Denver's Construction Defects Ordinance: make it simple

State construction defects legislative reform has failed so localities do it themselves.  Now it's Denver's turn. The goal for developers is to cut down on the number of and frivolous lawsuits.  However, this always comes with too many caveats at the expense of home owner's rights.  Home owner's (not represented in the debate) would like to be empowered on the use of their funds in litigation.  Too often costly HOA litigation is pursued by HOA Boards and their lawyers without the knowledge or approval of home owners and can result in draining HOA reserve funds and special assessments.  A simple, compromise law that would serve both interests groups can be crafted by State legislators and integrated into State HOA law.  It is no more complicated than this:  All HOA litigation, other than for routine and administrative matters, funded with HOA resources and/or debt instruments requires a majority vote of approval by home owners.  Supplement this by requiring that prior to any vote home owners be made aware of the proposed law suit, its' purpose, total cost and funding sources, and the consequences in the event of an unfavorable decision.  This simple amendment to State HOA law will automatically cut down on law suits, save home owners and developers significantly in legal costs, and empower home owners over the use of their funds.  The issue of requiring arbitration is mostly a moot point.  Almost all HOA declarations over the past fifteen years requires this dispute resolution process and is only changed to promote costly court cases at the encouragement of HOA lawyers. Simple in this case is a WIN WIN for all. 

Construction Defects Legislation: home owners await final version, changes required!

To date, the Colorado HOA Forum, Colorado's largest HOA home owner advocacy organization,  has mostly commented on the Colorado Construction Defects Bill, SB 15-177, by refuting empty contentions from the opposition.  We favor the Bill in principle as it could provide protections and empowerment for home owners in the use of their funds for litigation.  This Bill is still in the development stage and our FINAL approval must await the FINAL Bill.

 

It appears the primary purpose of this Bill was to mitigate the number of construction defects law suits and to provide for an environment to promote the building of affordable housing.  This is to be accomplished by changing State HOA law and further defining the rights of home owners and authority of HOA Boards.  Our recommendations, listed below, have been submitted to the Bill's sponsors and Legislative Committees that will review the Bill. Our final support for this bill will be determined by the inclusion/exclusion of our recommendations.

 

1.  This Bill will modify State HOA Law and thus should not limit the requirement for home owner approval on the use of HOA funds in litigation and/or approving legal action to only construction defects litigation but all litigation/court cases.  This will provide home owners with broader protections against using HOA funds on costly litigation without their knowledge or approval and still accomplish the intended purpose of reducing the number of law suits.

 

2.  The process to gain home owner approval through voting on the use of HOA funds in litigation and/or to pursue litigation must include a process of voting similar to that used by the HOA for other referendums and  this includes the right to proxy vote.  Without the use of proxies those not capable of attending a meeting in person to vote on litigation will have their rights violated as described in their HOA governing documents.  The specific groups to be harmed by precluding proxy votes are the disabled, seniors, and in particular military personnel (who quite often are deployed and not available for in person voting.  Additionally, proxy voting precludes using scheduling as a means to control the outcome of a vote whereby a date/time is chosen to conduct the in person vote when most can't attend.  Thus gaining a majority outcome, pro or con, is highly unlikely; this is an anti-home owner practice. We also find no precedence in HOA law to exclude proxy voting.

 

3.  It should be clear in the Bill that both plaintiff and defendant must agree upon the arbiter.

 

4.  A clause indicating that any sole home owner can pursue litigation using their own funds to bring a law suit in their behalf.

 

5.  Defined procedures to give both developer and home owner opportunities to resolve the construction defects issue prior to proceeding to litigation.

 

6.  The Bill indicates that a vote of home owners can't negate/remove the mandate in the original Declaration to use arbitration for construction defects litigation.  Although this is problematic as it limits the right of home owners to change the governing documents it also can serve to keep costly litigation out of the time consuming and costly court system.  There is no evidence that such clauses are changed in significant numbers so the impact of this mandate may be more insightful than have any real impact.  Also, home buyers are made aware of this restriction when they purchase the home like any other HOA restriction.

