The Colorado Common Interest Ownership Act HOAs – A Blessing or a Curse? Reform Needed

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Background:

There are 7,600 Homeowners Associations in Colorado.  Over 60% percent (3.36 million) of Colorado residents live under the governance of an HOA.

Question

If an HOA violates Federal and State Law, their Articles of Incorporation, By-Laws, the Covenants, Conditions, and Restrictions (CC&Rs) or their policies and procedures taking enforcement action against a resident, what recourse does the homeowner have?

Current Answer

Dispute resolution involving enforcement of an HOAs governing documents and state HOA law generally requires a homeowner to go to court. Most homeowners drop their fight and are struck with violations of their rights because the court is too expensive.

The process of a homeowner protecting their equitable rights through the court system will cost over $100,000 and consume greater than two years of their lives. The Colorado Court system is backlogged with cases so today’s judges take no action thinking the matter will ultimately be settled.

The Flawed Presumption

It is assumed that the Board of Directors or the Management Company retained will comply fully and faithful with its duties and responsibilities.  What if they don’t?

A Classic Case of Abuse by an HOA – Orofino HOA, a Sub-Association, at the Village of Castle Pines

This story is about a family who has paid $85,000 in legal fees since July 2018, are facing another $50,000 in legal fees to adjudicate a matter because they planted a garden in April 2018 the Orofino HOA deemed to be too beautiful and for fixing a wall, raising it slightly, as was their responsibility according to the CC&Rs.  (Exhibit A – Download)

As new neighbors in October 2017, they were unaware of the extensive approvals required for such work. (Exhibit B – Download

Hard to believe, but true.

The Orofino HOA

Two families, Mr. and Mr. Joseph Gschwendtner, and Mr. and Ms. William Calhoun have served on the Board of Directors of the Orofino HOA, a sub-Association in the Village of Castle Pines, Castle Rock, CO for 20 consecutive years.  The Orofino community comprises 19 homes.

On July 10, 2019, they obtained a default judgment against a 77-year old resident with dementia residing at 4413 Orofino Place for enhancing their personal use area without the formal permission of the Orofino HOA Board and Landscape Committee.

Since July 2018, they have taken enforcement against another homeowner, residents at 4406 Orofino Place, for planting a garden in their personal use area deemed too beautiful and repairing a stone-stacked wall (picture attached). The Orofino HOA fined their new residents $5,000 and $500 per week for the alleged violations though the covenants specify a fine of $100 for the first violation.

This case—a bellwether of sorts, given both the current legislative environment and the high stakes at issue resulting from the immediate imposition by Orofino of an outsized fine on us that many Coloradoans could never afford to pay—should be closely followed by legislative stakeholders and the media, including not only real estate and legal trade publications, but also general interest, widely-circulated and consumed media.  The frustration with HOA governance has now reached a crescendo.

Violations

The Orofino refused to mediate in compliance with is covenants requiring the homeowners to file initiate litigation to protect their rights.  Rather than responding to the lawsuit filed against the HOA, they choose to file a new lawsuit seeking a dismissal of the resident’s action and alleging a new set of claims, thus, doubling the legal costs the resident had to bear.

The Orofino HOA failed to register with DORA until litigation began.  The Orofino HOA took enforcement action denying the residents the right to be present.  The Orofino HOA violated Article IX of the Articles of Incorporation by breaching their director’s duty of loyalty by engaging in acts or omissions not in good faith and which involve intentional misconduct acts specified in Colo. Rev. Stat.§ 7-24-111.

The Orofino HOA fails to maintain accurate books and records and refuses to provide them to residents for inspection.  The Orofino HOA fails to educate homeowners as required by CCOIA. Orofino falsely drafted minutes for the Annual HOA meeting and failed to deliver timely to homeowners the discussion during such meetings.   Orofino violated the rules and regulations of the Village of Castle Pines by their conduct allowing a process server to enter the Village and trespass on my property based on the approval by a Board member.  Orofino fails to fulfill its fiduciary responsibilities for plowing the common area during snowstorms adversely impacting residents’ ability to exit the neighborhood.

Orofino selectively enforces its covenants and policies allowing some homeowners during the past two years other neighbors to violate policies without sanction, including permitting residents to walk dogs off-leash, maintain exterior lights that violate bylaws, permit the operation of a used car dealership—a commercial activity—within the neighborhood, and cut trees and bushes in the common area without permission.

In this process, the Orofino HOA has violated the additional laws:

Federal Law – U.S. Code Title 18, section 1725. States that any person who knowingly deposits “mail-able matter” without postage in an established letter box shall be subject to a fine.

State Law (Locklin v. City of Lafayette (1994) 7 Cal.4th 327, 337. When alterations or improvements on upstream property causes downstream property damage, a property owner may be liable for that damage.

C.R.S. 38.33.3-106.5(1)(e) An association shall not prohibit … [t]he removal by a unit owner of trees, shrubs, or other vegetation to create defensible space around a dwelling for fire mitigation purposes, so long as such removal complies with a written defensible space plan created for the property by the Colorado state forest service, an individual or company certified by a local governmental entity to create such a plan, or the fire chief, fire marshal, or fire protection district within whose jurisdiction the unit is located.

C.R.S. 38-33.3-113 establishes that “Obligation of good faith. Every contract or duty governed by this article imposes an obligation of good faith in its performance or enforcement”.

C.R.S. 38-33.3.209.5(2)(a)(b) The process…shall, at a minimum, guarantee the unit owner … an opportunity to be heard before an impartial decision-maker.

C.R.S. 38-33.3-209.7(1) The association shall provide, or cause to be provided, education to owners at no cost on at least an annual basis as to the general operations of the association and the rights and responsibilities of owners, the association, and its executive board under Colorado law.

C.R.S. 38.33.3.217 Orofino, through its directors acting on the association’s behalf, failed to obtain the required supermajority vote for amending the CC&Rs in 2017.

C.R.S. 38-33.3-302(3)(b) Decisions concerning the approval or denial of a unit owner’s application for architectural or landscaping changes … shall not be made arbitrarily or capriciously.

C.R.S. 38-33.3-317(2)(a) All records maintained by the association must be available for examination and copying by a unit owner or the owner’s authorized agent.

 C. R.S. 38-33.3.401 Every unit owners’ association shall register annually with the director of the division of real estate in the form and manner specified by the director.

By-Laws – Article 2 (Membership) – Section 6 (Notice of Meetings) of the By-Laws.  The Orofino HOA failed to provide no less than ten nor more than 50 days notice of a membership meeting either by hand or by prepaid United States mail to the mailing address of each unit or any other mailing address designated in writing by the unit owner.”

Amended and Restated Protective Covenants DC9504994, Article VII, Personal Use Areas. Orofino HOA fails to recognize as lawful plat filing with Douglas County Development regarding lot lines, private property, personal use areas, and common area ground.

RECOMMENDATION

The Colorado State Legislature should create a dispute resolution process would assist customers who have valid complaints against HOAs.

Implementation of a dispute resolution process could assist consumers with unscrupulous actions of HOAs and ultimately provide protection to consumers.

The Colorado State HOA Office should be empowered to investigate and render decisions on homeowner complaints through an out-of-court binding dispute resolution process that is affordable and accessible and renders timely decisions.

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