CCIOA Lacks Specificity To Hold Non-Compliant Boards Accountable

One of the key reasons the HOA Homeowners Rights Task Force needs to consider overhauling CCIOA is that it almost deliberately lacks specificity that would allow a homeowner to use the Courts to enforce CCIOA (or the Non-Profit Act, or HUD/FHA law/rules) to have a successful claim upon which relief may be granted. Because disputes with HOA Boards (or even CAMs or the HOA General Counsel itself) may only be resolved with private litigation in the current design, a combination of lack of specificity or lack of statutory claims combines with the Business Judgement Rule to make litigation cost-prohibitive, and largely unsuccessful.

I say deliberately because we have attorneys within the HOA Industry who have just recently argued in Topakas v. Wintermoor that if Legislators wanted CCIOA or governing documents to be as strictly applied to HOA Boards as they are to homeowners, legislators would have created statutes with such specificity.

In April of 2023, Orten Cavanagh Holmes & Hunt, LLC (OCHH) argued successfully before the Colorado Supreme Court in Topakas v. Wintermoor the following:

"The General Assembly's failure to add certain language to a statute can
‘indicate[ ] purposeful omission.” Id., (quoting Neher v. Neher, 402 P.3d 1030,
1034 (Colo. App. 2015)). The Colorado Legislature has amended Section -209.5 as
recently as the 2022 legislative session, and has declined to create an explicit
jurisdictional requirement for compliance with the same, despite expanding the
jurisdiction of Colorado Small Claims Court in the same bill. (See House Bill 22-
1137)

The Colorado legislature is more than capable of creating jurisdictional
limits if it chooses to do so. In Section -209.5, there is no indication that it intended
to. There is no reference to court jurisdiction. The statute is instead focused on the
regulation of private action by associations prior to taking legal action."

OCHH is a firm that represents thousands of HOAs in Colorado, as is quite active in lobbying the legislature on HOA law. They cite the process in making HB22-1137 into law by stating that legislators "declined to create an explicit jurisdictional requirement for compliance" while expanding jurisdiction for homeowners to use Small Claims Court.

I was involved in that process, and that statement couldn't be further from the truth. The original language of the bill not only created explicit jurisdiction, it created limitations on the amount of legal fees these firms could collect (3x the amount owed). This firm and several others through a hissy fit - and I attended their webinars where they did so!

In order to move them from opposition to amend positions, legislators appeased them by removing such language. So, it is therefore disingenuous for the same firm to argue to the Colorado Supreme Court that the legislators were either lazy or ignorant when creating the language of HB22-1137. In fact, a compromise was reached to get the bill passed.

The problem here is that when we find an HOA Board that is non-compliant with CCIOA, their governing documents, or any other state/federal law, we first encounter the Business Judgement Rule. This rule allows an HOA Director to use ignorance of the law as an affirmative defense. Since there is no required training, education, or certification, a "volunteer" merely has to claim they they had no idea they were violating the rules or law. Poof - they can't be held accountable.

The only way to pierce this defense is to prove "wanton or willful" actions on the part of Directors. But, now that the Colorado Supreme Court has rejected the Writ of Certiorari in Topakas v. Wintermoor, the Appellate decision stands. The Courts have decided that an HOA Board or Director can merely be compliant in a partial or "substantial" way - and that strict compliance is unnecessary.

In other words, even proving wanton or willful actions is insufficient to prove non-compliance, because a Director is held to a different standard than a homeowner. Homeowners can and actually have lost their homes because Boards are allowed to claim a standard of strict compliance for petty violation such as grease stains on driveways, torn screens, etc (as we saw in Green Valley Ranch), but Directors have an easy out - they can be ignorant of the law or rules, and even when they aren't, they can say they kind-of-sort-of complied, and totally get away with it.

How is it that we have attorneys who argue that when a homeowner signs the contract and purchases a home in an HOA, they agreed to every fine detail, but when the same homeowner volunteers for the Board, they get all this great discretionary latitude?

Combined with the fact that a homeowner attempting to enforce rules on a Board isn't just up against the Board, CAM, and/or HOA General Counsel, but also the well-funded Insurance Company that defends non-compliant Directors even when they know they have actually violated the law, it is nearly impossible for a homeowner of average means to follow through and endure the lawfare tactics that grind a homeowner until they are out of money or emotionally drained.

It's almost like these attorneys acting as lobbiests have designed a system that has no intention of having homeowners fulfill their roles as the sole compliance officers.

And, once Directors learn (or are taught) that they can't be held accountable, we then see a pattern of predatory behavior, discrimination, abuse, and outright lawlessness that cannot be checked by the available powers. The combination of proxy hoarding, vicious hoa politics, assigning of individual assessments, threats of legal action for defamation, and a slew of other weaponization of the HOA powers puts homeowners at an inherent disadvantage.

And, no, it's not good enough to "run for the board" or "try to remove the director". At best, these are just ways to invite retaliation and be driven from your home for "getting involved".

The system is broken. Fundamentally broken.

In order for there to be any success, the HOA Task Force must take the time to listen to what OCHH is putting out there in plain sight - they are daring you to recommend specificity in CCIOA, so that homeowners have a clear path with a statutory claim upon which relief may be granted in the Courts (District, State, and/or Small Claims). They are mocking you while lobbying against this to your face, but then telling the very same Courts that if you wanted to, you could.

It's long past time for Colorado Legislators to recognize that the Courts and the system of using the Courts is a fools errand. There's no intention for this to resolve disputes. It is a mere illusion of fairness or even democracy. There is no justice possible for homeowners, unless the matter is so incredibly egregious and well-documented that the Courts have no option than to let it move past a Motion to Dismiss. But, for the vast majority, this is where it ends.

And, this, in turn, makes negotiating with Boards, Directors, CAMs, and HOA General Counsel difficult to impossible. Because they know of the power imbalance, they have no incentive to engage, let alone allow an actual dispute resolution process to resolve a dispute. They stonewall, hide or destroy documents, and often go on offense and in some cases send the homeowner the legal bill for having sent emails raising the issue.

We have seen a few cases in recent years were the Legislature has, in fact, created statutory claims. In HB21-1229, for instance, there is a $500 penalty if an HOA doesn't turn over certain documents. It's a good start. HB22-1137 has a statutory penalty relating to foreclosures done improperly. We need more of this.

But, rather than parsing out section by section, the Legislature needs to contemplate a system that allows for enforcement of compliance on Boards that does not rely upon the Courts at all. I've recommended using Nevada as a model, and consider having some matters handled with administrative adjudication. It won't prevent the Courts from being used, but for the vast majority of common disputes, a $30k ante is just too high of stakes for an average homeowner - if they can even find an attorney in Colorado to take their case.

No Alternative Dispute Resolution system that relies upon the courts will work if CCIOA lacks specificity, the Business Judgement Rule allows absolute ignorance as a defense, and the Colorado Courts continue to allow partial or substantial compliance to be the standard for enforcement.

I hope you will seriously consider these points as you consider your agenda for this HOA Task Force. I look forward to your comments and response at the meetings and hearings.

Thank you for the opportunity to raise these issues.