision governed by a Metropolitan district. Metro districts, for short, are being popularized over the traditional homeowners association (HOA) structure, and for good reason. Prior to the 1980’s, most cities and municipalities paid for the cost of new roads, utilities, and other infrastructure. Since then, developers have been expected to pave the way for their developing communities. Metro Districts have been around since the 1980’s and provide an alternative, and increasingly common, method for paying infrastructure costs. At first glance, metro districts can seem complicated and intimidating, but a few key ideas can help any new home buyer become comfortable with their structure.
Metropolitan districts are governmental entities that operate much like a town council: board members are elected through an election process alike to your county elections, meetings are open to the public, and there are regular statutory filings which provide transparency. Although metro districts are not required to provide HOA-type functions such as covenant enforcement, they are being utilized more frequently in this capacity. Most notably, metro districts (and other types of districts such as fire districts, school districts and library districts) collect property taxes from their population to pay for expenses.
In new communities without a metro district, the developer will recoup the cost of infrastructure when they sell the lots or finished homes. This reimbursement through property sales means that home prices in these communities are typically higher than in a metro district subdivision; the first homeowner shoulders the burden of these costs in their purchase price. In a metro district neighborhood, these infrastructure costs are paid for like a home mortgage. Development costs are consolidated into long term debt (usually 30 years) and paid off over time through payments coming from the property tax mill levy. Homeowners in metro district areas contribute to the debt in proportion to how long they own their property. Metro districts must have their development costs certified by a 3rd party engineer for fair bidding, costs, and verification of installation. Only those costs which have been verified can be reimbursed.
Metropolitan districts can be in addition to, or in place of, a homeowners association. Instead of HOA dues, operations costs are usually funded through property taxes (in addition to the taxes for debt). These include such expenses as landscaping maintenance, snow removal, management, accounting, legal, and utilities. Both types of entities have a board of directors who make decisions concerning the budget, contractors and rules and regulations. Because taxes are used to fund district property, these areas are considered public and accessible to anyone. For this reason, developers may create an HOA in addition to a metro district to allow for amenities (such as a pool facility) to be kept private to its owners. Other reasons for a dual district and HOA structure include separating out the debt and covenant / community responsibilities, and for cases such as condominiums where metro districts cannot use taxes on private property.
If you are interested in learning more about metro districts and how they compare to HOAs, you are invited to attend the CAI Spring Showcase on March 31, 2020, which includes a class entitled “Metro Districts vs. HOAs – What are They?” taught by Danaly Howe. This class will take a more in-depth look at how various aspects of districts function, including legal requirements, meetings, records requests, elections, and budgeting. We will also dive into some of the pros and cons of metro districts and expand on information surrounding how property taxes on new homes work and misconceptions surrounding tax collections.
To find out whether a property is part of a metro district, a search of the property tax record on the County Assessor site will show a list of taxing entities that are currently in effect. Additionally, the Special District Association collaborates with all types of districts to provide information and resources with can be accessed by going to www.sdaco.org.
Currently working toward her PCAM, Danaly has been a District Manager and AMS with Centennial Consulting Group in Northern Colorado for over 7 years. She can be reached at danaly@ccgcolorado.com, or by calling 970-484-0101 ext. 1. The Centennial Consulting Group’s website is located at www.ccgcolorado.com.
By Kate M. Leason, Altitude Community Law, P.C.
As the primary foreclosure attorney at Altitude Community Law, I am often asked to explain the judicial foreclosure process. There are a lot of moving parts in a foreclosure and your average citizen is often unfamiliar with the process. And because it is human nature to shy away from the unfamiliar, Board Members and Property Managers sometimes do not consider foreclosure as a viable collection tool. The information below provides an overview of the basics and an idea of how judicial foreclosures move through the court system from lawsuit to sale.
A foreclosure has three basic parts: (1) pre-litigation – gathering of the information necessary to prepare a lawsuit; (2) litigation - the lawsuit is filed and judgment obtained; and (3) the sale of the property.
