By Shane Fleener, Hearn & Fleener, LLC
Most homeowners and community managers know that Colorado’s Common Interest Ownership Act (“CCIOA”) gives homeowner associations (“HOAs”) the right to assert a construction defect claim on behalf of the HOA and/or the community’s homeowners. However, there is a common assumption that this right only belongs to HOAs consisting of multi-family units (such as townhomes, row homes or condominiums). That assumption is incorrect. Single-family home HOAs have the same rights under CCIOA as any other HOA. This includes the ability to assert claims for defects impacting the single-family homes and lots that are otherwise owned and maintained by the homeowners.
The misconception that multi-family HOAs, but not single-family HOAs, have standing under CCIOA likely stems from the assumption that HOAs only have standing for common elements, or those portions of the community that the HOA otherwise owns or maintains. After all (when compared to their multi-family HOA counterparts), single-family home communities generally have fewer common elements that are owned and maintained by the HOA, and more lots / homes that are owned and maintained by the individual homeowners. However, none of this has any bearing on whether an HOA has standing under CCIOA. While some other states make exceptions for single-family home communities, Colorado is not one of them.
CCIOA states that an HOA has the power to assert claims “in its own name on behalf of itself or two or more-unit owners on matters affecting the common interest community.” C.R.S. § 38-33.3-302(1)(d). This is the only limitation to an HOA’s standing. Therefore, the question becomes: what is a “matter affecting the common interest community?”
First, common elements are not the only things that constitute a “matter affecting the common interest community,” as individual homes/units are also included. CCIOA defines a “unit” as “a physical portion of the common interest community which is designated for separate ownership or occupancy.” As a result, multiple courts have confirmed that defects impacting individual units are “matters affecting the common interest community” under CCIOA. Yacht Club II Homeowners Ass'n, Inc. v. A.C. Excavating, 94 P.3d 1177, 1179 (Colo. App. 2003). Detached single-family homes are “units” under CCIOA in the same way that condo and townhomes are.
Second, the fact that an HOA might not own the unit (or any other area of the community impacted by defects) is irrelevant to an HOA’s standing under CCIOA. In fact, the Uniform Act (upon which CCIOA is based) expressly states that an “association can sue or defend suits even though the suit may involve only units as to which the association has no ownership interest.” For this and other reasons, Colorado courts have confirmed that HOAs have the right “to pursue damage claims on behalf of two or more units’ owners with respect to matters affecting their individual units.” Id. at 1180.
Third, the manner in which a community’s governing documents happen to allocate repair and maintenance obligations between the HOA and the individual homeowners is irrelevant. As articulated by one court: “Provisions stating that the Association and individual owners have separate maintenance duties under the Declaration have no bearing on the Association’s standing under the CCIOA.” Heritage Vill. Owners Ass'n, Inc. v. Golden Heritage Inv'rs, Ltd., 89 P.3d 513, 515 (Colo. App. 2004).
The result of all this: Single-family home HOAs have the right under CCIOA to sue builders for construction defects impacting any portion of the common interest community, regardless of whether those defects are impacting individual homes or common elements and regardless of whether the HOA owns and/or is responsible for repairing and maintaining the impacted improvements. It is important that single-family home HOAs, and the community managers that work with them, be aware of these rights.
Shane Fleener is a partner and litigator at Hearn & Fleener, LLC located in Denver, Colorado. Hearn & Fleener is plaintiff’s law firm focused on housing and construction defect issues. For more information about Shane and his law firm, please check out their website www.HearnFleener.com
By Lindsay Smith, Winzenburg, Leff, Purvis & Payne, LLP.
“You work for me!”
Well, no, I actually don’t. Every community association professional has had a homeowner demand a particular action because, “You work for the homeowners, you work for me!” That isn’t exactly true, and it’s precisely false in the context of a community association attorney. Blurring a vendor’s lines between a homeowner’s request and a Board’s request might be a minor concern when planting annuals outside a patio home, but it is a major ethical problem if the “vendor” is an attorney.
