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 email@example.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.
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.
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.
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.
By Peggy Ripko
I began my career in Community Management in 2004, and spent the next years learning all of the intricacies of homeowners associations and how to effectively manage them. I became adept at helping people understand why the rules exist and how associations protect property values. Over the years, I would hear about metropolitan districts without really knowing what they were or how they differed from associations. And I figured that I could manage a metropolitan district as well as I managed associations.
Then, I joined Special District Management Services, Inc. One of the first things I discovered during my tenure as an association manager gave me little insight into how a metropolitan district operates or what is needed to manage it. The first Board meeting I went to left me with questions about statutory compliance requirements, how elections work, why we were talking about bonds, and what cost certifications are.
Luckily, that was not my role in the company- I was hired as a Community Manager. Many developers are now having metropolitan districts provide community management in their communities, and I was hired to coordinate this. Basically, I was hired to do what is typically associated with associations. I am often asked if I like my new position (Yes!) and what it’s like. That’s when I say that it’s totally the same from what I did before….and completely different.
Totally the Same
As a metropolitan district Community Manager, I coordinate inspections, send out violations, and process and approve architectural forms. I draft and send out RFPs for landscaping, pools, and trash, and work with the contractors once approved. I get phone calls about dog poop and barking, deal with angry homeowners who don’t like the rules, and welcome new homeowners to the community.
Most metropolitan districts that have community management also have CC&Rs as well as Design Guidelines and Rules & Regulations. Just like for associations, the CC&Rs lay out what we do; how long the architectural review process is, how many people are on the committee, and if the form is denied if there is no response. The Design Guidelines/Rules & Regulations give specifics that are needed to govern a community well; what are the landscaping requirements and when can you put up holiday lights, etc.
Metropolitan districts are also governed by a Board of Directors, who make the decisions for the Districts while the management company carries out those decisions.
Metropolitan districts are quasi-municipal corporations and political subdivisions organized under Title 32 of the Colorado Revised Statutes. Not all metropolitan districts have community management as a part of their responsibilities, but most of those that do are not bound by CCIOA. A part of the income for metropolitan districts is received from property taxes. Some districts have Operations & Maintenance Fees in addition to that but, they are usually minimal.
In most cases, metropolitan districts are organized for the purpose of financing public infrastructure in the community. This is done through the issuance of bonds, with independent engineers providing cost certifications to show that the improvements are eligible for reimbursement. Simply put, the developer gets paid back from a loan after the engineers and the Board approve it.
Metropolitan districts also have statutory requirements that HOAs do not. For instance, any gathering (district related or social) that has a quorum of the directors in attendance is considered a special meeting. Notice must be posted, and it must be open to everyone. For that matter, e-mails sent from one director to the rest of the Board also constitutes a special meeting. Meetings must be posted pursuant to statute and any conflicts of interest must be filed with the Secretary of State. There are also filings required throughout the year that the District Managers must ensure occur in order to be in compliance.
There is no set timeline for transition to homeowner control in a metropolitan district, instead the elections are every two years. At that time, anyone who is a registered voter in Colorado and either owns property in a District or is a resident can run for the Board. Yes, this means that renters can potentially be on the Board.
There are some communities that have both associations and metropolitan district involved. In a lot of these instances, the association involved is a condominium community. There are also the districts that do have a Community Management component to them- this is what I do. Over the past two years we have found the best way for this to occur; for each entity to stay in our lanes.
I stay in the Community Management lane- working with contractors for the common areas, answering questions about the rules, architectural inquiries, and discussing what we can do about dog poop and snow removal. If I get questions about the mill levy, the bonds, budgets, or statutory compliance, I send that to the District Manager.
The District Managers stay in their lanes- they do the budgets, ensure bills are paid, certify the mill levy, and ensure statutory compliance. If they get questions about why a homeowner received a violation or how to make a dog stop barking, they send it my way.
The best way to figure out what belongs in which lane is strong communication. Even though I work in the same office as the District Managers, we have meetings on a regular basis to make sure we all know who is responsible for which aspect of the community. We have also set these meetings up if the Community Management is provided by a different company; our goal is always providing the best service we can to the communities we serve.
By Kerry Wallace, Goodman and Wallace, P.C.
