Colorado Homeowners Association Law Blog

You will remember from a recent posting that we discussed the new Fannie Mae guidelines, and the anticipated HUD regulations. As noted,  HUD did in fact adopt new temporary regulations that went into effect on December 7, 2009, and remain effective until December 31, 2010, at which time the new permanent HUD regulations will become effective. The new HUD temporary regulations are found in HUD Mortgagee Letter 2009-46 A, and can be found at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09_46aml.pdf. The new HUD permanent regulations are found in HUD Mortgagee Letter 2009-46 B, and can be found at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09_46bml.pdf. It is important to note that condominium projects under developer control and under construction or being converted have different standards. This posting does not address those standards.

The fallout from our current economic crisis is hitting all of us, sometimes in ways we least expect. While many homeowners are struggling to hold onto their homes, many are faced with the prospect of having to sell. In the present economy, that is difficult enough. However, for those whose homes are condominiums, Fannie Mae has implemented new guidelines that can make it more difficult than previously to complete a sale. HUD has adopted similar new temporary regulations which went into effect on December 7, 2009 and remain effective until December 31. 2010, at which time more restrictive permanent regulations become effective.

In a recently reported appellate court case, Clubhouse at Fairway Pines v. Fairway Pines Estates Owners, 214 P.3d 451 (Colo. App. 2008) the appellate court based on prior court holdings stated that joinder of an indispensable party can be raised for the first time on appeal. The appellate court pointed out a decision in the Colorado Supreme Court that held, “….a court of appeals should, on its own initiative, take steps to protect the absent party, [by ordering joinder of the unnamed party] who of course had no opportunity to plead his interest below [in the trial court]” (cite omitted) at p. 455. The Court of Appeals then reasoned, that if the Court could on its own initiative protect the interest of an absent party, then there should be no reason a party should be foreclosed from raising the same issue on appeal. 

Colorado Rules of Civil Procedure, Rule 19, Joinder of Persons Needed for Just Adjudication, provides for the addition of parties who are necessary for a complete adjudication of all issues. This column does not answer the question of who is an indispensable party necessary for joinder in a lawsuit. The intent is to discuss the timing of when homeowners can be added as indispensable parties during pending litigation. The case cited below does talk about homeowners as indispensable parties, but it does not focus on the factors that make the owners indispensable to the litigation. In fact the law on whether homeowners are necessary parties in homeowner association litigation has the possibility of being radically revised as the Supreme Court has granted review of the case discussed below. 

But we are all just volunteers! We all have regular jobs to do too! They can’t expect us to do everything!

We are surprised by the number of times that we’ve heard these statements from board members when they are being challenged for actions they’ve taken, or decisions they’ve made. However, Colorado law does not make any explicit distinction between board members who are volunteers as compared to board members who receive compensation for serving on the board (such as for other types of non-profit corporations).

The Colorado Court of Appeals, in the recent court decision of Abril Meadows Homeowner’s Association v. Castro, 211 P.3d 64 (Colo. App. 2009), ruled that an association whose declaration of covenants was unsigned did not have the right to enforce its covenants against its homeowners.

Sometimes, when circumstances prevent collecting delinquent assessments from owners by more traditional methods, a receivership may assist the association in getting paid. Further, even if other collection options are available, a receivership may help you receive your assessments more quickly.

A receivership is started by filing a lawsuit in County or District court. Unlike other lawsuits, the court will normally grant our request for a receivership and appoint a receiver without first scheduling and conducting a trial or court hearing.

A receiver is an independent third party, unrelated to the Association or the homeowner, appointed by a court to take over possession and control of the property. In legal parlance, the receiver is an officer of the court, and answers to the court. However, being an officer of the court does not mean that the receiver is part of the court system. Typically, a receiver is a person who has experience in managing and operating real property, oftentimes a real estate broker.

The receiver, once appointed, will make reasonable efforts to rent the property. It is possible that the property can only be made habitable following the completion of repairs. Oftentimes, it is not possible to determine whether repairs are necessary until after a receiver has been appointed and has accessed the inside of the property to determine its condition.

