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Understanding the New HOA Registration Requirements in Colorado

Alerts / December 1, 2010

As of January 1, 2011, every home owners association organized under the Colorado Common Interest Ownership Act (CRS 38-33.3-101 et seq.) must file an annual registration with the newly created HOA Information and Resource Center. This Client Alert explains the purpose of the Center, summarizes the registration process in place as of December 1, 2010, and identifies potential problems with the law. It concludes with some suggestions as to how associations may ease compliance with the new requirements. For developments after December 1, 2010, check the Colorado Division of Real Estate homepage[1] or call your Baker Hostetler contact.

GOOD IDEA . . .

On its face, the legislation creating the HOA Information and Resource Center ("Center") appears very simple and direct. The Center is part of the Colorado Division of Real Estate and is intended to be a "clearing house for information concerning the basic rights and duties of unit owners, declarants and unit owners’ associations."[2] In order to carry out this purpose, an "HOA Information Officer" is instructed to "track inquiries and complaints and report annually . . . regarding the number and types of inquiries and complaints received."[3] In connection, every home owners association organized under the Colorado Common Interest Ownership Act is required to register with the Center on an annual basis.[4] The fees paid with each registration will fund the Center’s efforts.[5]

The idea behind the Center is promising from a public policy perspective. In the recent past, numerous bills seeking to amend the Colorado Common Interest Ownership Act have been introduced in an effort to "fix" the law. However, Colorado legislators have had no objective means by which to judge whether the "fix" addressed an actual problem in association governance. In some cases, most notably HB09-1359 (enacting CRS 38-33.3-303(1)(b)), bills have served more to advance private disputes than solve public concerns.[6] The Center will likely prove to be an asset to the extent it can separate proposed amendments which are worthy of legislative time and effort from those which are not.

. . . BUT THERE ARE IMPLEMENTATION CONCERNS

Unfortunately, this policy advantage is somewhat offset by some new administrative tasks with which home owner associations must comply. As explained below, while the Colorado Division of Real Estate has taken steps to ease compliance, there are the normal complications inherent in creating an entire reporting mechanism on a relatively short deadline. Of greater concern, the legislation lacks explicit exemptions and includes relatively significant penalties for non-compliance.

Online Registration Process – Seeking Simplicity

Unlike Subdivision Applications, HOA registrations will be done completely online. As of December 1, 2010, the Colorado Division of Real Estate is still finalizing its online HOA registration application. While the Division expects that the HOA registration application will be accessible from its homepage on or before January 1, 2011, home owner associations are advised that there is a possibility of delay.

Once the registration is accessible, the information required to complete it will include the following:

  1. The name of the home owners association.
  2. The name of the association’s management company or, if none, designated agent.
  3. A valid physical address and telephone number for each entity or person named above.
  4. The name of the common interest community.
  5. The initial date of recording of the declaration creating the common interest community.
  6. The reception number or book and page for the declaration creating the common interest community.[7]

Any changes to the identity of the management company or designated agent, and any change to the address provided for the association or the management company or designated agent, must be updated with the Center within 90 days of the change.[8]

While filing fees have not yet been established, the fee associated with the 2011 filing will not exceed $50.[9] To put that into perspective, annual renewal fees for subdivision developers are $136 in 2011.[10]

Registration Requirement

Registration is required of every home owners association "organized under section 38-33.3-301." While we would expect that this would encompass a majority of home owner associations operating in Colorado (including those governing large planned communities), we note that the legislation creating the Center did not amend CRS 38-33.3-115 or CRS 38-33.3-117. As a consequence, home owner associations governing the types of developments described below may be exempt from the new HOA registration requirement:[11]

  1. Condominiums, cooperatives and planned communities that were formed prior to July 1, 1992, and have not elected to be subject to the Colorado Common Interest Ownership Act.[12]
  2. Certain nonresidential planned communities[13] and nonresidential cooperatives.[14]
  3. Certain small cooperatives and planned communities not subject to any development rights.[15]
  4. Limited expense planned communities.[16]

In addition to the above, we understand that the Colorado Division of Real Estate has received several inquires regarding registration from home owner associations located outside of Colorado. Please note that, irrespective of any subdivision registration requirements that may be applicable, home owners associations governing projects located outside of Colorado have no obligation to register with the Center.

Penalties for Failure to Register

The legislation provides that those home owner associations that either fail to register by January 1, or fail to renew their HOA registration on an annual basis thereafter, are "ineligible to impose or enforce a lien for assessments under section 38-33.3-316[17] or to pursue any action or employ any enforcement mechanism otherwise available to it under section 38-33.3-123[18] until it is again validly registered." In clarifying how the above will be applied, the legislation states that liens for assessments "previously filed" during a valid registration (or prior to January 1, 2011) will not be extinguished as a result of the association’s failure to annually register.[19] However, during the "lapse in the association’s registration," any enforcement of the assessment lien "shall be suspended, and any applicable time limits tolled, until the association is again validly registered."[20]

While the above certainly creates an incentive to register, it does not align with a key legislative purpose of the Colorado Common Interest Ownership Act -- promoting solvent home owners associations.[21] At a minimum, it would appear that the penalty modifies the applicable community documents such that, during the "unregistered" period, a home owners association could not charge interest and penalties on delinquent assessments. This, in turn, would benefit individual unit owners who do not pay assessments on a timely basis, while adversely impacting the collective whole.