Colorado attorneys are governed by the Colorado Rules of Professional Conduct. Rule 1.13 details an attorney’s duties and obligations when that attorney represents an organization – such as a homeowners association.
First and foremost, the attorney represents the corporate entity itself, “acting through its duly authorized constituents.” This is typically the Board of Directors, but the attorney does not represent the Board of Directors. As an organization’s attorney, I have additional ethical duties to homeowners and members of the public. Specifically, when dealing with directors, officers, members, or other constituents who may have interests adverse to my client’s interests, I must explain that I represent the corporate entity and not that director, officer, member, or other constituent.
This circumstance could arise when a homeowner attempts to initiate a popular Bylaw amendment at an annual meeting. I am obligated to explain that while an amendment to prevent Carol from serving on the Board because she snubbed Rose at bingo last month might sound like a good idea, it’s not an action that is legal to take at that meeting. While all the homeowners present might want to take that action (everyone really hates Carol), it is simply not legal. My duty is to help the corporate entity stay on the right side of the law – and the right side of the law does not include personally-motivated and improperly-noticed Bylaw amendments.
Similarly, other community association vendors need to keep their clients in mind. A paving contractor does not report to Carol or Rose; the contractor reports to the Board or the community association manager. The contractor needs to take direction from those who control the corporation (and its purse strings). If a contractor decides to follow Carol’s dictates, that contractor may find himself in breach of the contract with the community association. Carol might find herself personally liable for her instructions. Avoid this situation and protect yourself, your clients, your vendors, and your homeowners from confusion and unnecessary expenses by ensuring that only the parties who can bind the corporate entity attempt to do so.
Lindsay Smith is an attorney with Winzenburg, Leff, Purvis & Payne, LLP. She represents communities as general counsel in a variety of legal circumstances, from governance and policy considerations to litigation and enforcement. When not attending community association meetings for clients, she relaxes by attending community association meetings.
By Lisa Greenberg, Gravely Pearson
Catastrophic hail storms are an unfortunate and increasingly common reality throughout Colorado’s Front Range, causing hundreds of millions of dollars of damage every year. In 2017, a hail storm severely damaged the Colorado Mills mall in Lakewood, breaking open skylights and severely damaging the mall’s roof, allowing rainwater to flood the mall’s stores. It took more than six months for repairs to be completed before the mall could re-open. However, these hailstorms are indiscriminate, damaging condo and townhome communities as well. The increase in destructive storms has caused a simultaneous increase in large insurance claims. This has prompted insurance companies to push back on policyholders attempting to recover property loss benefits. That pushback has led to litigation, where homeowner associations have been forced to sue their insurance carriers. This insurance litigation has resulted in some interesting trends that multi-family communities and managers should be aware of as they work together during the insurance claims process:
These court rulings are of specific concern to multi-family communities because many hailstorms are not as obviously destructive as the one that hit the Colorado Mills. Instead, storms often damage roofing systems multiple stories off the ground and leave little evidence of damage to those observing from ground level. Because hailstorm damage is not always obvious, and the consequences of failing to report damage promptly can be significant, HOA owners, members of the Board of Directors, and management would be wise to implement measures that allow for the prompt discovery and reporting of hailstorm damage. In addition to being exceptionally vigilant and diligent in discovering and reporting damage, owners, Board members, and management should also be educated on when to investigate possible storm damage, even when such damage is not immediately visually apparent, so that insurance claims can be discovered and “promptly” made.
Notably, this contingent-fee “issue” shows up in other ways in some insurance-related disputes. For example, Public Adjusters, like management companies, also often forego immediate payment in lieu of a percentage of the amount of the claim ultimately paid by the insurance company. Similarly, some contractors may agree to repair the damage for whatever amount the insurance company ultimately decides to pay, regardless of the true value of the work. Some insurance companies argue that these contingent-type fee agreements also create the appearance of improper claim inflation. Regardless of its truth, this appearance can be damaging to the claims process and can create a significant roadblock to the policyholder collecting the full value of their claim.
