HOA Oversight (in Colorado) Raises Questions: Part I of II

The length of this article requires it to be published in two Parts. This topic could have been written in two paragraphs without background and factual content but then the it would appear to be just another article of allegations and rambling without explanation or supportive discussion.

You've seen it before. An industry pollutes or its' practices cheat citizens so much resulting in regulation of the industry. You've also observed the very industry to be regulated writing the rules and getting too involved with the regulatory process. In Colorado the Department of Regulatory Agencies (DORA) implements HOA law, issues HOA property manager licenses, can levy fines for violations, hosts the State HOA Office, and provides oversight.

DORA's independence in HOA legislative proposals and implementing the law raises questions. In particular, their relationship with the with the well financed lobbying organization (the Community Association Institute (CAI)) that represents HOA property managers (also referred to as Community Association Managers (CAMs)) and HOA lawyers. Although we don't suspect any criminal violations or anyone in DORA receiving financial benefit, we do observe events that make the impression that the CAI is influencing regulatory guidelines and legislation at the expense of home owners.

A recent Colorado law licensing CAMs was jaded with DORA's tacit approval of a highly unusual precedent in regulatory legislation. DORA was aware of and never spoke up about questionable verbiage inserted in the law that defined educational requirements. The law listed one provider's (CAI) educational courses to satisfy when other's were known to be available. This is using regulatory legislation to promote a private business! DORA should have made known that they neither reviewed or certified any of the CAI courses since they would be stuck with using them if in the law (even if subsequently they found them to be deficient).

DORA has also been directed to write property manager guidelines. Their proposal seems very much like CAI guidelines that were developed several years arlier. How questionable is it to have the very industry you are regulating write the oversight rules and regulations? Will the dozens of proposed guidelines received by DORA from the public get equal importance?

More in Part II

Colorado Construction Defects and HOAs: the simple made complicated

The issue of construction defects litigation just shouldn't be this complicated.  The reporting on this issue has focused on civic organizations and the construction industry contending that too many law suits made too easy by HOAs and condominium associations make building affordable housing too difficult and costly.  Then from the HOA lawyers perspective who get their hands into the bank accounts of HOAs to fund costly and in many cases financially devastating law suits argue that HOAs and home owners can't have their hands tied in defending home owners against shoddy construction practices.  The contentious issue behind all this is whether HOA home owners, and this includes condominium complexes with community associations, would be required to vote on whether to use HOA funds prior to the Board pursuing construction defects litigation.  Simple HOA legislative reform in existing HOA law requiring home owner approval prior to using HOA funds in law suits would seem resolve most if not all issues in this controversy.  This would empower home owners in the use of "their funds" and require HOA Boards (and their lawyers) to inform and educate the home owner on the proposed legal action including the cost/benefit and risk in legal action and in the event of an unsuccessful legal action the estimated, if any, resulting special assessment on home owners to pay legal fees. It would surely cut down the number of construction defects cases but at the same time keep in tack the ability for home owners (HOAs) to arbitrate (which is already mandated in many HOA governing) and/or pursue legal action.  Why is the easy made so often so difficult?

Enough, the CAI Doesn't Represent HOAs and HOA Home Owners

Enough, the Community Association Institute doesn't represent Homeowners Associations (HOAs) or HOA home owners.  This organization represents the interests of HOA property managers (PMs) and the legal industry involved in HOA governance and representing HOA Boards in court.  No problem with this but the press, AARP, the legislature, and the general media get it all wrong.  In fact, the CAI is known among home owner advocacy groups as a mostly anti-home owner organization.

The Denver Post in the past months has published articles on the topic of construction defects and HOAs and the right of home owners to vote on the use of HOA funds prior to the HOA Board entering into costly and potentially financially devastating law suits.  The articles misleadingly indicated the CAI represents home owners and HOA organizations.  No evidence exists of any HOA organization or their organizing home owners to protect their interests.  The CAI opposed any mandate to have home owners vote on the use of their own funds in law suits. Is this pro home owners? 

Then there was the CAI's recent opposition to ending/limiting the HOA home sale Transfer Fee that has never been justified and is illegal on all home sales except in HOAs (wonder who got that exception into legislation?).  This fee lines the pockets of PMs (not HOAs), costs HOA home owners millions each year, and a PM can charge amounts ranging from $50 to $1150 for like services and the fee can't be negotiated by the home owner (and if not paid the home sale is held up).  Does this sound like they represent home owners?  Examples abound and can found on our web site www.coloradohoaforum.com

One final thought on this.  For the past decades the CAI in Colorado has been the primary if not the sole source on issues of HOA governance, home owner rights, and in writing HOA legislation.  They promoted their professionalism, altruism, and oversight of the HOA PM industry and were recognized leaders to our legislators.  As a result of their "leadership" and the thousands of PM related home owner complaints received by legislators and the State HOA Office, legislation was passed to clean up the PM industry.  Doesn't sound like leadership or protecting HOA home owner rights?

So enough of the CAI misrepresentation.  The press and our law makers should seek out the opinions of HOA home owners (organizations) in HOA issues and not simply default to those who profit and have the interests of PMs and lawyers as their focus.

