November 10, 2008

Recent Colorado Appellate Court Case Defines Meaning Of "Other Records" Allowed For Inspection By Members

As we all know, Colorado law requires an association to allow its members access to association records.  Among other Colorado statutes, C.R.S. Section 38-33.3-317(2)(a) provides that "all financial and other records shall be made reasonably available for examination and copying by any unit owner and such owner's authorized agents." In Glenwright v. St. James Place Condominium Association, the Colorado Court of Appeals defined what the phrase "and other records" could mean.

In Glenwright, the owner argued that he was entitled access to records that were "owned by the association, but maintained by its managing agent".  The Colorado Court of Appeals agreed, and concluded that any records "owned or possessed" by an association clearly fall within the plain and ordinary meaning of "and other records."  The Court further stated that records in the possession of an association's agent (i.e., management company) are "other records" if they "reflect the activity of the agent in performing any of the association's powers or responsibilities under either CCIOA, the association's declaration or bylaws, or its agreement with that agent." The Court further stated that an association "owned" a particular record, if the management agreement recognizes that the records are among those owned by the association.
 
In summary, the Court stated that if a managing agent's records were "created, used, received, or maintained by the manager in the manager's performance of the association's statutory or contractual duties," C.R.S. 38-33.3-317 would require their production for inspection by a member.  This would be particularly true if the management contract recognizes that the records are "owned" by the association.

 

print this article Posted By Melissa M. Garcia In Court Decisions 1 Comments
November 3, 2008

Court Decision May Impact Damages Awarded in Construction Defect Cases Involving Associations

On October 6, 2008 the Colorado Supreme Court rendered a decision which may have a material impact on the calculations of damages in construction defect cases involving associations.  The Supreme Court in Goodyear Tire & Rubber Company v. Holmes Case No. 07SC263 stated that pre-judgment interest may be awarded not from the date the injury occured but rather from the date the association incurred a reduction in value of their property or the date the association made the repairs.  
 
Prior to this ruling, prejudgment interest on damages had been calculated from the date of substantial completion of the improvements in  an association.  This enabled associations to be awarded prejudgment interest on damages prior to the date the defects  were discovered.  Under this case, prejudgment interest is limited to the date the property was "wrongfully withheld"  or the time the association made repairs.  In the case of associations, this may not be until the notice of claim is sent or when their is a reduction in value of the property, which includes a reduction in value as a result of the defect case reducing the value of the Unit.  This could mean that up to two years or more of prejudgment interest may no longer be available to a prevailing party in a construction defect case.  Associations must now consider the timing of filing a construction defect action in so as to minimize the impact on the owners while maximizing the potential recovery in a construction defect act.

print this article Posted By David A. Firmin In Court Decisions 0 Comments
August 8, 2008

Jefferson County District Court defines Common Interest Community

In a decision issued Wednesday, Judge Berryhill provided great case law for communities in Colorado. The decision makes it clear that a community which, by its declaration, requires owners to pay for the "maintenance" of real estate described in the declaration other than their own property is a common interest community and thus subject to CCIOA.  In the Hiwan Homeowners Association v. Knotts case, the community's declaration provided that the assessments were paid to the association.  The association's purpose was "maintenance of the association."  Judge Berryhill found this sufficient to satisfy the requirements of CCIOA even though the association owned no common elements.  Bill Short of our firm was successful in convincing Judge Berryhill of the applicability of CCIOA to this community. To read the full opinion or if you have questions about CCIOA contact any of our attorneys.
print this article Posted By Loura K. Sanchez In Court Decisions 3 Comments
February 5, 2008

Colorado Court of Appeals Upholds Lender Responsibility for Assessments Post Foreclosure

On January 24, 2008, the Colorado Court of Appeals affirmed an EL Paso County District Court ruling awarding an association all assessments that were unpaid by the lender who became the owner of a unit after a foreclosure. The Court of Appeals also confirmed that the association was entitled to its costs and reasonable attorney fees associated with the unpaid assessments. 

Good case law protecting associations in Colorado is limited, so this case is helpful in:

  • Affirming that associations have no obligation to file a notice of lien - lien is perfected by the recording of the declaration pursuant to C.R.S 38-333.3-316.
  • Lien priorities are determined by C.R.S. 38-333.3-316, not a declaration.
  • A security interest on a unit which has priority over all other security interests in the unit (e.g. a first deed of trust) must be consensual.
  • Attorney fees awards aren’t discretionary if allowed by statute or under non-discretionary language in a declaration.
  • The super lien can never exceed an amount equal to 6 months of assessments, but can be comprised of any “charges” against a unit.
  • Be clear when making demands to an owner as to whether you are seeking payment of the super lien or unpaid assessments. 
  • Lenders are treated like any other owners in associations.

Click here for a complete copy of the BA Mortgage, LLC v. Quail Creek Condominium Association decision.

print this article Posted By Loura K. Sanchez In Court Decisions 2 Comments
August 16, 2007

California Court Rules on Disclosure and Transfer Fees

The California Court of Appeals ("Court") in the case of Berrymore v. Merit Property Management, Inc.  ruled on whether management companies (referred to as managing agents in the case) are permitted to charge higher fees under California law than the actual costs associated with producing presale disclosure documents and facilitating the transfer of property in the state. 
 
