HOA Legi-Slate

Text Messaging and Association Records

ddalton@hindmansanchez.com (Loura K. Sanchez) — Mon, 15 Jun 2009 11:37:56 -0700

I recently came across this article and it got me wondering if we should be concerned about texting during association board meetings. As we know, board meetings must be open to members of the community and records of the association are available for inspection by owners following the association's inspection of records policy. Would those records include text messages between board members about association matters? If text messages can't be "retained" (depending on your service provider), how can they be association records? Does that then lead to a law prohibiting board members from texting each other? Another risk might be that the discussions via text occurring during a meeting aren't open to owners who are present and thus the association has violated the statute. Does that mean association's should also prohibit cell phone use during its meetings?

I do see a significant difference between Colorado associations and governmental entities -- the Sunshine Law. The Sunshine Law in Colorado basically provides that anytime 2 or more elected officials are communicating it is considered a meeting and thus must be open to the public.

This law does not apply to associations but that may not overcome the arguments above

When Does the Declarant Control Period Really End?

dfirmin@hindmansanchez.com (David A. Firmin) — Tue, 09 Jun 2009 11:02:26 -0700

We generally think of the declarant control period ending 60 days after the sale of 75% of the total number of units that may be created within the community. However, the Colorado Common Interest Ownership Act also has two other “triggering” events that may act to terminate the period of Declarant control. CCIOA provides that in addition to termination based upon 75%, the Declarant control period will terminate two years after the last date the Declarant annexed property into the community or two years after the last sale of a unit in the ordinary course of business. The Declarant control period terminates one whichever of these three events occurs first. So, with the slow housing market, these other two triggers may become more commonplace. Current Declarant controlled communities may want to look at these alternative dates and clearly understand when transition will occur.

Business Judgment Rule Only Gets You So Far

ddalton@hindmansanchez.com (Loura K. Sanchez) — Fri, 29 May 2009 10:22:58 -0700

Use of the business judgment rule can't protect associations from every type of legal action. Board members who choose not to enforce provisions in the declaration may not be protected by the business judgment rule. In Ekstrom v. Marquesa at Monarch Beach Homeowners Association, 168 Cal. App. 4th 1111, 86 Cal. Rptr. 3d 145 (2008) the California Court of Appeals held that the association had to enforce its restriction on the height of trees in the community to all trees. The court declined to allow the association to rely on the rule of judicial deference—an equivalent to Colorado's business judgment rule.

The Marquesa at Monarch Beach Homeowners Association had determined that the height restriction contained within the recorded declaration did not apply to palm trees, as palm trees can not generally be trimmed or pruned. The court found that nothing in the declaration permitted the association to exclude an entire species of trees from the height and view restrictions simply because the association favored the aesthetic benefit of those trees to the community. The court found that the board's interpretation of the declaration was inconsistent with the declaration's plain meaning and because the declaration did not grant the board the right to adopt rules and regulations that were inconsistent with the declaration itself, the court found that the judicial deference rule did not apply.

What does this mean to your association...don't adopt rules that are in contradiction of the restrictions contained in the declaration even if you think that the restriction is dumb, invalid or unenforceable. If presented with this type of situation it would be necessary for the declaration to be amended to change the restriction. For more information on amending governing documents please contact us at hoalaw@hindmansanchez.com.

UCIOA Updated

ddalton@hindmansanchez.com (Loura K. Sanchez) — Tue, 26 May 2009 09:50:56 -0700

The Colorado Common Interest Ownership Act (CCIOA) is based upon the Uniform Common Interest Ownership Act (UCIOA). UCIOA was recently adopted by the American Bar Association House of Delegates. The 2008 Uniform Common Interest Ownership Act attempts to resolve a number of concerns related to the operation and management of common interest communities. Generally, states that have acts based on uniform statutes will consider modifications once the uniform act is updated. That may mean that CCIOA could be substantially overhauled in the near future. In anticipation of that, if you have any specific concerns about CCIOA provisions or there are things you would like to see added to CCIOA please let me know as we hope to be actively involved in any rewrite of CCIOA.

How To Comply With New Reserve Requirements

ddalton@hindmansanchez.com (Loura K. Sanchez) — Fri, 22 May 2009 09:29:34 -0700

HB 1359 was signed by Governor Ritter on May 15. It becomes effective on August 5, 2009 and applies to all common interest communities. So what does your association need to do to comply?