In our opinion, this penalty is disproportionate to the offense if the sole purpose of the legislation is to create an effective information collection mechanism. We encourage the Director of Colorado Division of Real Estate to utilize her rule-making authority such that a failure to register does not have the absurd consequence of rewarding delinquent unit owners.[22]

SUGGESTED ACTIONS

Based on our knowledge of the Colorado Common Interest Ownership Act and our experience with home owner associations generally, we would strongly suggest that associations consider the following:

  • Given the lack of explicit exemptions, home owner associations that believe they are exempt from the registration requirement should verify this with their attorney. If exempted, associations should share this information with their members, so that the members understand that that the legislation will not alter their obligations to timely pay assessments.
  • We understand that registration will initially involve the creation of a username and password for the home owners association. Registrants should follow standard security and recording protocols with respect to same so that filings are not compromised by unauthorized persons and subsequent filings are not unnecessarily complicated and/or delayed.
  • As the Center is primarily an information resource, home owner associations should appoint an individual responsible for maintaining familiarity with the Center and its resources, including the Center’s annual report on the number and types of inquiries and complaints received and any rules promulgated by the Division.
  • Home owner associations should re-evaluate their internal protocols for handling disputes, including those procedures required to be adopted under the Colorado Common Interest Ownership Act.[23] In doing so, it should be noted that the Center does not have any authority to investigate complaints, provide legal advice, enforce the provisions of the community documents, or otherwise intervene on behalf of a party to a dispute. Rather, the Center has only the limited authority to track and report on complaints and otherwise act as in information clearinghouse.[24]
  • Finally, and perhaps most importantly, home owner associations should actively educate their members on the legislation. Several commentators have been less than clear in explaining the purpose and authority of the Center, choosing instead to speculate on what they wish (or fear) that authority to be.[25] Based on our experience, we expect that certain groups will attempt to capitalize on that confusion and misrepresent the scope of the Center’s authority for their own benefit.

If you have questions about the information provided in this Alert or how it may impact your business, please contact David B. Waller (dwaller@bakerlaw.com or 303.764.4093) or your regular Baker Hostetler contact.


[1] Updates can be found by linking to http://www.dora.state.co.us/real-estate/ and checking the left sidebar under "Licensing Sections -- Subdivision Developers/HOA." FAQs current as of December 1, 2010, can be accessed via the following: http://www.dora.state.co.us/real-estate/licensing/subdivisions/hoafaq.htm.
[2] CRS 12-61-406.5(3)(a) (New Provision).
[3] CRS 12-61-406.5(3)(b)(II) (New Provision).
[4] CRS 38-33.3-401(1) (New Provision).
[5] CRS 12-61-111.5(2)(a)(II) & CRS 38-33.3-401(2)(a) (Both Provisions New).
[6] The author testified against HB09-1359, which created an explicit "director candor" requirement that departs significantly from the basics of Colorado corporate law. Subsequent discussions revealed that the bill’s proponent was a lobbyist who had just been voted off the board of his home owners’ association.
[7] CRS 38-33.3-401(2)(a) (New Provision) & CRS 38-33.3-209.4(1)(a)-(f).
[8] Id.
[9] CRS 12-61-111.5(2)(a)(II) & CRS 38-33.3-401(2)(a) (Both Provisions New). Note that the maximum fee may be increased in the future "to reflect the actual direct and indirect costs of operating" the Center. Note also that certain associations will be exempt from paying the fee pursuant to CRS 38-33.3-401(2)(b)(I) & (II).
[10] Note that this is a decrease from the $287 annual fee in 2010.
[11] As these are not explicit exemptions under the legislation, we are not certain at this time whether the Division will share our interpretation. Like the penalty issue discussed below, we encourage the Division to provide clarity regarding these potential exemptions.
[12] CRS 38-33.3-117(3) provides that the Colorado Common Interest Ownership Act does "not apply to common interest communities created within the state before July 1, 1992" unless expressly provided elsewhere in CRS 38-33.3-117. New CRS 38-33.3-401 is not included among those provisions applying to "pre-1992" common interest communities in CRS 38-33.3-117.
[13] Those exempt from the Colorado Common Interest Ownership Act pursuant to CRS 38-33.3-121.
[14] Those exempt from the Colorado Common Interest Ownership Act pursuant to CRS 38-33.3-116(1) or (2).
[15] Those exempt from the Colorado Common Interest Ownership Act pursuant to CRS 38-33.3-116(1) or (2).
[16] Those exempt from the Colorado Common Interest Ownership Act pursuant to CRS 38-33.3-116(1) or (2).
[17] This section of the Colorado Common Interest Ownership Act creates the automatic statutory lien for delinquent assessments and any authorized "fees, charges, late charges, attorney fees, fines and interest."
[18] This section of the Colorado Common Interest Ownership Act generally allows an association to recover reasonable attorney fees and costs incurred in connection with the enforcement of community plan documents, including collection of delinquent assessments.
[19] We note that the "previously filed" language is confusing since CRS 38-33.3-316(4) explicitly states that "recording of the declaration constitutes record notice and perfection of the lien. No further recordation of any claim of lien for assessments is required."
[20] CRS 38-33.3-401(3) (New Provision).
[21] CRS 38-33.3-102(1)(b) provides, in part, that "the continuation of the economic prosperity of Colorado is dependent upon the strengthening of homeowner associations in common interest communities financially."
[22] The Director has the express authority to "adopt rules as necessary to implement" CRS 38-33.3-401(3) pursuant to CRS 12-61-406.5(5). In thinking through such a rule, the most obvious model to follow would be the rules associated with Colorado’s foreign corporation qualification.
[23] CRS 38-33.3-209.5(1) requires association to "adopt policies, procedures, and rules and regulations" concerning a host of different matters, including those "addressing disputes arising between the association and unit owners."
[24] This is made especially clear by the helpful HOA FAQ’s published by the Colorado Division of Real Estate.
[25] As originally introduced by Senator Morgan Carroll and Representative Su Ryden, the legislation would have given the "HOA Ombudsman" authority to report violations of law to the appropriate authorities and mediate disputes.


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