The California statute that governs community associations in the state is the Davis-Stirling Common Interest Development Act ("Act").  In California, a seller of real estate located in a community association is required to provide extensive documentation about the association to a prospective buyer.  This information is commonly referred to as presale disclosures.  A community association is required to provide presale disclosure information to a seller within 10 days of a written request.  The Act provides that "The association may charge a reasonable fee for this service based upon the association's actual cost to procure, prepare and reproduce the requested items."  With respect to the transfer of title to a home located in a community association, the Act provides in part that "neither an association nor a community service organization or similar entity may impose or collect any assessment, penalty, or fee in connection with a transfer of title or any other interest except for the following:  (A) An amount not to exceed the association's actual costs to change its records. . . "  
 
The Plaintiffs in this case argued that the management company, like an "association" under the Act, should not be permitted to charge a fee greater than the actual costs of reproducing documents or to transfer title records.  The Court disagreed with this contention and affirmed a previous opinion of the Court where it held that "an association's "costs" for purposes of the statute include "the fees and profit the vendor charges for its services."  The Court went on to note that while "the statutory language prevents associations from charging inflated fees for documents and for transfer of title and using those fees for other purposes; it does not constrain the amount a managing agent may charge for these services.  Competitive forces, not the statute, will constrain the vendors' fees." 
 
The bottom line is that the California Court of Appeals ruled that management companies in California may charge associations more than their actual costs for producing disclosure packets and facilitating the transfer of title to property.  For purposes of the statute, the amounts charged by the management company to the association for carrying out these services will constitute the "actual costs" to the association.  Furthermore, if a management company is permitted to charge homeowners directly for these services, the management company may make a profit on these transactions and charge the homeowners more than the actual costs associated with providing such services.
 
Is this Decision Binding on Colorado Courts?
No.  Courts in Colorado are not required to follow the decisions of courts in other states.  However, since the Colorado Common Interest Ownership Act ("CCIOA") contains similar language relative to the costs an association is permitted to charge for copying association records, a court in Colorado may find the decision of the California Court of Appeals to be persuasive.  However, there is no guarantee a Colorado court will follow the lead of the California Court of Appeals.
 
Does CCIOA address the fees that can be charged for presale disclosure information?
CCIOA does not specifically address the issue of presale disclosures that sellers residing in community associations make to purchasers.  However, when a seller requests records from their community association to comply with disclosure requirements contained in their sales contract or under other provisions of Colorado law, CCIOA provides that "The association may charge a fee, which may be collected in advance but which shall not exceed the association's actual cost per page, for copies of association records." 
 
Does CCIOA address whether transfer fees can be charged by associations or management companies and whether there is a cap on such fees?
CCIOA does not address whether transfer fees can be charged and places no cap on the amount of such fees.  However, you should be aware that the Declaration of Covenants, Conditions and Restrictions for your community association may contain a provision which addresses transfer fees. 
 
Is there a court ruling in Colorado that addresses whether management companies can charge homeowners more for association records than associations can charge?
No - this issue has not yet been ruled on by a Colorado court.
print this article Posted By Molly Foley-Healy In Court Decisions 0 Comments
February 26, 2007

Real Estate Section Responds to Court of Appeals Decision

On July 13, 2006, the Colorado Court of Appeals decided Snowmass Land Company v. Two Creeks Homeowners Association, Inc., (2006 WL 1914076), cert. denied.  In Snowmass, a developer created a common interest community under CCIOA, and reserved certain development rights, (including the right to withdraw property from the community), in the recorded declaration of the association.  The association later asserted that the developer did not properly reserve the right to withdraw the property.  The trial court ruled in favor of the association.  In confirming the trial court's decision, the Court of Appeals held that the community did not have a map (as defined in CCIOA) containing the information required by § 209 of CCIOA for the developer to properly reserve the right to withdraw the property. 

Many practitioners feel that the Snowmass decision creates potential problems for developers, buyers and lenders, in that the decision fails to distinguish between plats and maps under CCIOA, and rejects the reasoning that a plat or a map is a part of the declaration for a community.  The decision further holds that there is not equivalent effect for terms or disclosures made in either the declaration, plat or map. 

The Real Estate Section Council of the Colorado Bar Association has drafted proposed legislation to amend  § 209 of CCIOA, (i) to clarify the distinction between plats and maps, (ii) to create equivalency among the plat, map and declaration, (i.e. if any material required by § 209 is contained in any one of the plat, map or declaration, the requirements of § 209 are satisfied), and (iii) to make the changes retroactive to July 1, 1998, the effective date of the 1998 amendments to CCIOA, (i.e. if material required by § 209 was previously included in a declaration recorded after July 1, 1998, but was not contained in a map, the requirements of § 209 would be satisfied).

The legislation will likely be introduced in the 2007 session.

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November 29, 2006

Smoking in Units Prohibition Upheld

As reported extensively in numerous media outlets, HindmanSanchez recently successfully defended a challenge to an association's prohibition on smoking in its community, including inside the units.  The Heritage Hills #1 Condominium Association was experiencing second hand smoke filtering from a smoker's unit into non-smokers' units.  After numerous attempts to prevent the infiltration of second hand smoke failed, the Association decided to amend its Declaration to specifically prohibit smoking in the entire community including inside units.  The homeowners approved the amendment and the smokers challenged it in Jefferson County District Court, as an unreasonable and improper use restriction.  In an eight page ruling, District Court Judge Lily Oeffler upheld the amendment prohibiting smoking and found that the "passage of the Amendment to the Declaration of Covenants, Conditions and Restrictions was proper, reasonable, made in good faith and not arbitrary and capricious."  To read the entire ruling click here.

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