Your Common Interest Community (“CIC”) just discovered a construction defect (“Defect”) resulting from initial construction or an improvement project. What do you do? Welcome to the complex world of construction defects in Colorado. Time is not on a CIC’s side and it is important that a CIC insure a timely and professional investigation of the Defect, compliance with applicable Colorado statutes and preservation of claims. This article provides a generalized overview of a complex process that involves interrelated statutes. Seeking professional guidance is a good idea.
There are four main statutes applicable to Defects: (1) The Colorado Construction Defect Action Reform Act (“CDARA”) codified at C.R.S. § 13-20-801, et seq. which provides for statutory processes, guidelines, and limitations for Construction Defect Actions (“Defect Actions”); (2) The Homeowner Protection Act of 2007 at C.R.S. 13-20-806 which voids as against public policy waivers or limitations on certain homeowner rights related to Defect Actions; (3) C.R.S. 13-80-104 which addresses limitation of actions against construction professionals; and (4)The Colorado Common Interest Ownership Act (“CCIOA”) at C.R.S. 38-33.3-303.5 which addresses Defect Actions, the current version of which became effective May 2017.
CDARA and CCIOA both have pre-lawsuit filing processes that a CIC needs to follow before filing a Defect Action. CDARA’s Notice of Claim Process (“CDARA Process”) requires advance notice to the construction professionals of the Defect and provides for a period of time for informal negotiation. CDARA applies to “new improvements” to real property that are “essential and integral to the function of the project.” Arguably, certain remedial work, renovation, and remodel projects constitute new improvements.
CCIOA requires a complicated notice, hearing, record keeping, and vote process before a CIC can pursue a Defect Action (“CCIOA Process”). Failure to strictly follow the CCIOA Process could impact the ability to pursue a Defect Action and a CIC needs to be diligent about adherence to the CCIOA Process. The CCIOA Process includes majority owner approval before pursuing a Defect Action. For purposes of calculating the vote approval percentage, the following votes are excluded: (1) Votes of a “development party”; (2) Votes allocated to banking institution-owned units; (3) Votes allocated to units of a product type that does not contain alleged defects, in a community whose declaration does not impose shared common expense liabilities between the product types; and (4) Votes allocated to units owned by owners who are deemed nonresponsive. The statute does not define the term “nonresponsive.”
CCIOA also provides for two exceptions to the requirement of an owner vote: (1) if the Defect relates to a facility intended and used for nonresidential purposes, if the cost to repair does not exceed $50,000; and (2) if the Association was the contracting party for the performance of labor or purchase of services or materials. “Nonresidential purposes” is not defined in the statute but likely applies to common amenities, such as clubhouses, swimming pools, or facilities dedicated strictly to commercial use, such as the commercial portions of a mixed-use CIC. The second exception appears to be directed at Defects involving post-initial construction projects contracted for by the CIC, such as a roof replacement.
Often it makes sense to pursue the CDARA Process first to allow the CIC and construction professionals to work on informally resolving the issues. This can avoid the time and expense of the CCIOA Process. If the CDARA Process is not successful the CCIOA Process can be pursued.
Statute of Limitations
Defect Actions have limited time periods when a claim can be brought and after that time period passes all legal rights are time barred. This is called the Statute of Limitations (“SOL”). C.R.S. 13-80-104 concerns limitation of actions against design and construction professionals. There is a two year SOL and a six year statute of repose (“Repose”). The two year SOL requires a Defect Action to be filed within two years of the manifestation of the defect (“Manifestation”). Manifestation is when there is evidence of an issue even if the reason for the issue is not yet known. For example, cracking cement could indicate a soils issue. The Repose provides for a time related overall deadline for expiration of Defect Claims which is six years after substantial completion of the improvements. The exception is a Manifestation that occurs during the fifth or sixth year after substantial completion, then a Defect Action may be brought two years after the Manifestation but no later than eight years from substantial completion. It is imperative for a CIC to document when a Defect first Manifests as that date triggers the start of the two year SOL.
Upon Manifestation of a Defect, a CIC should determine SOL deadlines and proceed accordingly to preserve claims. The statutory pre-filing requirements of CDARA and CCIOA can assist in claim preservation. CDARA tolls or “stops” the running of the SOL during the CDARA Process for the time periods spelled out in CDARA. The SOL is tolled for all Defects listed in the CCIOA Process notice from the mailing date of the notice until the 90 days after the owner voting period ends or until the requisite vote is achieved, whichever occurs first. This tolling can only occur once and cannot be extended. The CDARA and CCIOA processes should be used diligently to avoid any gap in the tolling of the SOL in order to preserve claims.