Not surprisingly, allegations of fraud against an HOA are highly damaging both to a community’s ability to recover on a claim, and to the HOA industry in general. These counterclaims are changing the perception courts and laypeople have about insurer-insured disputes, suggesting the insurance company is the “victim” and the HOA is the perpetrator. Most importantly, insurance companies’ newfound boldness in bringing these fraud counterclaims, and their current success in doing so, has, from all appearances, inspired insurers to continue their practice of disputing and/or refusing to pay on legitimate insurance claims.
In order to more easily navigate the insurance claim system in light of the modern trends in Colorado’s insurance law, homeowners, Board members, and managers must strive to educate themselves on best practices in handling their insurance claims to prevent insurance companies from gaining additional leverage in court. With the concerns noted above in mind, multi-family communities are poised to turn the tide on insurance-related claims throughout the Front Range and Colorado in general.
By Damien Bielli, Vial Fotheringham
The annual meeting has concluded, and you find yourself on the Board of Directors of your community association. What now? Hopefully, the association has an orientation process in place to help new board members assimilate into a governing role in the community. If not, here are some helpful tips for board members:
If an association email address is not provided to a board member, create one. A separate and distinguishable email address for community association business is necessary for continuity of board communication and protection of personal email content.
Read and know your governing documents. The origin of association authority, its limitations, and permissible conduct comes directly from the association’s governing documents and applicable state and federal law. CCIOA (Colorado Common Interest Ownership Act) provides the statutory guidance for many associations with restrictions on governance that must be taken into consideration by acting board members.
The importance of knowing your governing documents cannot be understated. Board members should understand the hierarchy of governing documents and laws that regulate the association. At the highest level, the association must act in accordance with federal and state law. However, usually the most important and most relevant tool for governing an association is the declaration. A declaration, also known as the CC&Rs, is the primary governing document that creates the rights and obligations of owners in a homeowner’s association. This document provides a blueprint for the authority granted to the association, as well as its obligations to homeowners. As a board member, it is imperative that you are familiar with the declaration’s contents. Bylaws govern the operations of the association. Items such as board elections, meetings, voting and board member responsibilities are a few of the items bylaws may govern. Board members should be familiar with how the association is run so its operation does not run afoul of the stated procedures within the bylaws.
Board members also must remain knowledgeable of all aspects of association finances, including reserves, expenditures, assets, and budgets. As soon as is practicable, a new board member should request to review the finances and request clarification if necessary. This ensures that the new board member is speaking, acting, and voting from an informed position.
It is also wise to for board members to continually educate themselves about issues occurring outside the meeting room by walking the property, talking to members, talking to the manager, and participating in all meetings. This gives each board member an opportunity to see, hear, and discover issues within the community before they become a problem.
Finally, document, document, document. Failure to document is an association’s and, similarly, a board member’s Achilles’ heel. While a board member may have acted promptly, prudently, and in accordance with the governing documents, failure to produce documentation to that effect is difficult to explain and usually results in trouble for the association. Any documentation received by the association, especially opinions of experts (attorneys, contractors, accountants, etc.) should be shared with every board member and retained and filed where easily accessible. The board is entitled to rely on the opinion of experts in its decision-making and, therefore, should retain the opinion as evidence of good faith.
Having the right tools can ensure that being a Board member can be a rewarding and beneficial experience.
By Ashley Nichols, Cornerstone Law Firm, P.C.
According to the Federal Aviation Administration (FAA), in 2018, there were over one million registered consumer drones in the United States. If you are like me, you may not have known that if you have an unmanned aircraft system (UAS or drone), you are now required to register your drone with the FAA. The FAA estimates that the actual number of drones in the United States is closer to 1.5 million. Additionally, at the industry’s current pace for hobbyist drones, those numbers are expected to triple to over 3.5 million by 2021. Given those numbers, odds are good that you, or someone you know, owns and operates a drone.
