If you have questions about the current requirements for homeowners' association, please see Comments on Current Legal Requirements for Homeowners’ Associations, below.
"The world is full of fools and faint hearts; and yet everyone has courage enough to bear the misfortunes, and wisdom enough to manage the affairs, of his neighbor." ~Benjamin Franklin
The number of Homeowners' Associations has exploded in recent years. In 2005, there were 274,000 association governed communities with 54.6 million residents. At least 1.25 million people serve on community association boards. These numbers are astonishing when you consider that homeowners' associations are a relatively recent devlopment. It wasn't until the 1960's that Americans began collective private ownership of residential property in the form of condominiums. Since then, the legal system has been struggling to catch-up with the trend. Colorado's first statute addressing condominium ownership was the Condominium Ownership Act enacted in 1963. Colorado then enacted the Colorado Common Interest Ownership Act in 1992 to govern the broader category of common interest communities. Buying a home now entails understanding corporate governance, keeping up with the newly developed--and still changing laws, as well as complying with the unique responsibilities associated with being part of a common interest community.
"Good fences make good neighbors." ~Robert Frost
"Common interest community" ("CIC") means real estate described in a declaration with respect to which a person, by virtue of such person's ownership of a unit, is obligated to pay for real estate taxes, insurance premiums, maintenance, or improvement of other real estate described in a declaration. The purpose of the CIC is for the development of the property, sale of residential units, and administration of the residential property. The CIC establishes a plan for the community by which the developer develops the lots according to a marketing and sales plan. The CIC is continued after the development of the community for the benefit of the owners. Often, a CIC is able to offer certain amenities to the owners in the community which the owners would not be able to afford individually. The CIC also has community rules and regulations to ensure that one owner is not able to use his property in a way that will damage the values of the other owners. The rules may include matters like regulating landscaping plans, limits on the number or type of pets the owner can have, or exterior house colors. The rules create a "community feel" for the neighborhood. The homeowners' association manages the CIC and enforces the rules.
There are three major forms of collective ownership of residential property: homewoners' associations, condominiums, and cooperatives. This article refers to each type generically as homeowners' associations.
Most homeowners' associations in Colorado are Colorado non-profit corporations. The Declarant establishes the homeowners' association as the non-profit corporation by filing articles of incorporation with the Colorado Secretary of State and adopting bylaws of the association. Initially, the Declarant elects the board of directors and officers. This time period is called the "period of Declarant Control". The Declarant has control of the homeowners' association at this point because initially, there are no homeowners in the community and he is the one who is developing the community according to the plan in the Declaration. As the developer sells lots to new homeowners, he retains control for a period of time, which is specified in the Declaration. Often, as more lots are sold, the Declarant phases-in homeowner participation on the board of directors by allowing a homeowner to be a director. This period allows the homeowners to learn about the operations of the homeowners' association as well as the responsibilities and duties of the board of directors while the Declarant remains in control. After the period of Declarant Control, the homeowners elect the board of directors and the board of directors appoints officers and members to committees to implement the board of directors' policies and manage the homeowners' association.
The Declarant is the person (or group of persons) who originally owns the property located in the CIC. The Declarant offers to dispose of his interest in the units of the CIC to purchasers as part of a common promotional plan. The Declarant may also reserve special Declarant rights to assist in the sales of the units. The Declarant records the Declaration and is named in the Declaration.
Anyone who buys property in a CIC automatically becomes a member of the homeowners' association. Membership in a homeowners' association is mandatory, so even if the owner does not believe he uses the amenities provided by the homeowners' association, he remains a member and is required to abide by the rules and regulations of the homeowners' association, including paying the assessments (dues).
The board of directors is designated by the Declarant or Members to act on behalf of the homeowners' association. The board of directors is responsible for the operation of the homeowners' association, but may delegate many duties to the officers (see bleow) or a property management company . Some activities of the board of directors include:
The Board of directors usually appoints officers to carry-out the day-to-day management of the homeowners' association, typically a president, vice president, secretary, and treasurer. Some of the officers' duties may also be performed by a property management company hired by the board of directors.