What to Do
Do not delay. If a Defect Manifests it needs to be immediately investigated and the SOL determined in order to make sure that any potential claims are preserved. The CDARA and CCIOA processes need to be adhered to in order to create authority to file a Defect Action. Dates need to be calculated to insure preservation of claims and maximization of SOL tolling opportunities. The best investigation and determination of liability is worthless if the claims become time barred. Time waits for no CIC and diligence in the observation, identification, and preservation of a Defect Action is critical to a CIC’s potential to achieve remuneration for a Defect.
Kerry Wallace is a shareholder at Goodman and Wallace, P.C., a law firm located in the Vail Valley providing legal guidance for mountain resort communities for 30 years. For more information go to www.goodmanwallace.com.
By Heidi E. Storz, Esq., Kerrane Storz, P.C.
For some, “developer” is a bad word. For others, a “developer” provides new business opportunities. Before a homeowners association has transitioned from developer to homeowner control, community managers have to work with people in both camps and must walk the difficult tightrope between them. This article describes the one and only tried and true method that will assist community managers in keeping both the developer and homeowners happy (or at least keep people from blaming the community manager for their problems) while the developer is still in control of a community association. That method is through fostering communication.
In a newly constructed community, homeowners are instructed to report outstanding warranty items to the developer by the end of the warranty period. When homeowners make warranty claims and do not receive a timely response from the developer’s warranty manager or if the warranty manager sets up meetings that their subcontractors then “blow-off,” homeowners rightly become frustrated and angry. Moreover, developers often experience high turnover in the warranty manager positions. The high turnover adds to the frustration, as homeowners are then forced to report items multiple times and often get different responses from different warranty managers. For example, one warranty manager may promise to take care of something, while the subsequent warranty manager tells the homeowner the issue they are reporting is not covered by the warranty.
On the developer side, warranty managers can understandably become frustrated with homeowners (and there is always at least one) who incorrectly believe that the warranty manager is their own personal “handyman” or that insist that the removal of the toy their two-year old stuffed down the toilet should be covered by the warranty. Some homeowners are ultimately unable to be satisfied, and no amount of remedial work will make them feel as though their issues were resolved.
When these frustrations boil over to include the community manager, what is a manager to do? Simply and without fanfare - community managers should do their best to help these people communicate with one another. Any time communication breaks down between people in a dispute, those people start talking to other people instead of one another. With homeowners, that often means talking to their neighbors, then talking to people who read online reviews or watch Tom Martino, and eventually talking to lawyers.
So how can a community manager help people in this scenario who are frustrated with each other communicate better? Easier said than done for sure, but here are a few suggestions:
For most people, their home is their biggest investment, and people feel strongly about protecting that investment. As such, it is no surprise that homeowners become emotional if they believe developers aren’t treating them fairly. It is never easy to deal with frustrated people that feel powerless in their situations. Community managers, however, are uniquely positioned to help dissipate the frustration that can arise between homeowners and developers when you give people real tools to work with. As the old adage goes, “information is power” and information is the tool that can help people move beyond their dispute to solutions.
By Trip Nistico, Burg Simpson Eldredge Hersh Jardine, P.C.
In construction defect lawsuits brought by HOAs, it is not uncommon for the defendants (often the developer and builders of the community) to request to take a deposition of any property management company that has worked with the association. These depositions of companies—as opposed to individuals—are referred to as 30(b)(6) depositions because they are governed by Rule 30(b)(6) of the Colorado Rules of Civil Procedure.
Because property management companies are unlikely to be a named party in a construction defect lawsuit, non-party property management companies that have received a Rule 30(b)(6) deposition notice often question whether they must comply with such a request. While this is somewhat of an open question under Colorado law, federal courts interpreting Rule 30(b)(6) of the Federal Rules of Civil Procedure—which is identical to the Colorado rule—have held that both parties and nonparties must comply with Rule 30(b)(6). Nonparties, however, will only be required to submit to a 30(b)(6) deposition if they were properly subpoenaed.
