Legal Compliance Issues for HOAs
There is a strict and complex scheme of laws applicable to the operation of homeowners associations (HOAs). This page gives a very preliminary overview of some of the highlights. This is not legal advice. ASAP recommends you retain your own legal counsel to advise you concerning your rights and obligations as a member of an HOA.
In 1963, the Colorado Legislature enacted the Colorado Condominium Ownership Act (CCOA). This set of laws applies to HOAs organized prior to July 1, 1992.
In 1991, the Colorado Legislature enacted the Colorado Common Interest Ownership Act (CCIOA), which governs HOAs organized on and after July 1, 1992. However, by law, many CCIOA provisions also apply to pre-CCIOA communities.
Together, these Acts contain a detailed set of statutes governing HOA operations.
Responsible Governance Policies
For years, HOAs were governed by the basic governing documents, being Articles of Organization, Bylaws and the Declaration (aka Covenants, aka Covenants, Conditions and Restrictions or CC&Rs). Effective January 1,2006, the Colorado Legislature enacted a law requiring CCIOA HOAs to adopt nine “Responsible Governance Policies” (RGPs). Pre-CCIOA communities are only required to adopt the ninth RGP. The nine RGPs must each address:
1. Collection of unpaid assessments;
2. Handling of conflicts of interest involving board members;
3. Conduct of meetings;
4. Enforcement of covenants and rules, including notice and hearing procedures and the schedule of fines;
5. Inspection and copying of association records by unit owners;
6. Investment of reserve funds;
7. Procedures for the adoption and amendment of policies, procedures, and rules;
8. Procedures for addressing disputes arising between the association and unit owners; and
9. When the HOA has a reserve study prepared; whether there is a funding plan for any work recommended and, if so, the projected sources of funding for the work.
More recently the Colorado Legislature updated RGP #1, procedures for collection of assessments, requiring the HOA (1) offer the delinquent owner a payment plan of at least six months duration, (2) not proceed with foreclosure to collect without first noticing the owner to a Board hearing, and (3) not proceed with foreclosure unless the owner is at least six months delinquent on dues. Dues collection is a difficult endeavor. In the event a lender forecloses on an owner, the HOA is only entitled to recover six months worth of old dues from the lender. As such, HOAs must be vigilant on collections.
The Colorado Legislature also recently updated RGP #5, rules applicable to inspection and copying of association records by unit owners. The change was that, effective January 1, 2013, owners need not state their purpose for requesting records. Other highlights of the rules applicable to records are that HOAs are not to disclose an owner’s E-mail address to other owners without the permission of the owner. HOAs are required to provide mailing addresses.
RGP #9 addresses capital reserve studies. In Colorado, it is not mandatory that an HOA maintain reserves, but, it is highly advisable that HOAs have a current written plan/study for reserve needs, and that there are also meaningful collections such that a large future special assessments will not be required.
Board of Directors
HOAs are governed by their Board of Directors. As such, Board operations are at the heart of proper HOA governance.
An often violated rule is that owners must be notified concerning all Board meetings. The CCIOA provision, also made applicable to pre-CCIOA communities, states that agendas must be posted on the HOA Website (if it exists) at least 24 hours prior to the Board meeting. Good practice is E-mail notice to owners at least 5 days prior to the meeting.
A little known rule is that unless the Bylaws authorize Directors to proxy third parties to speak for them, such is disallowed. Good governance typically requires that a Director proxy only another Director.
Operational Decisions and Owner Surveys
A common owner request is that the Board put operational decisions out for an owner vote. While the Board can and should canvass the owners for input, it would in fact be an abdication of duty for the Board to simply put the matter out to a vote of the ownership. Owners elect Directors specifically to govern the HOA. The Directors are charged with becoming fully informed concerning HOA matters, and making the best decisions for HOA. The owners are not charged with becoming so informed. As such, again, for a Board to simply put operational matters out to a vote of the ownership – owners who are not charged with becoming fully informed as to the pros and cons of actions – would in fact violate the Board’s duty to the owners. The better practice is for the Board to canvass/survey the owners for input, as well as to convene Board meetings to discuss matters in open forum.
Director terms should be set and approved by the Owners. The ideal scheme seems to be three-year terms, with terms staggered such that terms overlap. This allows new Directors to serve with Directors who have had some experience on the Board. CCIOA requires at least one third of the Board be elected annually. As such, for a three-member Board, it can be simply arranged for one seat to be elected each year. For a five-member Board, terms can still be three years, but, the Bylaws need to establish a mechanism whereby, annually, at least two of the five Director seats are be placed up for election.
Board meetings are public to all owners. And, owners must be afforded the opportunity to speak on topics discussed. However, the Board does have the authority to conduct closed-door meetings and exclude owners, for six categories of issues:
1. Matters pertaining to employees of the association or the managing agent's contract or involving the employment, promotion, discipline, or dismissal of an officer, agent, or employee of the association.
2. Consultation with legal counsel concerning disputes that are the subject of pending or imminent court proceedings or matters that are privileged or confidential between attorney and client.
3. Investigative proceedings concerning possible or actual criminal misconduct.
4. Matters subject to specific constitutional, statutory, or judicially imposed requirements protecting particular proceedings or matters from public disclosure. This would include for example discussion of matters under some type of court-ordered protective order.
5. Any matter the disclosure of which would constitute an unwarranted invasion of individual privacy.
6. Review of or discussion relating to any written or oral communication from legal counsel.
Websites and Blog
HOAs should, if they can afford it, maintain a simple Website containing the following items:
Responsible Governance Policies
Architectural Design Guidelines, if they exist
Notice of any pending Board meetings, complete with agenda (again, legally required to be posted at least 24 hours prior to meeting)
Board and owners meeting minutes
Information on capital reserves on hand
Reserve study, if it exists
HOA insurance certificates
Good practice is to password-protect the above items, since the matters should not be on the Web for general public review.
Owners selling their units need quick access to HOA documents. The standard Colorado form real estate contract requires the seller provide most of the above documents to buyers under contract.
Some HOAs also set up owner blogs, to facilitate owner communication.
Mail Ballot Voting
Many HOA matters can be resolved by mail ballot voting. However, the better practice is to issue mail ballots, with a return date coinciding with an owners meeting, and making it clear that owners can either vote by mail, or vote in person at the meeting.
The Board should ensure the HOA maintains maintain proper liability insurance for common elements. Such insurance will protect the HOA from liability in the event someone is injured on HOA property. Good practice is to also purchase Directors & Officers (D&O) insurance, which will cover the Board Members/Directors individually in the event of legal claims against them.
Another complex and common area of HOA work is when owners seek to modify their units, such as expand the unit, combine the unit with an adjacent one, and/or modify or enclose a unit limited common element.
Because service on an HOA Board is generally a volunteer effort, the majority of HOAs employ professional management to handle matters such as dues invoicing, arranging meetings, preparing draft budgets, initial enforcement procedures and coordinating owner requests such as Unit modifications. Effective July 1, 2015, HOA managers must be licensed through the Colorado Division of Real Estate.
Again, this page gives a very preliminary overview of some of the highlights. This is not legal advice. ASAP recommends you retain your own legal counsel to advise you concerning your rights and obligations as a member of an HOA.
This article was written by Telluride, Colorado attorney Joseph A. Solomon, Esq.
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