The legal framework surrounding the drone industry is still developing. Many of the concerns are over privacy issues (flying over someone else’s property, catching a neighbor sunbathing in the buff, peeping in windows, etc.). Associations are starting to question how to address drone operations in their communities. One question is who owns the air where the drone is being flown? On paper, the concept of land is relatively simple – you pay money, and in return, you’re given unfettered access to a predetermined amount of land (but HA! Unfettered and HOA, as we know, don’t go hand in hand). But do you own the sky above? There is a Latin phrase that translated says, “whoever owns the soil, holds title all the way up to the heavens and down to the depths of hell.” However, today, you only really have the right to enough airspace to reasonably enjoy the land below that air. What does that mean? Well, that’s up for debate.
There is “navigable airspace” which is regulated by the FAA. “Navigable airspace” is “airspace at and above the minimum flight altitudes …, including airspace needed for safe takeoff and landing.” The minimum flight altitude while flying over congested areas is 1,000 feet above the highest obstacle within a horizontal radius of 2,000 feet; and in uncongested or sparsely populated areas, it is 500 feet above the surface.
As for regulation by the FAA, in addition to being registered, hobby drones are required to (a) fly below 400 feet and remain clear of surrounding obstacles; (b) remain well clear of and not interfere with manned aircraft operations; (c) not fly within 5 miles of an airport without the airport’s prior approval; (d) not fly near stadiums or people; (e) not operate drones weighing more than 55 pounds; and (f) always keep the drone in a line of sight. Drone operators who violate these regulations could be fined for endangering other people or aircrafts.
So, is it trespassing if you fly over your neighbor’s land? Unfortunately, as of now, the answer is not clear. A case that may have shed some light on the issue was dismissed by a federal judge for lack of jurisdiction. The following is some background: Boggs, the drone pilot, was flying his drone over property owned by Meridith. Meridith, alleging trespass and invasion of privacy, shot down the drone (he later began calling himself the “Drone Slayer”). Meridith was charged criminally, and those charges were dismissed by a Kentucky state court judge. The drone pilot, Boggs, later sued Meridith in federal court asking the court to make a legal determination as to whether his flight constituted trespassing. The suit was brought in federal court because Boggs’ lawyers argued that the drone was flying in airspace which was regulated by the FAA, and as such, the incident was subject to federal jurisdiction. The FAA was not a party to the suit and the judge, dismissing the case, stated that the state courts would be better suited to adjudicate the claim.
The best case law on the issue of whether a drone flying over private property is trespassing is an old case dating back to 1946. That year, the Supreme Court ruled in a case known as United States v. Causby that a farmer in North Carolina could assert property rights up to 83 feet in the air. In that case, the farmer was awarded damages for chickens that were killed when they flew into a wall due to the noise of a low flying plane (83 feet).
State legislatures across the country are debating if and how drone technology should be regulated, taking into account the benefits of their use, privacy concerns, and their potential economic impact. Forty-one states, including Colorado, have passed legislation addressing drones. However, Colorado’s legislation only addresses governmental use of drones.
What about the commercial side? The business applications of drone use are nearly limitless – from delivery of packages to your door to conducting roof inspections. Drones could be an excellent tool to help enforce violations within your community and provide efficiencies in doing so. Currently, commercial use of drones requires FAA approval. If your community is considering using drones for enforcement, make sure that your vendors are in compliance with federal laws and guidelines.
A March 2013 report from the Association for Unmanned Vehicle Systems International projects that by 2025 more than 100,000 jobs will be created with an economic impact of $82 billion. This is certainly a growing industry and associations should ensure that they are proactively taking steps to address concerns over the use and operation of drones, rather than reacting. At the same time, associations wanting to regulate drone use in their communities should do so with care. Until a court conclusively finds that some portion of the airspace above private property is owned by the property owner, associations regulating said airspace will be subject to potential litigation.
