How and Interact Jennifer G. Tanaka, Esq. Trisha K. Harris, Esq. Heather L. Hartung, Esq. W HITE B EAR A NKELE T ANAKA & WALDRON 2154 East Commons Avenue, Suite 2000 Centennial, Colorado 80122 (303) 858-1800 jtanaka@wbapc.com tharris@wbapc.com hhartung@wbapc.com
Why Should You Understand Districts? Overlapping boundaries between Districts and District authority to provide covenant enforcement and design review Explain to homeowners how the fees charged by the District and the HOA are different Understand lien priority between the District s and the HOA s lien Maintenance responsibilities among Districts and
How is a District Different from an HOA? Quasi-municipal corporation and political subdivision of the State Subject to Title 32 of the Colorado Revised Statutes, Open Meetings Laws, Budget Law, etc., and other laws governing public entities Operates as a form of local government Must keep facilities open to the public Subject to the Nonprofit corporation, pursuant to the Colorado Revised Nonprofit Corporation Act (C.R.S. 7-121- 102, et. seq.) Subject the Colorado Common Interest Ownership Act ( CCIOA ) (C.R.S. 38-33.3-101, et. seq.) Operates as a private corporation Can limit membership and use of facilities Typically responsible for covenant enforcement
Advantages and Disadvantages of Districts Advantages Disadvantages Publicly accountable (public meetings, records, etc.) Governmental immunity Able to impose taxes (tax deductible) Able to finance public infrastructure over 40 years resulting in owners paying proportionate share of use Required to comply with Colorado law for compliance matters which can be onerous and costly Often difficult to find interested people to serve on the Board of Directors
Advantages and Disadvantages of Districts (cont.) Advantages Disadvantages Tax exempt financing options resulting in lower rates Supplies and equipment purchases not subject to sales and use tax Sophisticated insurance pool resulting in lower insurance costs Able to obtain federal and state grants for public amenities No manager licensing requirements Lack of understanding on the part of owners regarding what Districts are and what they do Complicated and expensive formation process Increased costs due to necessity of involvement of professionals and consultants
Advantages and Disadvantages of Advantages Disadvantages Easily formed Flexible governance Member accountability Private facilities Preservation of property and property values through covenants and enforcement Ease of involvement of owners Less governmental and statutory regulation Assessments are not tax deductible Often difficult to find interested people to serve on the Board Collection of delinquent assessments is more difficult than collection of fees or taxes by a District No governmental immunity Negative public perception
Purposes of a District v. an HOA Special districts can provide infrastructure and services to new and existing development that county and municipal governments are unable to provide Special districts can serve as a financing vehicle for developers for the provision of public infrastructure to new and existing development Special districts possess powers and privileges of governmental entities that private developers do not otherwise possess C.R.S. 32-1-1001 Maintenance of common property, such as pools, parks and clubhouses Preservation of property values through covenant and rule enforcement Uniform aesthetics throughout the community Building sense of community Provision of services such as trash service and snow removal C.R.S. 38-33.3-302
Formation of a District v. an HOA Governed by the Special District Act, C.R.S. 32-1-101, et seq. Service Plan Governing body approves, conditionally approves or disapproves the service plan at a public hearing (C.R.S. 32-1-203) Petition for Organization (C.R.S. 32-1-301) Court Hearing (C.R.S. 32-1-305) Election (C.R.S. 32-1-305.5) Order and Decree (C.R.S. 32-1- 306) Governed by the Colorado Common Interest Ownership Act, (C.R.S. 38-33.3-101, et. seq.) and the Colorado Revised Nonprofit Corporation Act (C.R.S. 7-1212-101, et. seq.) Filing of Articles of Incorporation with the Colorado Secretary of State Recordation of the Declaration of Covenants, Conditions and Restrictions (C.R.S. 38-33.3-201)
Types of Districts and Metropolitan districts Water and sanitation districts Park and recreation districts School districts Fire protection districts Ambulance districts Health service districts Tunnel districts Condominium communities Planned communities
Powers of Districts v. May provide for the construction and ongoing operation and maintenance of the improvements Power of eminent domain (condemnation) Power to levy taxes and assess fees, rates, tolls, charges and penalties C.R.S. 32-1-1001 Defined by CCIOA, the Nonprofit Act, and the governing documents of the HOA Typically include: Maintenance of common area Imposition assessments, late fees, interest and penalties Collection of assessments Enforcement of covenants and rules Review of architectural reqests C.R.S. 38-33.3-302
Revenue-Raising Authority of Districts v. General obligation bonds Ad valorem property tax levy Revenue bonds Special assessment bonds C.R.S. 32-1-1101, et. seq. and C.R.S. 32-1-1201, et. seq. Imposition of assessments (regular and special assessments) Loans Sale of property (subject to owner approval) Assignment of liens C.R.S. 38-33.3-315, 38-33.3-316 and 38-33.3-316.3
Collection Powers of Districts v. No personal obligation, so no personal lawsuit Statutory perpetual lien by operation of law Collection power limited to foreclosure of the District s lien District s lien is superior to all other liens except for taxes Perfected when fee imposed and unpaid C.R.S 32-1-1001 Personal obligation that can be enforced via a personal lawsuit, judgement, garnishment, etc. Foreclosure of the HOA s lien, subject to statutory requirements HOA s lien is junior to the taxes and the mortgage, except for the six month super lien C.R.S. 38-33.3-315, 38-33.3-316 and 38-33.3-316.3
