HOA’s: Mystery Solved

By: Boyd A. Rolfson

Your Community Association Partner What is a Community Association?

• Homeowner’s Association • Property Owners Association • Association • Townhome Association • Cooperative • Common Interest Developments

Your Community Association Partner What Really is a Community Association?

• A nonprofit corporation • A business • A community • A neighborhood

Your Community Association Partner Why Do We Have Community Associations?

Your Community Association Partner Your Community Association Partner Your Community Association Partner Your Community Association Partner Your Community Association Partner Your Community Association Partner Your Community Association Partner State and Federal Statutes • Common Interest Ownership Act “CCIOA” • Colorado Revised Nonprofit Corporation Act • Condominium Act • FHAA • ADA • DORA • Bankruptcy Act Your Community Association Partner The Governing Documents • Plat map • Declaration of covenants • Articles of Incorporation • Bylaws • Rules, regulations and policies, Dispute resolution policy – CCIOA 209.5(1)(b)(VIII) • Subdivision improvement agreements • Official development plans • Easement agreements

Your Community Association Partner Governing Documents - Purpose

• Define rights and obligations of owners and association • Create binding relationships • Establish mechanisms for governing and funding • Set forth rules and standards

Your Community Association Partner Governing Documents - Goals

• Protection of both owners and community • Enhancement of property values • Promotion of harmonious living • Improve owner’s lifestyle

Your Community Association Partner I. Recorded Map

• Required • Recorded • Location of lot/unit • Easements and dedications • Assists in determining: • Maintenance responsibility • Proper location of improvements

Your Community Association Partner II. Declaration • “Runs with the land” • Recorded with Clerk and Recorder • Defines ownership • Creates rights/obligations • Maintenance/Insurance • Governance • Assessments

Your Community Association Partner III. Articles of Incorporation

• Birth Certificate • Basic purposes and powers • Initial board and size • Filed with Secretary of State

Your Community Association Partner IV. Bylaws

• Governance procedures • Requirements for membership • Requirements for meetings • Voting rights • Election of board members • General powers and duties • Indemnification

Your Community Association Partner V. Rules and Regulations

• Typically established by board • Behavior • Cannot contradict or amend Declaration, Bylaws or Articles

Your Community Association Partner VI. Policies and Procedures

• Established by Board • Responsible Governance policies under CCIOA **Collections Enforcement Inspection of Records Investment of Reserves Conduct of Meetings Conflict of Interest Alternative Dispute Resolution Reserve Study Adoption of Policies, Procedures, Rules & Regs

Your Community Association Partner What does the Board do?

• Manages finances • Maintains common elements • Enforces governing documents • Provides services • Oversees managing agent • Builds community

Your Community Association Partner Fiduciary Duties to the Association

• Who is a fiduciary? • Persons in position of trust • in the associations • Managers • What do they owe? • A fiduciary duty to the association

Your Community Association Partner What are Those Duties? • Duty of care • Must act as an ordinary “prudent” person in the same situation • Duty of loyalty • Must act in the best interests of the corporation/association • Not what’s best for YOU or your neighbor • Duty of obedience • Must follow the governing documents of the corporation/association • Duty of confidentiality • Do not badmouth decisions of the board even if you do not agree with them Your Community Association Partner Collection Considerations • A homeowners association is a business • Board has fiduciary duties to collect • Collection Policy and Procedures • Associations need revenue in order to operate • Collections are unavoidable in the representation of Associations

Your Community Association Partner Judicial : An Overview

Your Community Association Partner What Is A Judicial ? • A judicial foreclosure is a lawsuit which seeks the Court’s permission to sell a debtor’s home to satisfy the Association’s lien for unpaid assessments. • The right to foreclose is provided for in the Association’s Declarations or CCIOA (C.R.S. 38-33.3-316(11))

Your Community Association Partner How Does a Judicial Foreclosure Work?

• Foreclosures initiated by the holders of liens (not Deeds of Trust) are done so through the judicial system. • Judicial Foreclosures take between 6-12 months from start to finish, depending on whether the case is contested (i.e., Defendant files an answer).

Your Community Association Partner Judicial Foreclosures (cont.) • The association must have a lien for the delinquent assessments. • A lawsuit is filed and all persons who have an interest in the property must be named as defendants. • Once parties are served, answers must be filed within 20-30 days, depending on type of service.

Your Community Association Partner Judicial Foreclosures (cont.) • Typically, owners do not file answers and an order for foreclosure is obtained without having to go to trial, through summary judgment. • Means that if the association can show the default in payment of the assessments and its right to foreclose the assessment lien provided by the Declaration, then the association will obtain an order to foreclose.

Your Community Association Partner Judicial Foreclosures (cont.) • Once judgment enters, Sheriff sets sale date and advertises notice of sale to the public (“cure period”) • Association submits written bid equal to amount due • Sold to highest bidder at public sale; Association may bid competitively

Your Community Association Partner Judicial Foreclosures (cont.) • 15-19 days for senior lien holder to redeem, 5 days for each subsequent lien holder • Association paid in full or receives title to property • Title typically subject to first mortgage, but free and clear of all other encumbrances

Your Community Association Partner Association Liens • Statutory • C.R.S. § 38-33.3-316(4) provides that “(r)ecording of the declaration constitutes record notice and perfection of the lien” and that “(n)o further recordation of any claim of lien for assessments is required.” • Best practice to still record a lien

Your Community Association Partner Association Liens (cont.)

• The “Superlien” • Association lien is prior even to the first mortgage to the extent of 6 months worth of assessments. C.R.S. § 38-33.3-316(2)(b)(I). • Due whether lender or Association initiated foreclosure

Your Community Association Partner Association Liens (continued)

• The Association's lien “may be foreclosed in like manner as a mortgage on real estate.” C.R.S. § 38-33.3-316(11)(a) • Foreclosure statutes found at C.R.S. § 38- 38-101, et seq.

Your Community Association Partner What Happens If The First Mortgage Starts A Foreclosure? • Foreclosure may extinguish the Association’s lien • Association may cure default on first mortgage and continue with its judicial foreclosure • Association may redeem (i.e. pay the amount owed to it plus the amount paid at sale) and obtain title to the property

Your Community Association Partner Q&A and Additional Resources

Website: www.hindmansanchez.com

Your Community Association Partner