Colorado Construction Defects, SB 15-177: "protect the home owner" opposition in question

Let's be honest by acknowledging that any proposal on Construction Defects legal reform will not be ideal for either home owner or developer.  The high costs of unrestrained litigation, all fully funded on the backs of home owners without their knowledge or approval, simply needs change. Too often HOAs have their reserve funds depleted for legal costs and too often home owners are left with costly special assessments to pay for legal fees.  Then there is the argument by contractors that the proliferation and high cost of litigation associated with and instigated by HOA's thwarts the building of affordable housing. The system is broken, let's progress towards fixing it.

 

The predictable opposition to the Bill is from the Community Association Institute (CAI) and HOA trial lawyers.  They enjoy the current legal environment that results in a plethora of HOA court cases and unlimited funding of these cases through HOA bank accounts (and all without any involvement, knowledge, or approval of home owners).  The other opposition also comes from legislators on the "protect the home owner" band wagon. Their arguments are simply not consistent with their legislative actions.  Those legislators opposing SB 15-177 under the guise they want to "protect HOA home owners" have continually refused to support or sponsor Bills that would save home owners money, make current ineffective HOA laws effective, and improve HOA governance.  This legislative session they were asked to sponsor legislation to allow for an out of court binding dispute resolution process that would empower home owners in enforcing HOA laws with an affordable, expeditious, and accessible venue to resolve disputes (a process recommended in a State HOA Study);  end the abusive, excessive, and illegal HOA Transfer fee on home sales that costs home owners millions of dollars each year; to limit the excessive collection of fees and lawyer assessments on HOA debt; and most recently provide financial relief to small HOAs in the property manager licensing program.  It is difficult to understand and accept the "protect the home owner" argument when they have avoided every opportunity to do so in the past.  This is called being inconsistent.

 

The latest legislative contention is that this Bill would require a home owner to "seek a majority vote from all other home owners in the HOA to acknowledge their construction defect claim".  This is at best a half truth.  SB 15-177 does not to require home owners to acknowledge the validity of the construction defects claim but requires a Board to inform home owners of their intent on litigation (for any one or all home owners) and gain a majority of home owner approval to use HOA funds for litigation.  Thus, a vote is required if the individual home owner wants the HOA to use HOA funds to sue in their behalf.  This will mitigate the practice of HOA Boards and their lawyers taking on narrow and special interest litigation that is funded by home owners without community approval or benefit.  This is called open governance and protecting home owner interests.

 

Legislators on the "protect the HOA home owner" bandwagon must be challenged as to the validity of their opposition to SB 15-177 and also why, if they are so concerned about helping HOA home owners, they have failed to sponsor any substantive HOA reform over the past several years.

Phantom Opposition in Media on Colorado Construction Defects Bill

Colorado SB 15-177, construction defects reform, is aimed at reducing the number of law suits entered into by HOAs and to define, improve upon, and reduce the cost of dispute resolution.  This particularly impacts HOA home owners as it requires the approval of home owners prior to the HOA spending its' funds on litigation.  Too often HOA Boards at the encouragement of their lawyer enter into costly litigation without the knowledge or approval of home owners.  The consequences can be burdensome special assessments and increases in HOA dues to pay for the litigation and replenish reserve funds.

 

The Colorado HOA Forum, representing home owner interests, supports this legislation as currently proposed.  The Bill is opposed by the Community Association Institute (CAI) with a membership comprised mostly of property managers and HOA and trial lawyers. 

 

Lakewood, CO and most recently Lone Tree, CO have enacted local ordinances similar to the proposed SB 15-177.