Colorado Construction Defects Issue is an HOA Issue

A construction defects Bill was introduced to the Colorado legislature last session.  It got caught up in the legislative process (purposely) and never got voted upon.  The issue is back.  It touches directly on home owner rights and limiting the ability of an HOA Board to spend HOA funds on law suits without the knowledge of, awareness of, or approval (via a vote) of home owners.  Below is the most current correspondence issued by the Colorado HOA Forum www.coloradohoaforum.com to State legislators and to our members.  Colorado is not alone in home owners pursuing legislative reform on limiting the authority of HOA Boards.  I can't go without apprising you of the fact that the Community Association Institute (CAI) opposes our recommended legislation (it would greatly reduce the opportunity for litigation). 

 

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To our members:

 

The below was sent to all legislators.  A construction defects Bill will most likely again be worked on in the next legislative session.  Our perspective on this is to protect home owners from bankrupting and/or using HOA funds on law suits when home owners are not aware of, provided justification of, or approve of such actions.  This would also allow litigation in construction defects when approved of by home owners.  Note, the CAI, whose interests with the legal industry, objects to our proposed legislative Bill and appears to promote law suits over home owner's rights.

 

To legislators:

 

The issue of construction defects litigation is directly impacting on HOA legislative reform.  The Denver Post's most recent article on this issue prompted our below letter to the editor.  We know that a Bill that would limit the authority and ability of HOA Boards to embark on costly law suits without the knowledge, awareness, and approval of home owners would resolve many construction defects litigation issues.  It would not preclude legal action but require home owners, who pay the tariff, to make decisions on these costly and potentially financially disastrous.  It would seem to satisfy the want of the construction industry and protect and empower home owners.  This HOA legislative reform is needed regardless of construction defects.  I ask your sponsorship for such a Bill should you continue to serve in the State legislature.  Thank you.

 

Email to Denver Post:

Construction defects litigation proposals hit at the core of problems in Homeowners Association (HOA) governance.  Passing legislation to empower HOA home owners by limiting the ability of an HOA Board to use HOA funds for legal actions without their approval will be a win-win on this topic.  HOA Boards can (legally) embark on costly law suits without justifying or informing home owners of their intentions and without their approval.  Legal costs have financially drained and/or bankrupted many HOA's.  HOA legal actions can and have resulted in draining HOA reserve funds and costly special assessments on home owners.  Opposition to limiting HOA Board authority comes from the legal community and the Community Association Institute (CAI).  Their constituents prosper with an ability to access HOA funds to pay for costly litigation without having to "bother" with home owner approval.  Legislation to limit HOA Board authority in spending on legal actions would empower and protect home owners from costly, baseless, and home owner "unsupported" legal cases.  Such a Bill would not preclude legal actions (in construction defects and other areas) but ensure that those who pay the tariff, the home owner, know who is spending their money, on what, and how much. 

Why HOA State Law and Governing Documents are (not) enforceable

There are plenty of definitive and comprehensive State HOA laws.  HOAs have their own governing documents defining controls, covenants, and restrictions.  HOA Boards ensure compliance of covenants through their authority by issuing fines, court actions,  and/or foreclosing on property for unpaid fees, fines and special assessments:  This is part of living under HOA governance and home owners must understand the HOA governing documents were developed with the intention of enforcement.
 
Now that takes care of enforcement of home owner compliance.  What about when an HOA Board violates the governing documents or even State HOA law?  The rules of enforcement change and home owners begin to understand that enforcement may be a one way street and they are running into oncoming traffic.  The only means of enforcement from the home owner's perspective is our costly, litigious, and time consuming court system.  Most home owners simply can't afford or compete with the unlimited funds of the HOA and their paid attorneys in even the most simple court case.  Yes, lawyers are allowed in Small Claims court.  Furthermore, if the home owner loses they most likely will pay the HOA legal costs.  Under the current environment of HOA litigation most home owners quickly understand that the cost of pursuing a violation by their Board, management company, or HOA attorney far outweigh the benefits and their chances of justice in a "pay to play" court system preclude pursuing their complaint.

HOA home owner complaints simply don't belong in our court system.  They mostly involve violations of HOA governing documents and when pursuing financial losses the amounts are low.  The cases are not complicated and should not require lawyers.   Such cases unnecessarily add to court work load and costs.  What is needed, and has been endorsed by a State sanctioned study on HOA dispute resolution, is the implementation of an out of court binding dispute resolution process.  This venue is affordable, accessible, and provides an environment in which facts and fairness trump financial resources.  It is also a process that is easy to understand, is expedient and simply involves filing a complaint with the State, the complaint is vetted for substance, and a hearing is completed by a State sanctioned med-arb (mediator with arbiter (decision making) authority) trained in HOA law.  If the parties in the complaint can't come to a binding agreement the med-arb will make the binding decision.  In affect, this is what happens in a court venue: someone, the judge, makes a decision and it is enforceable.  The process has a beginning and end all out of court and affordable.  Placing this process into law only awaits legislative sponsors (and overcoming objections from the Community Association Institute (CAI) and lawyers who profit by HOA court actions).