This article in today's Denver Post discusses how, despite some regional variation in vacancy rates and rents, the statewide trends suggest optimism among property managers and landlords concerning future demand.
The recent uptick in multi-family housing construction in some parts of Colorado indicates that developers may be feeling the same way.
It will be interesting to watch whether this results in sustained multi-family growth.
It has been a little over a year since the requirement that Colorado property owners' associations register with the newly created HOA Information and Resource Center went into effect. The center’s 2011 annual report is out (and a copy of it is provided below). According to the annual report, in 2011, 8,037 property owners’ associations registered, comprising a total of 838,211 units.
As reported here earlier, the registration requirement went into effect on January 1, 2011, but an emergency rule was enacted automatically registering all such associations through March 1, 2011. As we reported last year, if a property owners' association fails to register, its assessment lien power and right to enforce such liens are suspended. Most associations registered sometime in the first quarter of 2011, and so the time to renew those registrations is now. This is an annual requirement, and the ramifications of non-renewal are the same as if an association did not register in the first instance.
The legislation is not clear on whether the registration requirement applies to all property owners' associations in Colorado or only property owners' associations subject to the Colorado Common Interest Ownership Act (CCIOA). In 2011, legislation was introduced that would have clarified this point, but the legislation failed. The Division of Real Estate has promulgated a position statement clarifying that pre-CCIOA associations (associations formed prior to July 1, 1992) are not subject to registration unless that association has elected treatment under CCIOA. The position statement is authoritative but not binding, and so pre-CCIOA associations may still want to register despite the position statement.
A complaint form is now on the HOA Information and Resource Center’s website. The center has no investigative or enforcement capabilities, and the complaint form states that clearly on its face. However, the center tracks complaints and reports on them .The annual report includes, among other things, the report on complaints received which cover a variety of topics ranging from pets and parking to conflicts of interest and transparency. The annual report also comments on the ongoing confusion related to the center's power and authority to deal with complaints. For people involved with property owners' associations, whether in a development, management, board or ownership role, this information is instructive as to what the hot button issues are with owners. Whether or not it leads to further regulation of property owners' associations remains to be seen.
2011 Annual Report of the HOA Information and Resource Center Office.pdf
Developers often secure FHA approval for their condominium projects, enabling buyers to obtain FHA loans. Whether or not those approvals remain in place is left to the owners’ association for the project. As investors continue to snap-up condominium units one at a time or in bulk, it is important to review the status of the FHA approval for the project. As highlighted in a recent Denver Post article, the FHA backs nearly one-third of all mortgages in the United States, up from 5% in 2005. The article also reports that nearly two-thirds of Denver metro-area condominium projects have rejected or expired FHA approvals. As the article suggests, this could be the result of many factors, including FHA’s limit on the number of renters in a project. Even for those projects with intact FHA approvals, investors should talk to the association to understand the association’s plans for renewing the registration and assuring that all the FHA requirements (such as the limit on renters) are satisfied. The association’s plans (or lack thereof) with respect to FHA registration could have serious implications for the investor’s ability to rent the condominium units or sell them to consumers.
Photo by Butterbean Man (Flickr)
We have been following the newly adopted requirement that Colorado property owners’ associations register with the Colorado Division of Real Estate (the “Division”) no later than January 1, 2011, or face losing their assessment lien power and enforcement rights. See our earlier reports (Aug. 2010 and Dec. 2010) for background information on this new requirement.
For the past few months there has been uncertainty surrounding this requirement. Recently, steps have been taken to implement it. Aaron Acker has been hired as the HOA Information Officer and the Division has promulgated an emergency rule granting an automatic, temporary registration for Colorado property owners’ associations. This temporary registration expires on March 1, 2011. In addition, online registration is now available on the Division’s website. The registration fee is currently set at $8.93.
What is still uncertain is which Colorado property owners’ associations are subject to this new registration requirement—just those formed under the Colorado Common Interest Ownership Act (“CCIOA”) (adopted in 1992) or all property owners’ association, even those formed earlier than 1992 or otherwise exempt from CCIOA. We understand from Mr. Acker that this and other issues are still being reviewed and we will continue to follow this matter and report back any new developments.
Many lenders are taking back half-built projects that are subject to the Colorado Common Interest Ownership Act (“CCIOA”). CCIOA governs planned communities, condominiums and cooperatives in Colorado and contains many detailed provisions regarding the ongoing right of a developer (or a “Declarant”) to develop the community and control the board of directors. These rights are referred to as “Special Declarant Rights” under CCIOA.
When entertaining a possible deed in lieu transaction or a foreclosure, lenders need to be aware of any Special Declarant Rights that exist under the project documents and should evaluate whether those Special Declarant Rights might be valuable to a future purchaser of the property. In doing so, a lender also needs to be aware of its possible successor liability if it takes over these Special Declarant Rights and how the lender might avoid such successor liability.
Generally, Special Declarant Rights may be transferred only in a signed and recorded document. However, CCIOA recognizes that in a foreclosure, it may not be possible to get the borrower/original Declarant to execute an assignment of Special Declarant Rights. As such, CCIOA allows a foreclosing lender to unilaterally record an assignment of Special Declarant Rights. This unilateral right to record an assignment of Special Declarant Rights does not apply in a deed in lieu situation.
If a lender takes an assignment of Special Declarant Rights from a borrower, it remains liable for the liabilities and obligations imposed on the borrower/old Declarant under CCIOA or the project declaration, except:
In a foreclosure situation, a lender can avoid this successor liability if the unilaterally recorded document states that the lender is only taking these Special Declarant Rights for the purpose of transferring them to a third party (such as some future buyer of the property). If that limitation is included, the lender can still exercise the rights to appoint board members, but cannot exercise any other Special Declarant Right. While the lender’s liability will be limited under that approach, any future buyer who takes an assignment of the Special Declarant Rights will have the successor liability described above. Because the unilateral right to record an assignment of Special Declarant Rights does not apply in a deed in lieu situation, lenders who take a deed in lieu do not have the ability to limit the effect of the assignment and thus limit their successor liability.
Because lenders are not in the development business, utilization of this procedure makes sense. It allows a foreclosing lender to preserve the Special Declarant Rights for a future buyer of the remainder of the project, and doesn’t force a lender to take on liability. It is important to remember that the right to unilaterally record an assignment document and limit liability does not apply in a deed in lieu transaction. When a lender is deciding whether or not to foreclose or take a deed in lieu, this fact should be considered.
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