A last minute bill has been introduced in the Colorado Senate.   Colorado Senate Bill 12-181, introduced last week by State Senator Lois Tochtrop, proposes new requirements related to construction projects in Colorado.  These proposed changes are not favorable to property owners in Colorado and will limit the ability of property owners to negotiate business terms in their construction contracts.  SB 12-181 is set for a hearing before the Senate Business, Labor and Technology Committee on Wednesday, May 2, 2012. 

SB 12-181 applies to “Building and Construction Contracts” which is defined as any contract subject to Title 38, Article 22 of the Colorado Revised Statutes, Colorado’s mechanics’ lien law.  SB 12-181 contains the following points:

  • Colorado Law Must Apply.  Any provision in a Building or Construction Contract for work to be performed in Colorado that makes the contract subject to the laws of another state or contains a dispute resolution provision governed by the laws of another state, is void and unenforceable. 
  • Parties Cannot Contract Around Colorado Mechanics’ Lien Law.  Any provision in a Building and Construction Contract that requires a contractor or subcontractor to waive its right to file a mechanics’ lien or claim against a payment bond prior to being paid is void and unenforceable.
  • Payment to Subcontractors and Suppliers Required Within 7 Days.  All principals, general contractors and subcontractors must pay their subcontractors and material suppliers within seven days of receipt of services.
  • Mandatory Interest Penalty; Costs and Attorney Fees Award.  A 1.5% monthly interest penalty applies to all unpaid amounts, and subcontractors and suppliers who successfully sue to collect this interest penalty will also be entitled to collect their costs of suit, including attorney fees.
  • Monthly Progress Payments Required; Retainage Amounts Capped.  Property owners or parties responsible for payment must make monthly progress payments to the general contractor unless the Building and Construction Contract specifies otherwise, and owners or payment parties may only reserve as retainage a maximum of 5% of each payment.
  • Change Orders.  General contractors must submit the costs of any change orders to owners for payment within 30 days of the change order.  Owners or payment parties will be required to pay at least 50% of any disputed change order amounts.

With foreclosures on the rise, it is no wonder that Colorado’s unique public trustee approach to the bank/borrower relationship finds itself in the limelight.  The CEO of RealtyTrac was quoted in a recent USA Today article suggesting that foreclosure-related sales will increase this year “as lenders start to more aggressively dispose of distressed assets held up by the mortgage servicing gridlock over the past 18 months.”

While many believe that Colorado’s foreclosure statutes afford a reasonably inexpensive and prompt remedy for lenders while providing property owners a fair chance to protect their interests, others strongly disagree.  As a recent article in the Denver Post put it, “No other state allows for a foreclosure without the lender first proving it is the right entity to do so;” and those in agreement have been working on legislation to tighten Colorado’s foreclosure process.

Rep. Chris Holbert, R-Parker, however, sees these efforts as adding more unnecessary regulations to an already overregulated industry.  Another recent Denver Post article quoted Rep. Holbert as saying, “Since 2005, the legislature has run and enacted 15 different bills to affect and change the foreclosure process in Colorado.  Now is a good time to leave it alone and stop changing things.  The process we have in place works fine.  Changing things for the 16th time isn’t the right solution.”

At the heart of the debate is which specific documents a foreclosing lender must provide to the public trustee, especially when that lender’s interest is based on an assignment of the debt.  Currently, Colorado law allows lenders to foreclose on real property even if their interest is based on an assignment from the original lender and that assignment is not produced.  Instead, all that is necessary is a statement signed by the lender, or its attorney, stating that the lender’s interest is valid.  House Bill 1156, which died in committee last month, sought to tighten the rules by, among other things, striking that option for foreclosing parties.

But advocates of the bill are trying again and going further this time with a ballot proposal that would require all documents necessary to institute a foreclosure, including any endorsements, assignments, and transfers of the debt, be recorded in the real property records prior to commencing a foreclosure.  If proponents of the initiative are successful, an amendment to the Colorado Constitution will be put before voters in November.

Photo by Taber Andrew Bain (Flickr)

 

mt wilson.JPGImportant Court Decision Regarding Colorado Conservation Easement Tax Credits

On March 15, 2012, the Colorado Court of Appeals announced its decision in Kowalchik v. Brohl.  The Court’s opinion in Kowalchik includes two key findings that will significantly impact the rights of Colorado taxpayers who purchased state conservation easement income tax credits from conservation easement donors.  First, the Court found that a conservation tax credit transferee (or buyer) is not required to be joined as a party in litigation concerning the underlying tax credit between the tax credit transferor (or seller) and the Colorado Department of Revenue (the “Department”).  In holding that the buyer’s interests are sufficiently aligned with the seller’s interests, and that the Colorado tax credit statute establishes that tax credit sellers are designated tax matters representatives of their buyers, the Court rejected the argument that failure to require the joinder of a tax credit buyer denies the buyer due process rights before the Department.  Second, the Court held that tax credit buyers are “taxpayers” under the tax credit statute, and are therefore subject to liability for deficiencies, penalties and interest under the statute.  We do not know whether either party plans to appeal the decision.  One consequence of this decision is that tax credit buyers will be bound by the results of litigation pursued by the Department against their tax credit sellers, without the buyers having been joined as a party to the litigation.  Legislation passed in 2011 to clarify the rights of tax credit sellers and buyers expressly gives tax credit buyers the right to intervene in litigation concerning tax credits they have purchased.  The circumstances of each case vary in determining whether tax credit buyers should pursue intervention as an appropriate legal strategy.

Fate of Enhanced Federal Tax Incentives for Conservation Easements Remains Uncertain

The enhanced federal income tax incentives for charitable contributions of conservation easements, which were passed as a part of the Pension Protection Act of 2006, expired on December 31, 2011.  These enhanced incentives raised the threshold amount of permissible income tax deductions from 30% of adjusted gross income (“AGI”) to 50%, expanded the permitted carry-forward period for the deduction from five to fifteen years, and made other important improvements benefitting farmers, ranchers, and forest landowners.  The expiration of the enhanced incentives saw the federal tax benefits of conservation contributions return to their previous levels.  Due to the contentious political battles surrounding the payroll tax cut and debt ceiling increase, the national conservation community was unable to get Congress to extend the enhanced incentives in 2011.  Currently, bills to reinstate the enhanced incentives and make them permanent have the sponsorship of a majority of the members of both the House of Representatives and the Senate.  However, the extension of the enhanced conservation incentives faces a unique political climate in 2012, with the presidential election and the expiration of several other major tax provisions.  Landowners considering donating all or part of the value of a conservation easement over their property should pay close attention to this important tax benefit.  We will provide updates regarding the status of the enhanced conservation incentives as they occur. 

Please contact Doug Becker or Chris Jensen with inquiries regarding Colorado conservation easement income tax credits.  Photo credit Chris Jensen.

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