Remember that many times, drone use and operations really come down to neighbor to neighbor disputes. An association’s best bet is to avoid provisions in a policy that are overly restrictive. Make sure to contact your association’s attorney to discuss prior to implementation in your community.
Ashley Nichols is the principal and founder of Cornerstone Law Firm, P.C. She has been in the community association industry for eleven years, providing associations with debt recovery solutions for their communities. Cornerstone Law Firm represents Colorado communities in all areas of common interest community law. You may find out more at www.yourcornerstoneteam.com.
By Tim Moeller, Moeller Graf, P.C.
One of the beautiful things about living in a community is the different perspectives, life experiences, and attitudes that the residents bring, which can contribute greatly to the quality of life for all. However, sometimes it is these differences that tear us apart. Within most communities, there will be one or more individuals who may not share the common goals of the community at large. Some of these types of individuals will actively seek out confrontation and negativity. These difficult individuals seem to thrive on pushing and invading reasonable boundaries and are typically very outspoken regarding their view of the management of the association. While not experts in civility, these individuals are experts at criticizing and pinpointing the errors of others, especially the Board and/or the manager. They will interrupt and make personal attacks and unfounded allegations.
By now, you may be picturing in your mind an individual that has checked all of the boxes of poor behavior mentioned above. So how do we best deal with these individuals to avoid unnecessary conflict and disruption to association business?
Here are some suggestions for dealing with the difficult homeowner:
Unfortunately, it is common for our office to be contacted about homeowners who are “harassing” one or more board members or the community manager. In fact, this seems to be more and more commonplace. At what point does lousy behavior rise to the level of harassment? After all, it is not against the law to act poorly or to have bad manners.
Colorado law defines criminal harassment in C.R.S. §18-9-111. For harassment under this statute to exist, there must be “intent to harass, annoy or alarm” another person in certain ways, including, but not limited to i) touching (striking) them; or ii) in public, directing obscene language or making obscene gestures to another person; or iii) following a person in or about a public place; or initiating communication by telephone, text, email, or other means in a manner intended to harass or threaten bodily injury or property damage, or iv) making any comment, request, suggestion, or proposal that is obscene; or v) repeatedly insulting, taunting, challenging, or making communications in offensive coarse language to another in a manner likely to provoke a violent or disorderly response.
Harassment as set forth above is a class 3 misdemeanor (unless the harassment pertains to race, color, religion, national origin or disability, which is a class 1 misdemeanor). So, while the association may contact law enforcement should it deem that the behavior of the individual has risen to criminal harassment, there may also be other ways to head-off the problem using the association’s existing governing documents.
Most covenants contain provisions pertaining to nuisances. While we can agree that bullies and difficult people seem to be a nuisance to all who come in contact with their abhorrent behavior, a legal nuisance is typically considered an activity which arises from unreasonable, unwarranted or unlawful use by a person of his/her own property, working obstruction or injury to the right of another such as smoke, odors, noise, or vibration.
Therefore, we may look to whether there exists more specific language in the covenants regarding harassing behavior. Short of amending your covenants to contain such language, broad language often exists in the covenants pertaining to “quiet enjoyment” which has nothing to do with noise but can pertain to harassment. Sometimes, a strong letter from the association’s attorney will be enough of a check on the bad behavior to alleviate some of the issues. This may escalate to the levy of fines or other specific sanctions. If this doesn’t work, the Board may discuss with its legal counsel the possibility of obtaining a civil restraining order in court or an injunction against their bad acts.
Ultimately, if you spend enough time as a manager or board member, you will eventually run into an individual who exhibits bad behavior. Do all that you can to diffuse the problem, but don’t let the issue get out of your control. Take whatever reasonable action is necessary to maintain control of the association and attempt to promote civility for the benefit of the homeowners that truly appreciate your time and effort spent on behalf of the community.