A property management company that receives a valid Notice under Rule 30(b)(6) is expected to designate one or more witnesses who can speak to the organization’s “knowledge” on a list of potential deposition topics that will be included in the Notice. In theory, what the organization “knows” is a combination of the information learned by its officers, directors, agents, employees, or others, as well as other knowledge residing in the company’s records.
It is not unusual, however, that a property management company no longer employs any of the individual property managers that worked with the HOA. But even if the property management company no longer employs any individuals with first-hand knowledge of the deposition topics, the company is expected, if reasonably possible, to “create” a witness or witnesses from information reasonably available to the company. The company may not simply respond that there is no witness available who has personal knowledge concerning the areas of inquiry. Nor may it simply designate a witness that will not be reasonably prepared to provide relevant information on the designated topics.
Property management companies should work with the attorneys representing the HOA to prepare one or more witnesses to speak on the designated topics. These attorneys will be able to determine if the company was properly subpoenaed, who should be designated as deposition witnesses, how best to prepare the witness, and whether a protective order (explained more below) should be sought.
A company that fails to take its Rule 30(b)(6) obligations seriously puts itself at risk. Rule 30(b)(2) allows courts and arbitrators to issue various sanctions against companies that fail to comply with these obligations. Possible sanctions include:
Who can be designated as a witness in a Rule 30(b)(6) deposition?
Rule 30(b)(6) states that a corporation or other entity may designate any officer, director, managing agent, or any “other person consenting to appear and testify on its behalf with respect to the matters reasonably available to the organization.”
This includes former employees who consent to serve as witnesses—particularly when no current employees have relevant firsthand knowledge of the events in question. However, while a company may designate consenting former employees in these situations, it is not required to do so. “The burden under C.R.C.P. 30(b)(6) is to produce witnesses who are knowledgeable, not to produce an exhaustive list of witnesses to testify as to each and every factual assertion made by an organization.”
The company is not required to designate a witness with first-hand, personal knowledge of the designated topics. The designated witness just needs to be reasonably prepared. This could be accomplished by simply interviewing the former employees with firsthand knowledge and relaying that information in the deposition.
If there is nobody inside the company that has relevant knowledge of the deposition topics, it may be appropriate to designate somebody outside of the company. Courts have allowed companies to designate outside consultants as 30(b)(6) deposition witnesses. In one case, a federal court allowed an entity to designate one of its litigation attorneys as a Rule 30(b)(6) witness.
While there is risk in designating an attorney that is directly involved in the litigation as a Rule 30(b)(6) witness—as it is possible that this attorney would later be disqualified from representing any party in the trial—the fact that courts have allowed this shows that a company can designate practically anybody as its 30(b)(6) witness. In fact, it is likely that most courts would allow the same person to be designated as the Rule 30(b)(6) witness for both the HOA and a property management company that managed it, as long as this witness has completed the necessary preparation to answer on behalf of both entities.
In addition, nothing in Rule 30(b)(6) precludes the company from providing “contrary or clarifying evidence” when a designated witness either does not remember or misstates facts in the deposition. This could include designating additional 30(b)(6) witnesses, providing affidavits and other evidence, and, if necessary, subpoenaing witnesses with relevant information that were unwilling to serve as a 30(b)(6) witness. It is still crucial, however, to make sure each witness is as prepared as possible, as each witness’s testimony—even if later supplemented or corrected—can still be used in litigation.
Note on the “Apex” Doctrine:
Challenges based on who companies designate as 30(b)(6) witnesses are almost always unsuccessful: there is no requirement, for instance, that the entity designate an employee of the company or someone with first-hand knowledge of relevant facts. Sometimes, defendants will seek to depose a CEO or other high-level officer of a company (often referred to as “apex” depositions because these officers are at the apex of the corporate hierarchy) that was not designated as a 30(b)(6) witness—even when these officers have no relevant information to provide. In these situations, courts will sometimes step in to prevent these depositions under the “Apex doctrine.”
Although officers of a corporation are not immune from being deposed, apex depositions are potentially harassing, particularly where apex officers have little or no relevant information. Courts are therefore likely to grant a protective order under Rule 26 to prohibit depositions of senior officers with little or no relevant information.