District Elections v. HOA Elections Director Elections held in May of even-numbered years (C.R.S. 32-1-103) Debt/TABOR elections held in November of any year or May of even-numbered years (Colo. Constitution, Article X, Section 20) Simple majority wins Can be mail ballot or polling place After period of developer control, Board member elections held annually (C.R.S. 38-33.3-303 and C.R.S. 7-128- 104) Other votes of owners for governing document amendments and as otherwise required by the documents Less formal process for voting
District v. HOA Board Qualifications Must be registered to vote in the State of Colorado; AND Own (you or spouse or civil union partner) real or taxable personal property within the District; or Reside within the District (no longer a time requirement); or Have an option to purchase taxable property within the District, which contract obligates you to pay taxes C.R.S. 32-1-103 Qualifications defined in the governing documents (C.R.S. 7-128-102) Typically, must be an owner of property within the community Possible additional requirements Current in payment of assessments Acting in compliance with the covenants and rules Resident owner Not involved in an adversarial proceeding against the Association
District Boards v. HOA Boards Public officials considered to hold a public trust and considered to be a fiduciary to the people within the District At all times must act in best interests of the District and its constituency and not for personal or third-party gain or financial enrichment Two primary fiduciary duties Duty of Care Duty of Loyalty Breaches prosecuted by the District Attorney C.R.S. 24-18-109, 13-90-107 Must discharge duties as a director In good faith With the care of an ordinarily prudent person in a like position In a manner reasonably believed to be in the best interest of the Association Can rely on opinions, reports or statements presented by other directors, committees, experts or consultants that the Board members believes to be reliable and competent C.R.S. 7-128-401
Open Meetings of Districts v. Districts are subject to the Colorado Public (Open) Meetings Law (a/k/a the Sunshine Law), C.R.S. 24-6-402 A meeting is a gathering of a quorum or three or more directors to discuss and conduct District business Requires posting of notices, agenda, minutes, conflict disclosures Includes telephone conversations, emails and in person meetings Meetings are required to be open to the public District required to have a minimum of one meeting per year to adopt budget and address annual matters A meeting of the owners must be held at least once a year All board meetings must be open to attendance by all members or their designated representatives, except for valid executive sessions No statutory notice requirements relative to owners for Board meetings Board members can make decisions via e-mail outside of a regular or special meeting
Open Meetings of Districts v. (cont.) A public (open) meeting does not mean the meeting is a public forum or platform Public is provided opportunities to speak during the meeting Public commentary period (if designated by the Board) Public hearings (budgets, inclusions, exclusions) Public afforded ability to speak by law Attendance by the owners does not mean the meeting is a public forum or platform Owners must be allowed the opportunity to speak on an issue prior to the Board voting on that issue, subject to reasonable restrictions on the time permitted and number of persons allowed to speak Owner forum period if permitted by the Board C.R.S. 38-33.3-308 and 7-128-202
Access to District Records v. HOA Records Colorado Open Records Act request policy Most Districts have a policy in place with corresponding form for people to complete for other desired documents Not all documents public but most are Required to pay for paper copies of documents and research time after 1 hour Electronic documents free C.R.S. 24-72-201, et. seq. Record inspection policy required by statute Only specified records are open for inspection by owners Owners can be required to pay a reasonable charge for the cost of labor and materials to provide copies of Association records C.R.S. 33-38.3-209. 6 and 38-33.3-317
Annual Compliance of Districts v. All governmental entities, including special districts, have to comply with numerous filings each year. Filings with various state and local agencies Division of Local Government Annual DORA registration (C.R.S. 38-33.3-401) Annual disclosures via posting on website with website address sent to owners, maintenance of literature binder at Association office, mail or personal delivery (C.R.S. 38-33.3-209.4) Annual report filed with SOS
Unique Requirements for District Managers v. HOA Managers Knowledge of required compliance filings Understanding of specific meeting notice requirements Understanding of financing and bond issues Understanding of governmental election process and TABOR issues Manager licensing requirements, including continuing education Adherence to annual DORA registration and other annual compliance requirements Understanding of statutory requirements related to collection of assessment and covenant enforcement actions Understanding of interplay of the Nonprofit Act and CCIOA
Questions? What do you think the biggest advantage of a District is? Biggest advantage of an HOA? Do you think it is easier to raise revenues as a District or an HOA? Which structure do you prefer for elections? That followed by a District or by an HOA? Do you think it would be easier working with a District Board or an HOA Board, or the same? As a manager, what challenges do you think you would face if you took on management of a District?