By Aaron Goodlock, Orten Cavanagh & Holmes, LLC
As banks, credit card companies, and financial service providers grapple with identify theft, so too must HOAs. Over the last several years, there has been a substantial increase in cyber-related crimes, resulting in increased identity theft and financial fraud. As a result, federal and state governments have been working to enact laws to reduce crime and protect constituents, primarily via statutes addressing consumer protection, data and cybersecurity requirements, and criminal sanctions.
In 2018, the Colorado legislature approved House Bill 18-1128, which was enacted and became effective September 1, 2018 to address privacy and cybersecurity protections. The new law applies to many entities in Colorado, including most HOAs and community association management companies.
HB 18-1128 has two primary components, including: (1) requirements for storing and protecting “personal identifying information” (as defined in the statute) and (2) changes to the Colorado’s breach notification laws.
Managing and Protecting “Personal Identifying Information”
HB 18-1128 applies to all “Covered Entities.” Covered entities include any individual or entity that maintains, owns, or licenses “personal identifying information” (PII). The statute defines PII to include social security numbers; personal identification numbers; passwords; passcodes; official state or government-issued driver’s licenses or identification card numbers; passport numbers; biometric data (such as fingerprints); employer, student, or military identification numbers; or financial transaction devices (such as credit or debit card numbers or bank account information).
Under the newly enacted laws, HOAs and management companies that store or maintain PII are required to implement and maintain reasonable security procedures and practices that are “appropriate to the nature of the personal identifying information and the nature and size of the business and its operations.” The statute also requires HOAs and management companies with access to PII to adopt written policies addressing the destruction of records containing PII when they are no longer needed.
A third requirement under the new statute is that HOAs that maintain PII must take measures to preserve the confidentiality of PII when transferring such data to third parties (such as the association’s manager or management company or another service provider). The statute provides that covered entities “shall require” third party service providers to implement and maintain reasonable security procedures and practices which are reasonably designed and tailored to protect against unauthorized access, use, modification, disclosure, or destruction of PII. One method to address this requirement is for associations to carefully review their management agreements and ensure that adequate protections are in place, including appropriate indemnification provisions. Associations are also encouraged to consult their attorneys when reviewing association contracts whenever the disclosure or transfer of PII is involved.
Compliance with Colorado’s Breach Notification Statute
The second primary component of HB 18-1128 deals with notification requirements in the event of a data or security breach that results in, or is likely to result in, the misuse of “personal information.”
For purposes of Colorado’s breach notification statute, “personal information” includes a Colorado resident’s first name or first initial and last name in combination with any of the following data: driver’s license number or identification card number; student, military or passport identification number; medical information; health insurance identification number; or biometric data. “Personal information” also includes a Colorado resident’s username or email address in combination with a password or security questions and answers that would permit access to an online account or a Colorado resident’s account number or credit or debit card number in combination with any required security code, access code, or password that would permit access to that account.
The statute requires that if a breach occurs, the covered entity (e.g., the association or the management company) is required to notify the affected individuals within 30 days. The statute also specifies certain information that must be included in the notice and disclosed to the affected individuals.
If a breach involves a compromise of personal information affecting 500 or more individuals, the association or management company is required to notify the Colorado Attorney General’s office. If the breach involves more than 1,000 individuals, notice is also required to be provided to the credit reporting agencies. Accordingly, large communities that include 500 or 1,000 homes or more, including the association’s board of directors and management, should be cognizant of their duties and responsibilities in the event of a breach and would be wise to address such requirements in the association’s written policies.
Good risk management practices for associations and management companies includes adopting and implementing appropriate written policies (pursuant to the statute), including policies for maintaining PII and other personal information and developing incident response plans in the event of a breach. By doing so, boards of directors and management companies can limit their risk of liability if and when a breach occurs.
Another method to limit risks involving data and security breaches is through obtaining and maintaining appropriate insurance including, without limitation, cyber liability insurance (cyber risk insurance), computer crime insurance, D&O insurance, and fidelity insurance. Associations should consult their insurance agents and advisors to determine the appropriate coverage based on the particular community’s needs.
