Wildfires Raise Important HOA Questions

Posted by Amy Hansen on August 02, 2012

This weekend, the Denver Post included a story regarding certain legal issues related to the rebuilding of the Colorado Springs homes destroyed by wildfires, many of which were located in covenant controlled communities. As noted in the article, many of those communities have architectural review committees, but given the amount of destruction it is not clear how effective the processes that are in place will be to maintain a cohesive neighborhood architecture. While we watch this situation unfold, communities in areas that are prone to wildfires should take this opportunity to revisit their covenants and ask some important questions about their architectural guidelines and covenants in the context of wildfire danger.

-- Are the architectural guidelines comprehensive enough?

-- If the covenants allow owners to repair and/or rebuild without approval from the architectural review committee so long as it is done in a manner consistent with what was originally built, how does the architectural review committee determine what was there prior to the casualty? The answer is pretty clear when homeowners are simply repainting their house. But, if the house was completely destroyed, making that determination is much more difficult, especially if the architectural review committee does not have a historical file for the property (which would most likely be the case if no major work has been done on the home since the developer originally built it).

-- Even if the covenants as drafted adequately address a complete rebuild, is the architectural review committee strong enough - both organizationally and financially - to enforce the covenants? Is a new committee with additional assessments and/or additional powers - or a new entity with the authority to tax, such as a special district, as mentioned in the article - the answer when the entire neighborhood will need an overhaul?

-- Do the covenants and/or architectural guidelines include fire suppression measures, such as brush and debris removal and distance between structures and tree plantings?

We will continue to watch as this situation develops in Colorado Springs.

 

Colorado Overhauls Record Keeping Requirements for Property Owners' Associations

Posted by Amy Hansen on May 17, 2012

The Colorado legislature recently adopted a bill amending the Colorado Common Interest Ownership Act (CCIOA).   House Bill 12-1237, which currently awaits Governor Hickenlooper’s signature, overhauls the record keeping requirements imposed upon Colorado’s property owners’ associations under CCIOA.   Generally speaking, the requirements of this bill are more detailed than CCIOA’s old provisions on record keeping, and speak to topics previously covered such as financial records and records of member and board meetings.  In addition, the bill addresses additional types of records and clarifies which records must be provided and must not be provided to members upon request, and which records can, at the association’s option, be withheld. 

Some of the new types of records specifically addressed in the bill include records related to construction defects.  The bill requires that property owners’ associations keep records of claims for construction defects and amounts received pursuant to settlement of those claims and that those records be made available to members upon request.  The bill also requires that when action is taken by the board of directors without a meeting, the property owners’ association maintain all written communications among the board members that are directly related to those actions, which presumably includes emails.  These records must be provided to members upon request.

The records that the board of directors may withhold, at its option, include, among other things, communications with legal counsel that are otherwise protected by the attorney-client privilege, records related to an executive session of the board of directors and records related to transactions to purchase goods or services that are currently under negotiation.  Those items that must be withheld from members include personal information related to employees or members (salary, medical information, bank account information, phone numbers, email addresses, drivers license numbers and social security numbers).  Because email communication is so prevalent today, property owners’ associations will need to take precautions not to disclose email addresses of its members under the new bill.  Note, however, the email addresses of board members must be provided to any owner who requests the information. 

Assuming this bill is signed by Governor Hickenlooper (and not challenged by referendum), its provisions will take effect January 1, 2013. 

Colorado Apartment Vacancy/Rental Rates Suggest Market Optimism

Posted by Bill Kyriagis on May 10, 2012

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. 

 

The HOA Information and Resource Center - One Year Later

Posted by Amy Hansen on February 09, 2012

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

 

 

Investing in Condo Units? Time to Look at FHA Approval Issues

Posted by Amy Hansen on January 26, 2012

condoDevelopers 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)

Emergency Rule Automatically Registering Colorado Property Owners' Associations Adopted

Posted by Amy Hansen on January 03, 2011

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.

Avoiding Successor Liability with CCIOA "Special Declarant Rights" in Foreclosures and Deed In Lieu Transactions

Posted by Amy Hansen on December 03, 2010

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:

  • misrepresentations;
  • warranty obligations;
  • breach of fiduciary duties; or
  • any obligation that is imposed on the borrower/old Declarant after the date of the assignment.

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.