To overcome this doctrine, the party seeking to depose the high-level officer must show that (1) the official has “unique or superior” personal knowledge of relevant information, and (2) that there is no less-intrusive way the party could obtain this information. It is unlikely that a party could establish that a high-level officer of a property management company that did not manage the HOA involved in the construction defect lawsuit has “unique and superior” personal knowledge of relevant information that cannot be obtained by other means.
What if it is impossible to prepare a witness to testify on the designated topics?
Sometimes, after reviewing all available documents that might contain information relevant to the designated deposition topics, and after interviewing (or attempting to interview) any former employees or others who might have relevant information, the organization is still not able to prepare a witness to that can testify on these topics. When that is the case, the company (through assisting legal counsel) should inform the party that requested the deposition that it will not be able to produce a witness to testify on those topics, and it should do so well before the deposition.
If an agreement cannot be reached with the other party’s attorneys, the attorney advising the company may then seek a protective order. If the company convinces the judge or the arbitrator that it has no reasonable means of preparing a witness to testify on one or more of the designated topics, the judge or arbitrator may grant a protective order, excusing the company from being deposed on these topics and from any related sanctions.
It is important, however, that a company that finds itself in this situation seeks a protective order before the deposition. Where the parties are unable to agree to narrow the deposition topics, the failure to seek court clarification before the deposition begins could result in the judge or arbitrator finding that the company waived any objections to the scope of the deposition topics. On the other hand, judges have generally been willing to strike topics that were overbroad or not specific enough when they were presented with this issue before the deposition.
Rule 30(b)(6) depositions can be burdensome for any company. Determining the best response to a 30(b)(6) Notice requires familiarity with the applicable rules and the experience to know how to conduct a proper investigation, who to designate as the witness or witnesses, how to prepare these witnesses, and if any challenges should be brought.
While these obligations are burdensome, companies risk incurring significant penalties—and even liability—if they ignore these obligations by either failing to produce a witness or producing a witness who is unprepared. Even property management companies that managed the HOA years before the lawsuit began should take these obligations seriously and either work with the HOA’s legal counsel or other legal counsel that is familiar with these matters.
Trip Nistico is an associate with the Construction Defect Group of Burg Simpson Eldredge Hersh Jardine PC. The group represents commercial and residential property owners, homeowner associations and unit owners, and construction professionals and insurers in construction defect, product liability, and insurance coverage disputes.
1. D.R. Horton, Inc. v. D&S Landscaping, LLC, 215 P.3d 1163, 1167 (Colo. App. 2008) (noting that federal decisions interpreting Fed R. Civ. P. 30(b)(6) are highly persuasive in Colorado courts because Colorado decisions interpreting C.R.C.P. 30(b)(6) are sparse and because the federal rule is “identical” to the Colorado rule).
2. See, e.g., Price Waterhouse LLP v. First Am. Corp., 182 F.R.D. 56, 61 (S.D.N.Y. 1998).
3. See, e.g., Estate of Esther Klieman v. Palestinian Auth., 293 F.R.D. 235, 245 (D.D.C. 2013). For the rules governing subpoenas in Colorado, see C.R.C.P. 45, which is similar—but not identical—to the federal rules governing subpoenas discussed in Klieman.
4. See Martin D. Beier, Organizational Avatars: Preparing CRCP 30(b)(6) Deposition Witnesses, 43 Colo. Law. 39, 39 (Dec. 2014).
6. See id.
7. D.R. Horton, 215 P.3d at 1168.
8. See id. at 1167.
9. Or, if the HOA is the party seeking to depose the property management company, the company may prefer to work with the attorneys representing the developer. This may be the case where the property management company primarily worked with the HOA prior to turnover or where the developer has claimed that the property management company was its agent.
10. While arbitrators do not have the authority to issue contempt citations (see C.R.S. § 13-22-217(4)), it is possible that this matter could be referred to a judge who has such authority.
11. See C.R.C.P. 37(b)(2)(A)–(E) for the complete list of possible sanctions.
12. C.R.C.P. 30(b)(6) (emphasis added).
13. See D.R. Horton, 215 P.3d at 1168.
14. Camp Bird Colo., Inc. v. Bd. of County Comm’rs of Ouray, 215 P.3d 1277, 1290–91 (Colo. App. 2009).
15. See, e.g., Reed v. Bennett, 193 F.R.D. 689, 692 (D. Kan. 2000).
16. ACE USA v. Union Pac. R.R. Co., Inc., 2011 U.S. Dist. LEXIS 80793, at *9 (D. Kan. July 25, 2011).
17. See D.R. Horton, 215 P.3d at 1169.
18 Cartier v. Bertone Group, Inc., 404 F. Supp. 2d 573. 574 (S.D.N.Y. 2005), injunction granted, 2005 U.S. Dist. LEXIS 35053 (S.D.N.Y. Dec. 20, 2005).