Become educated about the types of reserve studies available and costs. Attend our educational programs on June 4, 2009 to learn more about reserve studies, investment vehicles and funding options. (We currently have a waiting list for these programs. Click here to add your name to the list. We may add another session if there is enough interest.)

Adopt a policy that addresses:
a. When a reserve study will be done and how often if will be updated. Click here for our Best Practice recommendations.
b. Whether your reserve study will be based on a physical and financial analysis. Click here for our Best Practices recommendations.

c. Whether the association has a plan for funding the work recommended in the plan and if so, the possible sources including use of regular assessments, special assessments, borrowing, etc.

The policy must be consistent with your governing documents and should be consistent with the association’s responsible governance policy on investment of reserves. We are happy to draft this policy for your association for a flat fee of $295.00. And, if we prepared your investment of reserve policy, we’ll revise it for free.

3. Follow your policy.

HB 1220 Relating to Affordable Housing in Mountain Communities Signed by Governor

ddalton@hindmansanchez.com (Melissa M. Garcia) — Thu, 21 May 2009 16:25:39 -0700

On April 22, 2009, Governor Ritter signed House Bill 09-1220. This bill relates to affordable housing in certain mountain common interest communities. Specifically, the bill only applies to counties with populations of less than 100,000 and that have a licensed ski lift. Also, Declarant-controlled communities are exempt from this bill.

The bill adds a new section to the Colorado Common Interest Ownership Act, at Section 38-33.3-106.5. Essentially, the bill requires associations to permit owners to promote affordable housing through deed restrictions. Under the bill, an association may not prohibit a unit owner from:

(i) restricting the permissible sale price, rental rate, or lease rate of their unit, or

(ii) subjecting their unit to occupancy or other requirements designed to promote affordable or workforce housing.

Only the unit owner may occupy a unit that is under a restriction described above.

In addition, a future owner who purchases a unit under a restriction described above may lift the restriction as long as a similar unit in the same common interest community replaces the unit from which the restriction is lifted.

HB 09-1220 takes effect on August 5, 2009.

HB 1359 Going to Governor for Action

mhealy@ortenhindman.com (Molly Foley-Healy) — Fri, 15 May 2009 09:38:01 -0700

On May 5, 2009, we informed you in a posting on HOA Legi-Slate, that the Senate had just passed an amended version of House Bill 09-1359 ("HB 1359") which cleaned-up some language of the bill that addresses association reserve studies, dissemination of information to board members and qualifications of committee chairs. Later that day, the Senate amended version of HB 1359 was sent back to the House which voted to concur with the Senate amendments. That version of the HB 1359 has been sent to Governor Ritter today for action. We fully expect Governor Ritter to sign HB 1359 into law.

Reserve Studies
As we have addressed in previous postings on HOA Legi-Slate, the most significant portion of HB 1359 addresses the issue of reserve studies. The original version of the bill, which would have required associations to have reserve studies conducted every three years beginning in 2010, has been amended to now require that associations must adopt a responsible governance policy concerning: "When the association has a reserve study prepared for the portions of the community maintained, repaired, replaced and improved by the association; whether there is a funding plan for any work recommended by the reserve study and, if so, the projected sources of funding for the work; and whether the reserve study is based on a physical analysis and financial analysis. For the purposes of this subparagraph (IX), an internally conducted reserve study shall be sufficient."   Unfortunately, this final version of HB 1359 does not clarify whether associations are actually required to have reserve studies conducted.

Assuming HB 1359 is signed into law and a referendum petition is not submitted, this provision of the bill will go into effect on August 5, 2009. In order to comply with the reserve provision of the HB 1359, associations will need to either amend their current SB 100 policy addressing investment of reserve funds or adopt an additional policy to comply with this provision of the bill.   HindmanSanchez is ready to assist your association with this process. To learn more about your options send us an email to hoalaw@hindmansanchez.com.

Dissemination of Information to Board Members
As we also discussed when HB 1359 was first introduced, constituent concerns received by Representative Andy Kerr were the impetus behind the inclusion of language in the bill that requires members of association boards to be provided with the information necessary to exercise their fiduciary duties. That language has been cleaned-up and now provides in part: ". . . all members of the executive board shall have available to them all information related to the responsibilities and operation of the association obtained by any other member of the executive board. This information shall include, but is not limited to, reports of detailed monthly expenditures, contracts to which the association is a party, and copies of communications, reports, and opinions to and from any member of the executive board or any managing agent, attorney, or accountant employed or engaged by the executive board to whom the executive board delegates responsibilities under this article." Whether this provision of HB 1359 has the potential of interfering with the attorney-client privilege, is subject to debate.