By Jennifer A. Seidman, Esq., Burg Simpson Eldredge Hersh & Jardine, P.C.
Colorado is outpacing national trends for new apartment construction and, as the influx of new residents continues, developers continue to build. Those familiar with the real estate market predict that rental apartments will be converted to for-sale condominiums. Our firm’s construction defect attorneys know that complicated issues arise when construction problems are discovered in condo conversations. Here are six things you should know about construction defects in condo conversions:
If you would like more information about conversions or have questions about possible defects in your recently-converted condominium, call one or our attorneys at 303-792-5595 or reach out to Loura Sanchez at firstname.lastname@example.org.
By Keith Hoagland, McKenzie Rhody, LLP
When creating a common interest community, the developer typically forms the owner’s association and controls it for a period of time through a developer-appointed board of directors. The Colorado Common Interest Ownership Act (“CCIOA”) requires that this period of control terminate after sufficient units have been sold, after sufficient time has passed since the last sale of a unit, or after sufficient time has passed since the last exercise of any right to add new units.
However, a developer may include provisions in a community’s governing documents that allow it to continue to exert control over a community after its control of the owner’s association has terminated. For example, the declaration may contain a requirement that certain amendments to the declaration require the developer’s consent. As a result, the community may find it impossible to amend the declaration in some ways, regardless of how many unit owners approve. Such a requirement severely impairs the right of an association to self-govern and, in some circumstances, it may also limit the legal recourse it has against the developer. In fact, in Vallagio at Inverness Residential Condominium Ass’n v. Metropolitan Homes, the Colorado Supreme Court recently upheld such a requirement as valid.
The declaration at issue in the Vallagio case required the owner’s association to arbitrate construction defect claims against the developer. Although declarations commonly contain such a requirement, this one further stated that the arbitration requirement could not be amended without the developer’s consent. The Colorado Court of Appeals has previously held that an owner’s association can remove an arbitration requirement in a declaration by amendment. However, requiring the developer’s consent to do so effectively makes the requirement permanent, controlling the manner in which the association may pursue construction defect claims long after the developer has sold the last unit and relinquished any control over the association.
CCIOA prevails over any inconsistent provision in a community’s governing documents, and the association in Vallagio made several strong arguments as to why the consent requirement in the declaration violated CCIOA. First, as noted above, CCIOA sets strict limits on the period of time during which the developer can maintain control over an owners association, and prohibiting amendment of the declaration without the developer’s consent would amount to impermissibly exerting control over the association beyond the time limit set forth by CCIOA. However, the court of appeals found that this provision deals specifically with the developer’s right to appoint and remove members of the association’s board of directors. Since the unit owners and not the association itself make amendments to the declaration, the court reasoned that the declaration did not require the developer’s consent for any actions of the association. Curiously, the Colorado Supreme Court did not address this argument separately on appeal, and it remains unclear whether it would have adopted the rationale of the court of appeals.
Second, outside of certain narrow exceptions, CCIOA explicitly provides that a declaration may be amended only by the affirmative vote or agreement of unit owners holding more than 50% (and up to 67%) of votes in the association. Requiring the developer’s consent to amend the declaration, especially if the developer no longer owns title to any units, would effectively call for something above the required unit owner vote. However, the court found that this provision merely prohibits requiring a percentage of unit owners larger than 67% and does not prohibit imposing additional requirements.
Third, CCIOA prohibits a developer from evading CCIOA’s limitations or prohibitions, an example of which would be controlling the votes of unit owners. By requiring its consent to amend the declaration, regardless of the number of unit owners in favor, the developer effectively controls the votes of those unit owners. However, the court rejected this argument, finding that it did not impermissibly create class voting or run afoul of CCIOA’s policies or purposes, which endorse and encourage arbitration.
