Wednesday, June 07, 2017

Colorado Supreme Court ruling requires developer’s consent on HOA rule changes

Colorado Supreme Court ruling requires developer’s consent on HOA rule changes: "At issue is a Monday ruling by the state Supreme Court that upheld a developer’s right to require mandatory arbitration for any defects claims.

The 27-page ruling for Vallagio V. Metro. Homes stipulates that a developer may include provisions in a Common Interest Communities (CIC) declaration that gives it the right to refuse any amendments voted on by homeowners."

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I haven't read the opinion yet, but as explained here, apparently the original dec (drafted by the developer, of course) says all defect claims have to go to binding arbitration, and also provides that any changes in the dec have to be approved by the developer. The HOA took a vote to change the arbitration provision, so they could sue the developer instead of going to arbitration. Colorado law says that owners can amend their declarations, and that super-majority requirements can't exceed 67%.  That seems to give owners protection against anti-amendment provisions in their developer-drafted original declarations.



But no-- the Colorado Supreme Court ruled against the owners:  "Statute allows CICs to gather a majority vote to change declarations laid down by developers. The level of majority required varies between declarations but cannot exceed 67 percent. The CIC in Vallagio V. Metro. Homes argued that requiring consent from developers for changes exceeded the maximum limit and should be prohibited. But the 5-2 ruling found the inclusion of a consent requirement does not violate the statute concerning declaration changes."  
And here is some reaction to the ruling, also from the same linked story:
"Build Our Homes Right, a homeowners advocacy group, had a different opinion of the ruling and its implications. Jonathan Harris, CEO of Build Our Homes Right, said in a statement that the ruling diverges from what should be a priority for courts: protecting citizens’ legal rights, such as the right to trial. “The court just decided that deep pocketed developers have the right to steamroll over homeowners in order to shirk their responsibility for producing shoddy homes,” Harris said. He added that the implications of the ruling stretch beyond defects. “The court has decided that powerful developers can control homeowners associations until the end of time, not only in construction defect claims, but on everything from their right to a jury trial in any kind of dispute, to issues relating to assessments and how homeowners use their own homes,” he said."

4 comments:

robert @ colorado hoa . com said...

Evan McKenzie wrote…Colorado law says that owners can amend their declarations, and that super-majority requirements can't exceed 67%.  That seems to give owners protection against anti-amendment provisions in their developer-drafted original declarations.

H.O.A. corporations in Colorado do not even require the approval of the owners to amend the declaration. An H.O.A. corporation can petition the court to amend the declaration, and as long as no more than 1/3 of the owners file a written objection — which costs $158 to file, a lot of money for some people — the court is required to grant the petition to amend.

C.R.S. § 38-33.3-217(7)
(e) The district court shall grant the petition after hearing if it finds that:
(I) The association has complied with all requirements of this subsection (7);
(II) No more than thirty-three percent of the unit owners entitled by the declaration to vote on the proposed amendment have filed written objections to the proposed amendment with the court prior to the hearing;

see also “Declaration Amendment Petitions - Shall Means Shall!” (Colorado HOA Law, 08/27/2015):

Today, the Colorado Court of Appeals issued an opinion addressing the statutory declaration amendment process set forth in C.R.S. 38-33.3-217(7). This process allows community associations that have sought to amend their declaration, and received fewer approvals than required to amend the declaration outright, to obtain a court order that approves the amendment notwithstanding the vote result.

The statutory process is pretty black-and-white; if the Association complies with the statute's requirements and fewer than 33% of those entitled to vote file written objections, the court "shall" approve the amendment. "Shall" is mandatory, but some courts have declined to approve petitions notwithstanding this language.

In Centennial Ranch and Aspen Mountain Ranch Association v. Fuller et al., 14CA1326, the Court of Appeals held that when a court determines that a community association has met the requirements of Section 217(7), it errs if it denies the petition to amend. The Court of Appeals further determined that another community association case analyzing the substantive impact of an amendment did not expand the statutory criteria for the court's analysis of a petition to amend.

IC_deLight said...

Yet the developer can amend unilaterally and after people have already purchased properties. Misleading advise from the article states:

“The declaration is a contract. You have the ability to review the recorded declarations before you buy in that subdivision, and if you don’t like the terms, you don’t have to buy there, and if it’s something that’s not going to be able to be amended, you need to be aware of it ahead of time,” he said."

Except it isn't and your review is useless. The developer has the unilateral ability to amend AFTER you buy. In addition unless a homeowner has previously experienced all the "outs" the HOA and developer have, the ability of the developer to unilaterally amend, the ability of the developer to change the threshold for change in control, the limits on homeowners' remedies, etc. Reading is not particularly helpful and certainly not informative as to what control the developer and HOA will have over you and your property. One problem with this article is that it did not really clarify whether these were condominiums or non-condo properties nor did it clarify whether the suit was between owners and the developer or perhaps the HOA and the developer.

IC_deLight said...

ecm

You should read the opinion AND take note of all the amicus briefs and who they are from. Then you should note what position the amici took.

Although not apparent from the article, this was a suit by a condominium corporation (not the owners) against a developer

robert @ colorado hoa . com said...

IC_deLight wrote…nor did it clarify whether the suit was between owners and the developer or perhaps the HOA and the developer” and “Although not apparent from the article, this was a suit by a condominium corporation (not the owners) against a developer

These type of articles never do.

I was at a town hall meeting last month held by some of the local elected representatives, and they didn’t make the distinction, either.

Even worse is that a lot of the self-appointed “homeowner advocates” also fail to make the distinction. It boggles the mind that, as anti-H.O.A. as they are, they often portray this issue as “homeowners vs the developer” rather than “H.O.A. corporation vs the developer”.

Construction defect legislation and lawsuits is like the tag-line to that Alien vs Predator movie: “Whoever wins, we lose”.