Assuming HB 1359 is signed into law and a referendum petition is not submitted, this provision of the bill will go into effect on August 5, 2009.

Qualifications for Committee Chairs
The final provision of HB 1359 addresses the qualifications of committee chairs. Working under the assumption that this bill will be signed into law, any committee chair appointed after August 15, 2009, "shall meet the same qualifications as are required by the governing documents of the association for election or appointment to the executive board of the association." It's important to point out that this provision applies only to an individual appointed to preside over a committee of their association. It does not require that other individuals appointed to participate on a committee of their association be eligible to be appointed to or run for a position on the board.

We will update you when Governor Ritter signs HB 1359 into law. We will also be providing a legislative update on this, and other bills passed during the 2009 legislative session, to managers and board members on August 19, 2009. To register to attend a legislative update session click here.

Amended Version of HB 1359 Passed by Senate

mhealy@ortenhindman.com (Molly Foley-Healy) — Tue, 05 May 2009 12:31:36 -0700

Today, May 5, 2009, one day before the Colorado General Assembly is slated to adjourn for the session, the Senate passed an amended version of House Bill 09-1359 (HB 1359) which addresses association reserve studies, dissemination of information to members of boards and qualifications of committee chairs.

The primary amendment passed by the Senate, cleaned-up some of the language addressing reserve studies. However, the amendment did not clarify whether associations are actually required to have reserve studies conducted - which is our biggest concern with HB 1359. The Senate version of the bill, which will likely be adopted by the House, provides that associations must adopt a responsible governance policy concerning: "When the association has a reserve study prepared for the portions of the community maintained, repaired, replaced, and improved by the association; whether there is a funding plan for any work recommended by the reserve study and, if so, the projected sources of funding for the work; and whether the reserve study is based on a physical analysis and financial analysis. For the purposes of this subparagraph (IX), an internally conducted reserve study shall be sufficient."

The other amendment passed by the Senate provides that any person appointed "after August 15, 2009" to chair a committee of an association must meet the qualifications required by the governing documents of the association to run for, or be appointed to, a position on the association's board.

The bill will now go back to the House for concurrence. The House is expected to act on HB 1359 before the General Assembly adjourns for this legislative session.

U.S. Senate Votes Down Foreclosure Relief Measure

ddalton@hindmansanchez.com (Loura K. Sanchez) — Thu, 30 Apr 2009 15:10:32 -0700

The U.S. Senate voted 51-45 earlier today against the legislation that would have allowed bankruptcy judges to rewrite mortgage terms for struggling borrowers before they face foreclosure -- the so-called mortgage "cram-down" bill. CAI National and the College of Community Association Lawyers were actively involved in educating legislators about the potential impact of the legislation on associations through out the nation.

Amended Version of HB 1359 - Clears the House

ddalton@hindmansanchez.com (Loura K. Sanchez) — Mon, 27 Apr 2009 15:58:15 -0700

On Monday, April 27, 2009, the House passed an amended version of House Bill 09-1359 ("HB 1359"). This legislation, introduced by Representative Andy Kerr, was granted late bill status and is speeding through the legislative process. As you know, this legislation addresses reserve studies, information disseminated to members of boards of associations and who is eligible to be appointed as a committee chair. Late last week, representatives of the homebuilders got involved in the legislation which led in part to "friendly amendments" that were passed last week on the floor of the House.

The most significant of these amendments was a change to the reserve study section of the original bill which now requires, as amended, that associations adopt a responsible governance policy concerning "When the association has a reserve study prepared for the portions of the community maintained, repaired, replaced, and improved by the association and whether there is a funding plan, projected sources of funding, and whether the reserve study is based on a physical analysis and financial analysis. For the purposes of sub-paragraph (IX), an internally conducted reserve study shall be sufficient."

Whether or not you believe reserve studies should be required for associations, our concern with this language is that it is vague and does not clearly indicate whether associations must actually have a reserve study. In our opinion, the language "when the association has a reserve study prepared" could be interpreted to imply that associations are required to have reserve studies conducted or it could be interpreted to say that associations can adopt a policy that they will never conduct a reserve study. If the intent of the original bill was to ensure that associations take the steps necessary to plan for future repair and replacement obligations of the association, we do not believe this amended provision of HB 1359 provides that level of protection.