Finally, CCIOA prohibits imposing any limitations on the power of an owner’s association to deal with the developer that are more restrictive than the limitations on the association’s power to deal with other persons. Requiring the developer’s consent to amend the declaration effectively restricts the association’s ability to deal with the developer more so than its ability to deal with other persons. This would seem especially true where the provision being amended, as in Vallagio, is one that specifically benefits and protects the developer. However, the court found that because, as noted above, it is the unit owners and not the association itself that amends the declaration, the consent requirement did nothing to restrict any power of the association.
Significantly, the court stated in a footnote that its holding is confined to “a narrowly drafted consent-to-amend provision that pertains solely to the resolution of construction defect disputes,” and that it “express[es] no opinion as to the propriety of any other consent-to-amend provisions.” However, as noted by two dissenting justices, the rationale for the opinion was not limited in this way. Consequently, the dissent fears that it will allow developers to control the affairs of owner’s associations “into perpetuity” simply by requiring its consent to amend any provision in a declaration. The fallout from this decision is likely to spawn future litigation testing the boundaries of consent-to-amend as a control mechanism that extends well beyond arbitration requirements in construction defect disputes.
Keith Hoagland is an attorney with McKenzie Rhody, LLP. McKenzie Rhody specializes in representing homeowners and homeowner associations in construction defect matters in Colorado, Texas, and California. www.mrcdlaw.com
By Amanda K. Ashley, Altitude Community Law, P.C.
Bankruptcy is one of those mystical creatures that we’ve all heard of but hope we don’t run across. If your association hasn’t yet dealt with an owner who filed or is in an active bankruptcy, don’t worry – you will! In fact, bankruptcy is frequently used by owners to prevent further collection action, stop a foreclosure, or otherwise restructure or assist with ongoing financial obligations that are no longer affordable.
When an owner files bankruptcy, the “automatic stay” becomes effective immediately upon filing of the bankruptcy petition. (11 USC § 362). The stay is in essence an injunction against creditors from pursuing further collection action, including foreclosure, garnishment, or eviction. The automatic stay is generally in effect throughout the course of the bankruptcy, which can be a significant length of time in a Chapter 13 bankruptcy since the Chapter 13 bankruptcy can continue for up to five years.
Most creditors, including associations, are aware of the automatic stay provisions regarding general collection action such as filing lawsuits, attempting wage garnishments, or other legal action. But what many associations are not aware of are the other actions it takes that may violate the automatic stay provision, such as continuing to prohibit an owner from using the association’s amenities (e.g. the swimming pool) once an owner files bankruptcy. While an association can prohibit an owner from using its amenities due to the owner’s delinquent account (assuming the association is acting pursuant to its collection policy, of course), once that owner files bankruptcy, the association must cease all collection action. In other words, if the association does not unlock the amenities for that owner, the owner will likely have a strong case that the association has violated the automatic stay provision since the lockout is likely a type of collection action utilized by an association to prompt an owner to become current on an account.
An association’s recourse then, in light of a bankruptcy filing, is to file a motion for relief from the automatic stay since the association is a secured creditor and can petition the court for relief from the stay for cause under § 362.
Failure to obtain relief from the stay or failure to cease all collection action can result in significant penalties for violating the stay, so tread carefully, associations! If a creditor is found to have violated the automatic stay, penalties including sanctions as well as punitive damages can be assessed. Additionally, damages may also be awarded for emotional distress. Keep in mind that whether a creditor intended to violate the stay order is not a consideration in determining whether there was a violation of the automatic stay; rather, the issue generally becomes whether the creditor intended to collect or continue collection in violation of the stay order.
Of course, every situation is different. There are exceptions to the application of the automatic stay which is why each bankruptcy filing should be reviewed individually. This article is purely meant as a starting point and should not be construed as legal advice.
Amanda K. Ashley is an attorney at Altitude Community Law, a law firm specializing in community association law. She works primarily in the Debt Recovery department.
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