19. See New Jersey Spring Corp., 2010 U.S. Dist. LEXIS 14890, at *14 (D. Kan. Feb. 19, 2010).
20. Camp Bird, 215 P.3d at 1291.
21. See Great Am. Ins. Co. of N.Y. v. Vegas Constr. Co., 251 F.R.D. 534, 542 (D. Nev. 2008).
22. See D.R. Horton, 215 P.3d at 1170.
23. See id. at 1169.
24. See id. at 1170.
25. See Reed v. Bennett, 193 F.R.D. at 692.
26. See, e.g., Jones Co. Homes, LLC v. Laborers Int’l Union of N. Am., 2010 U.S. Dist. LEXIS 136911, at *6 (E.D. Mich. Dec. 28, 2010).
27. 1 Discovery in Construction Litigation P 7.01 (2019).
28 See id., n. 1.4 (citing cases and other authority and providing additional information about this doctrine).
29. See, e.g., Jones Co. Homes, 2010 U.S. Dist. LEXIS 136911, at *6.
30. See Calzaturficio S.C.A.R.P.A., s.p.a. v. Fabiano Shoe Co., 201 F.R.D. 33, 38 (D. Mass. 2001).
31. Dongguk Univ. v. Yale Univ., 270 F.R.D. 70, 74 (D. Conn. 2010); C.R.C.P. 26(c).
32. See D.R. Horton, 215 P.3d at 1169–70.
33. See Int’l Brotherhood of Teamsters, Airline Div. v. Frontier Airlines, Inc., 2013 WL 627149, at *6 (D. Colo. Feb. 19, 2013).
34. See, e.g., Stransky v. HealthOne of Denver, Inc., 2013 WL 140632, at *2–3 (D. Colo. Jan. 11, 2013).
Homeowner Leader Q&A - Legal Experts Answer Your Questions
Q: Our Board of Directors can't come to an agreement regarding resident comment at Board Meetings. Is there a better time during the meeting to allow for comment or do we allow for comment after each point or topic? How do we limit (and should we) length of comment? Are comments better outside of the meeting, after adjournment? We all agree that community input is very important as it keeps people engaged, informed and we remain transparent. While we value input we want to keep the meeting professional and organized. We need some direction - please help!
A: Pursuant to CCIOA, associations are required to have 9 good governance policies. One of those policies is a conduct of meetings policy. This policy should dictate how the meetings are run and the expectations of the owners and the board regarding the behavior at such meetings. Typically, boards will have an owner forum either at the beginning or end of each meeting. This will allow for owners to present any general concerns or comments they have for the board. Most policies will limit the time for any owner to speak to 3 minutes, which can be extended by the board. The board should note that if you are extending the time for one owner, you should extend the time for all owners. After the open forum, the floor should be opened to any owner for comment before any decision is made by the board. Again this comment section should be limited to a uniform time for any owner wishing to speak. The open forum should take place after the board has discussed whatever they are planning to vote on, but before the vote actually takes place.
Having transparency and input from the members of an association is paramount to a successful association. The board should listen and taken into consideration the thoughts and concerns of those members who attend board meetings. The board should also consider that it is often a small minority who attend board meetings and way their concerns against those members who may not regularly attend board meetings. Ultimately the board does not serve just those vocal members who attend board meetings but the association as a whole when coming to a decision.
Q: Are we required to share Association Contracts with owners? I ask because an owner wants to see and review our landscaping contract as she "knows someone" who might do it cheaper. This has made our Board question how we handle sharing contracts with our community in general. What are the best practice standards?
A: Colorado Common Interest Ownership Act (CCIOA) (and specifically Section 38-33.3-317) provides guidance to Associations by clarifying what are, and are not, association records. The section provides that “current written contracts to which the association is a party and contracts for work performed for the association within the immediately preceding two years” are records of the association for purposes of document retention, and more importantly and as it relates to your question, subject to production to owners. As such, you must provide association contracts to owners when requested.