In addition to some other basic clean-up of the original bill, the version - as passed by the House - also provides that the provisions of HB 1359 will apply to pre-CCIOA communities.

HB 1359 will now be sent to the Senate for action. We will continue to provide you with updates on the bill as it proceeds through the legislative process.

HB 1359 Picking Up Speed

mhealy@ortenhindman.com (Molly Foley-Healy) — Wed, 22 Apr 2009 09:35:10 -0700

One day after being introduced, House Bill 09-1359 (HB 1359) has cleared the first hurdle on the journey to final passage and is picking up speed. Yesterday evening, the House Committee on Local Government referred HB 1359 unamended to the House for consideration. Since the Colorado General Assembly is currently scheduled to adjourn on May 6, 2009, we expect this bill to be taken up quickly by the House.

As reported in our April 21st posting, this is the most significant bill introduced during this legislative session directed at homeowners associations. The bill, as currently written, addresses the issues of reserve studies, appointment of committee chairs, and dissemination of information to board members. To learn more about these provisions, we invite you to review our April 21st posting.

We will continue to provide you with updates on HB 1359 as they become available.

Significant Bill for Homeowners Associations Introduced by Representative Kerr

mhealy@ortenhindman.com (Molly Foley-Healy) — Tue, 21 Apr 2009 14:05:46 -0700

On Monday, April 20, 2009, Representative Andy Kerr introduced House Bill 09-1359 ("HB 1359") titled "Concerning the Governance of Common Interest Communities Under the Colorado Common Interest Ownership Act." HB 1359 was granted late bill status and is the result of lengthy negotiations between interested parties. The legislation has been assigned to the House Local Government Committee and is schedule for hearing today. Since the legislature is slated to adjourn on May 6, 2009, this bill is expected to proceed quickly through the legislative process with very little opportunity for revision.

HB 1359 is the most significant bill to be introduced during this legislative session for homeowners associations and as currently written would require the following:

Reserve Studies: As of July 1, 2010, at least once every three years, associations will be required to perform a reserve study "of the common elements and, based upon the reserve study, shall create or update a funding plan for repair or replacement of the association's reserve assets." The reserve study must consist of a physical and financial analysis and contain a description of how each analysis was conducted. HB 1359 also requires the funding plan to include a list of all projected costs and outline what percentage of the costs will be funded through regular assessments, special assessments or other funding methods. There is nothing currently in the bill that requires the reserve studies be conducted by a reserve study professional.

There is a great deal of debate in the association community regarding whether associations should be required to have reserve studies conducted and to what extent associations should be required to fund reserves - if at all. Many state statutes currently require that associations have reserve studies conducted and updated on a routine basis. Some states also require association reserves be "adequately funded." However "adequate funding" has not been defined by statute in those states and association professionals working in those jurisdictions will tell you the definition is unclear.

Tell us what you think about the reserve study provision of HB 1359 by clicking on "Comments" at the end of this posting.

Appointment of Committee Chairs: HB 1359 currently requires that committee chairs be individuals eligible to run for or be appointed to a position on the board of an association as outlined in the association's governing documents.

Information Necessary to Carry Out Fiduciary Duty: This provision of the legislation requires that board members shall have available to them "all relevant information related to the association's operation." This information includes, but is not limited to, the following:

1. Reports of detailed monthly expenditures;

2. Contracts to which the association is a party;

3. Copies of communications, reports, and opinions to and from "officers" of the association.

"Officers" are defined in the bill as "any person designated as an officer of the associaton and any person to whom the executive board delegates responsibilities under this article, including, without limitation, a managing agent, attorney, or accountant employed by the executive board."

As noted above, this bill is expected to proceed extremely quickly through the legislative process. We will provide you with updates on the status of HB 1359 as they become available.

What Does the Carbon Monoxide Detector Bill Mean for Community Associations?

ddalton@hindmansanchez.com (Melissa M. Garcia) — Thu, 09 Apr 2009 22:13:03 -0700

On March 24, 2009, Governor Ritter signed into law HB 1091. This bill was introduced in response to the tragic deaths of the Lofgren family resulting from carbon monoxide poisoning. As discussed in our January 14, 2009, and March 24, 2009 postings on HOA Legi-Slate, HB 1091 is a new law that outlines requirements for the installation and placement of carbon monoxide detectors in any single family dwelling or unit in a multi-family dwelling offered for sale or transfer. The law goes into effect on July 1, 2009.