 

We have monitored press releases on both the Lakewood and Lone Tree efforts.  The press (Denver Post, Denver Business Journal, and TV news) has again mentioned that opposition to the subject Bill is strong among HOA organizations and HOA home owners.  We challenged the media to identify just one HOA organization (members being HOAs) and/or one HOA home owner's organization (mostly home owners as members).  TO DATE NEITHER COULD IDENTIFY ONE!  THERE IS NO HOA OR HOA HOME OWNER's ORGANIZATION IN THE STATE TO OUR KNOWLEDGE OR THE MEDIA'S EXCEPT THE COLORADO HOA FORUM, NONE, LET ALONE ANY WHO OPPOSE SB 15-177.

 

This happens time and again with HOA issues: those representing the home owner's opinion being organizations and trial lawyers that are a hindrance to and block any HOA legislative reform such as the CAI.

 

This misrepresentation of who represents HOA home owners exemplifies why our issues for legislative reform and SB 15-177 have such controversy and difficulties in gaining support:  the opposition identified basically doesn't exist and/or misrepresents itself as supportive of home owners.

 

Below is a link to the latest article from the Denver Business Journal that suggests opposition from phantom organizations such as home owner groups and HOA entities:

 

http://www.bizjournals.com/denver/blog/real_deals/2015/02/lone-tree-to-take-up-construction-defects.html

 

We ask the press to once again get it right and verify who represents home owners and those who reject legislative reform that promotes home owner's rights and good governance.

CAI Threatened Over Empowering HOA Home Owners on the Use of Their Own Funds in Litigation: SB 15-177

The Community Association Institute (CAI), long incorrectly identified as a home owner centric organization in the press and by State legislators, is at it again in attacking HOA home owner’s rights.  The CAI represents the interests of property managers and HOA lawyers and not home owners.  This time they are objecting to a provision in proposed Colorado SB 15-177 (construction defects) that requires HOA home owners to approve the use of HOA funds in litigation.  Why the opposition?  The CAI and HOA lawyers view the HOA as a profit center and easy money and empowering home owners on decisions on the use of their own funds is considered disruptive and meddling.

Too often HOA lawyers raid HOA bank accounts for legal fees and costly legal cases that should not have been litigated leaving home owners with depleted reserve funds, special assessments to pay legal costs, and/or increases in HOA dues to replenish reserve funds. HOA Boards can currently enter into litigation without apprising home owners of their intent, the cost and consequences of litigation or how they intend to finance legal fees. Boards can incur unlimited legal expenses and even take out debt instruments to pay legal fees. Home owners in too many cases only know of the financial consequences after the case has been litigated and they are stuck with the bill.  This Bill simply reins in the authority of an HOA Board (that is highly influenced by HOA lawyers and property managers) in making decisions on litigation that can have significant if not catastrophic financial impact.

SB 15-177 would not preclude legal action but require a majority of home owners to approve litigation. This would mitigate the number of law suits and the abusive practice of an HOA Board suing in behalf of a very few (as few as two) vs the community at large.  More cases would be handled in the less expensive legal venue of arbitration thus saving HOA’s significant sums of money. Home owners could still pursue individual actions using their own funds.

The CAI is fabricating a tall tale in contending that any legal fees paid to an HOA lawyer related to routine advice and counsel would take a majority vote of home owners. This Bill doesn’t get involved in regulating or interfering with the operations and daily functions of the HOA. Legal counsel on enforcing covenants, controls, restrictions, and debt collection or other issues involving common and routine HOA issues would not require a majority vote of home owners. It’s just not in this Bill.  Payment of routine legal counsel doesn’t require a law suit today nor would it under this Bill. This Bill is directed at legal cases filed in a court of law that are specific, unique, non-recurring and financially impacting. The CAI is attempting in what should be an embarrassing statement to say that any payment to an HOA lawyer would have to be voted upon: this is called desperation.

The winner in this Bill will be home owners in HOA community associations (not the Community Association Institute) who will now be empowered with more control over the assets of the HOA and still retain the right to litigate construction defects.  This Bill does not impair the ability of any HOA Board to govern but contributes to open governance.

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?

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.