An association may require a unit owner to request production of an association record in writing, describing with reasonable particularity the records sought, at least 10 days prior to inspection or production of the documents. Additionally, examination and copying times can be limited to normal business hours or the next regularly scheduled board meeting if the meeting occurs within 30 days after the request. Finally, a reasonable charge may be imposed and can be collected in advance to cover the costs of labor and materials incurred for the production of requested documents (but the charge may not exceed the estimated cost of production of the records).
It’s important to remember that transparent governance is key to having a successful and thriving community. The Colorado HOA Information and Resource Center reports that transparency issues continue to be a primary inquiry and/or complaint received by their office.
Further (as I’m sure you’re aware), cheaper isn’t always better. If members of your community take issue with the contracts that the Association’s board members have entered into, remind them that they have the opportunity to attend board meetings and provide comment on board decisions. As fiduciaries of the Association, your board members have the obligation to consider what is in the best interest of the Association as a whole and not its individual members. Make sure that your board is practicing due diligence when reviewing contracts to ensure that your selected vendor is the best suited for the needs of your community (and know, they may not necessarily be the cheapest!).
And finally, make sure that you have a policy regarding the Inspection of Records policy in place in your community. It’s one of the required governance policies required by CCIOA. If you’re unsure of whether your policy is compliant, contact your attorney for review. Thanks for your question!
Community Associations Institute (CAI), the leading international authority on community association governance, management, and education, would like to present a few facts with respect to fees charged during the sale of real estate.
The term “transfer fee” is loosely used to describe three different fees, or a combination thereof, some or all of which would be applicable to any community association. Because these fees are collected at the closing where property is bought and sold, they are generally referred to as “transfer fees” and are as follows:
Many community associations engage professional managers and / or management companies to fulfill and comply with their obligation to provide financial reports and documents for a successful resale of a home within their community. These services cost money. If they are not charged to the parties who are buying and selling the property at issue, then they will be borne by all of the other owners within the community association who are not selling their property.
With nearly 2 million people in Colorado living in community associations, there are bound to be some complaints. However, the legislative framework in Colorado is comprehensive and balanced. We urge you to consider the facts. According to the Foundation for Community Association Research, 90 percent of people living in community associations say their community association’s rules protect and enhance property values (62%) or have a neutral effect (28%); only 4% say the rules harm property values.
80% percent of residents surveyed nationally oppose additional regulation of community associations. Importantly, 86% percent of residents rate their community association experience as positive (63%) or neutral (22%).
It is indeed important that homeowners fully understand the community association housing model and their respective rights and responsibilities. Homeowners can do so by visiting CAI’s Rocky Mountain chapter for additional resources.
By Mary Sarah Schweiger, Citywide Banks
Imagine you live or manage an HOA covenant community and the summer has been busy with hailstorms. The buildings are already damaged and are continuing to get worse right before your eyes. Or, the community has a sewer system beneath the buildings that is slowly but surely falling apart, causing backups. Or, the roads and the parking lots have lived their best lives and are in need of serious repair. What does an Association do? Does the Reserve account carry a high enough balance to complete these projects? Can the community continue to afford the band aid solutions that just keep prolonging these projects?
One possible solution to consider is obtaining a loan with a local bank to complete the entire project all at once. If you are like most HOA’s, you have put aside money in your Reserve account regularly; however the project could cost more than what you have saved. Plus, it would be dangerous to deplete the reserves in the event there is an emergency in the future. Obtaining a loan can get the job done faster, lessen the strain on your Reserve account, and allow the Association to pay over a period of time to lessen the strain on the homeowners.
This is not always the easiest task and it can take some time. Here are some initial questions and answers to help you decide if your association should seek a loan and how to get started:
This will help start the process. Your next course of action will depend on the answers to these questions. Maybe you will need to start with amending the documents and cleaning up delinquencies. Or maybe you just need to amend the budget and set a special meeting for the homeowners. Always feel free to reach out to your local banker with questions or concerns. That is what we are here for!
A little about me; I have been a banker at Citywide Banks for the last 15+ years. I have sat on an HOA board for 6 years and have experienced a lot during that time! I am always happy to help and share my experiences and knowledge.
CONTACT US(303) 585-0367
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