Pre Litigation
In the pre-litigation phase, it is a good idea to verify that statutorily compliant delinquent notices were sent to the owner, than no owner has filed bankruptcy, is not active military, has not transferred or sold the property, and that the lender has not begun foreclosure proceedings. The lender commonly forecloses via the Public Trustee, which follows a similar, but different process than a judicial foreclosure. You will also want to obtain a title report or “litigation guarantee” (a title report that provides recourse if there is an error in the title report) to determine who has a recorded interest in the property. Generally, but not always, title reports will reference, at a minimum, a Deed of Trust and the Association’s lien. There may also be a second mortgage, judgments, or tax liens. The entities and individuals with liens are known as “lienholders”. The liens may be junior or senior to the Association’s lien. Each lienholder has a claim on the property and is prioritized according to the date the lien was recorded. There are exceptions for property tax liens, federal and state tax liens (e.g. IRS, etc.) and other governmental charges, which move to first priority position regardless of the recording date.
Liens have priority in the following order: (1) real estate taxes; (2) lien for assessments, but only for six months of assessments; (3) the first Deed of Trust; (4) lien for assessments owed in excess of the six month amount; (5) other lienholders chronologically by the date of recording. If there is a master or sub association with a lien, under Colorado Common Interest Ownership Act the liens have equal priority unless the Declaration states otherwise.
Once all of the above information is obtained, the complaint for foreclosure can be drafted. The complaint is the document that starts the foreclosure action. The complaint states facts about each of the listed lienholders (i.e., Defendants) identifying their interest in the property (e.g., deed of trust, transcript of judgment, etc.) and will allege that the owner has breached the covenants by failing to pay assessments and that the Association is allowed to foreclose pursuant to the Declaration and statute.
Litigation
In the litigation phase, the lawsuit documents prepared in the pre litigation phase are filed with the District Court in the county where the property is located. A Lis Pendens (notice of pending action) is also recorded in the county where the property is located. The Lis Pendens is recorded to place parties on notice of the lawsuit. The complaint and summons are served on the Defendants by the sheriff or private process server. Once served, the Defendant must file a response to the complaint within a set number of days as prescribed in the Colorado Rules of Civil Procedure or risk a default being entered against them.
To maintain its senior lien position, the holder of the first deed of trust (usually banks) will typically stipulate to lien priority and agree to pay the superlien (i.e., six months of assessments) to be dismissed from the lawsuit. Stipulations can be entered into with other lienholders to establish lien priority.
In the majority of cases, the owner does not respond to the lawsuit and the judgment and order and decree of foreclosure is entered by default. If an owner does respond, it is usually to request time to pay the debt. Foreclosure is disputed in only a small percentage of cases and the majority of those cases are resolved through mediation. Once an order and decree of foreclosure is obtained, the property can be sold at a sheriff’s sale.
Sale/Redemption
The sale involves sending the court order to the sheriff, along with a package of documents that the sheriff needs to either have published in the newspaper, mailed to interested parties, or have issued to the purchaser at the sale. The sheriff will assign a sale date. The sheriff publishes a notice of the sale in a local newspaper for five weeks. With some limitations, the owner can obtain a “cure statement” from the sheriff and pay the balance due to keep the property. If the owner does not pay, the sheriff will hold a sale and the property is sold to the highest bidder. A bid for the total amount due to the Association is submitted to the sheriff prior to the sale on behalf of the Association. This bid establishes the minimum bid for the sale. If another party’s bid exceeds the Association’s bid, and they are the highest bid at the sale, they are considered the “winning” bid. If a third party purchases the property, the Association is paid in full. If there is not a third party buyer, the Association will become the owner following the redemption period. The redemption period allows junior lienholders to “redeem’ (take ownership) of the property by paying the winning bidder the sums he/she expended at the sale. However, if no junior lienholders redeem, the winning bidder or the Association, will be issued a sheriff’s deed for the property.
If the Association becomes the owner, the Association may sell or lease the property. If the Association sells the property, the sale is subject to any liens that were not extinguished by the Association’s foreclosure, which would include the first mortgage and any liens which had equal or greater priority.
Although the foreclosure process has many steps and is best handled by an attorney, it is a collection option that Association Boards should consider for chronically delinquent owners and owners with high balances that might otherwise take years to collect.
Kate Leason has been a member of the Colorado Bar Association since 2009 and with Altitude Community Law P.C. since 2017. Altitude Community Law specializes in HOA law and has been elevating community associations since 1988. Please visit www.altitude.law for more information.
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