What does this mean for community associations? In general, community associations are not directly impacted by the bill unless the association owns a lot or unit, as the bill requires the seller to install carbon monoxide detectors if offering a unit for sale/transfer. Associations may, however, be impacted post-installation. If the device is installed on the common elements, for example, most declarations require the condominium association to be responsible for maintaining, repairing and replacing the common elements and any improvements thereon, which would include the carbon monoxide detector. If, on the other hand, the device is installed on the unit, most likely the owner would be responsible for maintaining and inspecting the device.

Although the law does not go into effect until July 1, 2009, associations should be proactive in both educating the membership of the new law and being prepared for its potential impact on maintenance obligations. We recommend including a brief article in your next newsletter notifying the members of HB 1091 and providing resources for information and clarification, such as a link to HOA Legi-Slate. We also recommend adopting a policy that clarifies the owner vs. association obligations over the devices. For condominium and townhome associations in particular, the policy should clarify the boundaries of the unit, so it will be clear which portions of the detectors (if any) will lie on the common elements vs. the unit, and the associated maintenance obligations. With any type of community, the policy should make it clear that it is the owner's, and not the association's, responsibility to install the device.

Please contact HindmanSanchez if you wish to have our assistance in drafting a carbon monoxide detector policy. Because the law's impact will depend on the type of community, prices will vary. We can draft a condominium policy for $395, a townhome policy for $225, and a single family home policy for $175.

"Cram Down" Bill Requires Modification to be Effective

emclennan@hindmansanchez.com (Eric R. McLennan) — Mon, 06 Apr 2009 10:20:08 -0700

Give a person a fish and they will eat for a day. Teach that person how to fish, and they will eat for a lifetime. If the purpose of the mortgage “cram down” provision of the Helping Families Save Their Homes Act of 2009 is to help people keep their homes and stabilize the housing market, then lawmakers must be sure that the help and stabilization provided is more than a temporary fix. Any legislated adjustment of monthly payments must take into account maintenance and other associated costs inherent in the privilege of home ownership. Those motivated to keep their homes and who benefit from the Act should likewise have a sense of duty to maintain and increase the value of their rescued asset. This means upkeep, upgrades, and contributing to the value of the community as a whole. If the house is located within a homeowner’s association, this means the payment of association dues. Lawmakers: if you want the fix to be permanent, do not forget the duties that go hand in hand with privilege or your efforts will be for naught. Allow for the adjustment of payments to a level that, when other necessary fees, costs and assessments are added thereto, the payment is still fixed at an amount affordable to the homeowner being assisted.

The Bill has been passed in the House of Representatives and has stalled in the Senate. Indications are that the Bill will not be put to a vote until at least after the Easter break. Passage of the Bill in the Senate is far from a given. At least 60 affirmative votes will be needed to avoid a filibuster attempt by opponents. In the long run, unless significant alterations are made to the Bill to protect the interest of community associations, its defeat may be the best result.

Legislature Introduces Bill to Clarify Pre-Judgement Interest

dfirmin@hindmansanchez.com (David A. Firmin) — Tue, 31 Mar 2009 15:22:40 -0700

Last year the Colorado Supreme Court ruled that Pre-Judgment Interest in construction defect actions is only payable from the time the plaintiff was deprived of the money or value of a property. This ruling put into doubt at what point pre-judgment interest is calculated in Construction Defect Actions involving associations. In an effort to clarify this issue, the Senate introduced "The Homeowners Protection Act of 2009" also known as SB 09-246. The legislative intent of this bill is to "Require the award of interest to be paid as damages for a delay in performing an obligation, on construction defect claims, to encourage speedy resolution of claims, discourage meritorious claim payment delays, reduce the need for lengthy and costly construction defect lawsuits and trials". In short, this bill will enable associations to recover prejudgment interest during the notice of claim and lawsuit process. The Senate has scheduled a hearing on this bill on April 1, 2009 at 1:30 PM. You are encouraged to attend and support the Homeowners Protection Act of 2009. You can also contact your state representative and senator to support SB 09-246. Representative and Senate contact information can be found by clicking here.