Once the property is made habitable, a receiver is normally able to locate a tenant quickly by setting rent slightly below the average market value in the area. If the property is already rented when the receiver takes possession, the receiver is typically able to collect rent from the existing tenant in the property that would otherwise have been paid to the owner.

Once rented, the monies collected are applied as follows: first to pay or reimburse the receiver for his fees; second to reimburse the receiver for any costs in getting the property in habitable condition; third to reimburse the association for attorneys fees and costs in having the receiver appointed; finally, to the association to pay delinquent assessments, late charges, interest and other fees.

The association is still responsible for payment of the receiver’s fees, attorneys fees and costs and other expenses incurred in the event that: (a) the receiver is unable to rent the property; (b) a homeowner occupies the property prior to the receiver finding a suitable tenant; or (c) the association does not want to pay for repairs to make a property habitable.

Factors to consider before having a receiver appointed include the following:

• whether the property is vacant or occupied by a non-homeowner
• the condition of the property
• the amount owed to the association
• whether one or more of the homeowners have filed for bankruptcy
• the cost of appointing the receiver, including the receiver’s fees, attorneys fees and costs;
• whether the court will require service of process on the owner before appointing the receiver, and how difficult it will be to obtain service of process;
• whether the receiver will need to incur any expenses to make the property habitable;
• the amount of rent that the receiver thinks the property can be leased for, usually on a short term basis; and
• whether the property is currently in foreclosure by the first mortgage holder - many times, if the property is in foreclosure, the amount of rent that a receiver can collect over the short period of time that the receiver can rent the property will not be enough to offset the cost of having the receiver appointed.

If your association would like to commence a receivership lawsuit or you have any additional questions related to the receivership process, please contact one of our attorneys.

With record rainfalls this season, Colorado community associations and managers have stayed busy responding to reports of water intrusion and hail damage. After the immediate excitement subsides, our phones start ringing. Managers and board members typically ask us some variation of the following questions about insurance:

Is the association or the owner responsible for insurance coverage? This question often arises in the context of condominium and townhome communities, and the answer depends on what the governing documents and controlling statutory provisions say. Often, the documents do not give clear guidance on which party bears the burden for insuring specific components, hence the call to the attorneys. The answers sometimes come as a surprise to uneducated owners and even association boards.

We recommend that associations evaluate insurance obligations with legal counsel and their insurance professionals to ensure proper coverage and to enable clear communication with owners about what coverage applies. Through the preparation of insurance and maintenance charts that summarize association and owner obligations, and the adoption of insurance guidelines that state insurance coverage responsibilities and provide step-by-step procedures for reporting and handling claims, associations can proactively educate owners and reduce confusion when losses occur.

The 2009 legislative session began with relatively few bills affecting Colorado common interest communities. But the last few weeks of the session more than made up for the slow start. New laws concerning community association governance do the following: (i) mandate that association boards have access to extensive, specific information to assist with their decision-making, (ii) establish qualifications for individuals serving as committee chairs, and (iii) require policies concerning reserve programs. Other laws enacted but not discussed in this article include restrictions on affordable housing units, modifications to foreclosure time frames for some borrowers, and changes to provisions of the Colorado Common Interest Ownership Act applicable to small, exempt communities. The table below gives a summary of the new laws affecting association governance, the action required by associations, and the effective dates of the laws.

For those of you who have an interest in the evolution and development of the Uniform Common Interest Ownership Act, the American Bar Association House of Delegates recently adopted the 2008 Uniform Common Interest Ownership Act as proposed by the Uniform Law Commission. This new act is an attempt to integrate, address and resolve a number of issues that have been raised in the formation, operation and management of common interest communities in the last thirty years. But, be mindful that this is only a recommended uniform act – it is not the law in Colorado (and may never be), nor any other state at this time. However, it does provide some guidance and insight into the rationale behind various provisions that we are all familiar with in the Colorado Common Interest Ownership Act ("CCIOA").