The board of directors also appoints members to committees such as an architectural review committee, clubhouse committee, newsletter committee, neighborhood watch committee, and welcoming committee. The board of directors delegate duties to the committees. A typical delegation of duties may be that the arcitectural review committee is responsible for adopting rules and guidelines to further the restrictions contained in the declaration and reviewing and approving/rejecting plans submitted by homeowners.
NOTE: If you make changes to your deck, install a fence, change your mailbox, or make any exterior change to your house or yard, including landscaping plans, you may need to submit plans and ask for prior approval. Check your governing documents before you make exterior changes to your property.
Declaration (Declaration of Covenants, Conditions, and Restrictions).
A CIC is created by recording a Declaration (in a cooperative, by conveying the real estate to the association). The Declaration is recorded in every county in which any portion of the CIC is located. The plat or map for the CIC is also recorded. The Declaration is the document which establishes the common areas, sets rules for the individual units or lots, and provides for an association to manage the community. Colorado law specifies that the Declaration contain specific information, including:
Bylaws
The bylaws set forth the rules, regulations, and procedures that govern the homeowners' association, including the rights and powers of its directors, officers and members. The bylaws also include the procedures to call and hold meetings, vote on issues, and elect directors.
Minutes
Minutes are the official record of the Association's business conducted at a meeting. Major decisions that affect the Association or each Member's rights and responsibilities as a homeowner are reflected in the Minutes.
Rules and Regulations
Rules and Regulations are initially established by the Declarant and are specified in the Declaration. The Board of Directors can add to or amend the Rules and Regulations through a process that is described in the Bylaws and the Association's responsible governance policy on adoption and amendment of policies, procedures, and rules.
Comments on Current Legal Requirements for Homeowners’ Associations
Homeowners’ Associations continue to be a complex area to understand—for homeowners and for the legislature. This three-part series of newsletters summarizes the current legal requirements for Homeowners’ Association mandated by Senate Bill 05-100, as modified by Senate Bill 06-89.
General Policy.
The Colorado General Assembly has imposed strict new guidelines mandating certain disclosures and operation al policies for homeowners’ associations (HOAs), in response to complaints about the operation of certain common interest communities in Colorado – in particular, concerns that HOAs’ boards of directors had too much discretion and that property owners had too little information about or participation in the setting of HOA policies.
Certain Covenant/HOA Restrictions are Void and Unenforceable.
As a matter of public policy, certain covenant restrictions and HOA policies are void and unenforceable, no matter what terms the applicable HOA documents contain. A summary of these void restrictions follows:
Xeriscaping: Any HOA covenant restricting or limiting xeriscaping or requiring the primary or excusive use of turf grass is void, and HOAs may not place more requirements on owners who seek approval for xeriscaping than already exist in the HOA’s governing documents.
Landscape Enforcement Limitations: During a period of water use restrictions, HOAs must suspend any enforcement actions against owners whose landscaping dies as a result of complying with the imposed watering restrictions. Further, HOAs may not prohibit owners from removing vegetation around their homes for fire mitigation purposes as long as the removal complies with a written defensible space plan.
Patriotic Displays: HOAs may not prohibit owners from displaying the American flag on their properties, in their windows, or on their balconies if a display complies with the Federal Flag Code. HOAs may not prohibit an owner from displaying a service flag with a star denoting the service of the owner or a member of the owner’s immediate family in the active or reserve military service during a time of war or armed conflict.
Political Signs: HOAs may not completely prohibit the display of political signs on an owner’s property or in an owner’s window.
Emergency Vehicles and Parking: HOAs may not prohibit the parking of a emergency service (fire, ambulance, etc.) motor vehicle on a street, driveway, or guest parking area in the community if the owner is required by his or her employer to have the vehicle at his or her residence during designated times and other requirements are met.
Roofing Alternatives: HOAs may not prohibit an owner from replacing cedar shakes or any other flammable roofing materials with nonflammable materials. The HOA’s declaration or bylaws may specify reasonable standards for the color, appearance and general type of nonflammable roofing materials that may be used, but may not require the use of nonflammable materials that would exceed the cost of replacing the flammable materials for which they are being substituted.
HOAs Must Make Certain Disclosures to Property Owners.
HOAs must make certain disclosures, at no charge to homeowners, within 90 days after the end of each fiscal year. These disclosures may be made by posting the documents on a website with an accompanying notice of the URL by email or first class mail, by maintenance of a literature table or binder, by postal mail, or by personal delivery. The required disclosures are as follows:
1. The HOA’s current operating budget and the beginning date of the HOA’s fiscal year;
2. A list, organized by unit type, of current HOA regular and special assessments;
3. The HOA’s annual financial statements for the preceding year;
4. Results of the HOA’s most recent financial audit/review;
5. A list of all HOA insurance policies;
6. The HOA’s current articles of incorporation, bylaws, and rules and regulations;
7. Minutes of all HOA Board and membership meetings for the preceding year; and
8. The HOA’s current responsible governance policies adopted pursuant to current law.
HOAs Must Adopt Standard Responsible Governance Policies and Procedures.
HOAs are required to have responsible governance policies and procedures on the following topics:
1. Collections of unpaid assessments;
2. Conflicts of interest for Board members;
3. Conduct of meetings;
4. Enforcement of covenants and rules;
5. Records, inspection and copying;
6. Investment of HOA reserves; and
7. Adoption of policies (yes, a policy regarding policies).
Notice of Owner Meetings; Owner Voting and Participation in Meetings.
Notices of HOA annual meetings must include the general nature of any proposed amendment to the declaration or bylaws, any budget changes, and any proposal to remove an officer or member of the executive board if to be discussed at that meeting. The HOA must physically post the notice of any owner meeting in a conspicuous place. In addition to a physical posting, HOAs are encouraged to give notice of owner meeting by posting the notice on a website or sending out an email to all owners. If the HOA has the ability to give electronic notice, it must provide notice of owner meetings by email if requested by an owner who gives the HOA an email address. The notification email must be sent as soon as possible and at least twenty-four (24) hours before the meeting.
At HOA meetings, ballots must be counted by either a neutral third party or an owner who is not a candidate, is present at the meeting, and is selected randomly from a pool of two or more such non-candidate owners. All HOA board member elections must be held by secret ballot, even in the case of uncontested elections, and any vote at a member meeting may be required to be by secret ballot if one owner requests a secret ballot. Owners have the right to speak at HOA board meetings before the board takes formal action on any item under discussion.
Amendment of HOA Declaration.
Any provisions in an HOA declaration requiring more than 67% of the owners to approve an amendment to the declaration are void, and are deemed by law to read 67%. This provision does not apply to phased communities or declarant-controlled communities. Because many declarations also require consents by mortgagees to any amendments, a change to applicable law provides for a process to assume a first mortgagee consents to a proposed amendment, even if not actually obtained, as long as certain notice procedures are followed.
HOA Recordkeeping and Audit/Review.
HOAs must keep the following as permanent records:
1. Minutes of Board / owner meetings
2. Records of all actions taken by consents rather then at meetings
3. All actions taken by Board committees
4. All waivers of required notice of meetings
In addition to the foregoing, HOAs must keep copies of the following at their principal offices:
1. Articles of incorporation
2. The HOA declaration and/or covenants
3. Bylaws
4. Board resolutions affecting property owners
5. Minutes of owners’ meetings for the past 3 years
6. All HOA communications with property owners generally for the past 3 years
7. Names and addresses of current Board members
8. Most recent annual report
9. All financial audits and reviews
10. All property owners have the right to inspect HOA records if the inspection is in good faith and for a reasonable purpose (not for solicitation or commercial gain).
At least once every two years, the HOA’s books and records must be audited or reviewed using generally accepted auditing standards by an individual chosen by the Board. Unless the HOA chooses to have an audit, the individual selected does not have to be a certified public accountant.
Owners have the right to speak at HOA board meetings before the board takes formal action on any item under discussion.
This summary is for general information only; it is not intended as, and should not be construed as, legal advice for any specific situation. If you have questions about specific legal matters, Patterson Tabert Law Offices welcomes your inquiry.