H.O.A. Transparency : A Proposal

Current and potential investors can determine the value of a publicly traded company by its stock price. Current and potential homeowners have no way – zip, zero, nada, zilch – to determine the value of nor provided by an H.O.A. corporation. Or whether that value is even positive or negative.

On May 31 2019 – more than four years ago – Governor Jared Polis directed the Department of Regulatory Agencies (DORA) to consider and make recommendations to increase transparency within the homeowner associations that govern half of Colorado’s population.

I hereby direct the Executive Director of DORA (Executive Director) and the Director or the Division of Real Estate to lead a stakeholder process that will complete a comprehensive review of CAMs [communisty association managers] and HOAs. The Executive Director will consider, develop, and make recommendations on how to promote effective and efficient regulation of CAMs and HOAs, including the following:

A. The licensure of CAMs, considering recommendations from the the 2017 DORA sunset report, and whether licensure is needed to protect consumer safety and is cost-effective;

B. Approaches that improve transparency among HOAs;

C. Methods to reduce costs and improve the transparency of HOA fees and fee schedules; and

D. Strategies to promote homeowner rights and consumer protections through an evaluation of the Colorado Common Interest Ownership Act and other related acts or rules.

Emphasis added. You can read the entire Executive Order → here ←.

DORA released their 2019 Report Concerning the Governor’s Executive Order D-2019-006: Directing a Stakeholder Process to Examine Community and Homeowner Associations on December 31 2019, which you can read → here ←.

DORA's recommendations were such a resounding success that four years later, the first public meeting of the H.O.A. Homeowners Rights Task Farce spent about ½ hour discussing how to increase the transparency of H.O.A. fees and budgets.

HOA HOMEOWNERS’ RIGHTS TASK FORCE. DORA_ Division_RealEstate – DORA. Streamed live on Oct 24, 2023

This is a simple problem to solve, or at least mitigate to a very large degree.

Publicly traded companies are required to create, publish, and file with the Securities and Exchange Commission (S.E.C.) a prospectus.

A prospectus is a formal document required by and filed with the Securities and Exchange Commission (SEC) that provides details about an investment offering to the public.

The prospectus can help investors make more informed investment decisions because it contains a host of relevant information about the investment or security. In areas other than investing, a prospectus is a printed document that advertises or describes an offering such as a school, commercial enterprise, forthcoming book, etc. All forms of prospectus exist to attract or inform clients, members, buyers, or investors.

- Investopedia

Today, prospectuses are most widely distributed through websites such as EDGAR and its equivalents in other countries.

- Wikipeida

H.O.A. corporations should be required by law to regularly produce – say, on an annual or quarterly basis – a prospectus-type document, file it with an appropriate state agency; probably the Department of Regulatory Agencies (DORA) in this case, or the Secretary of State's office which is responsible for registering corporations.

Such a document should be available to the public without restriction, from the H.O.A. and/or the State.

This would allow current owners, and potential owners, access to much of the information they require to determine the financial status of an H.O.A. corporation. By filing it with a State agency on a regular basis and making the document public, it would also make it difficult for an H.O.A. corporation to retroactively alter and falsify certain records.

The State should determine and enforce a uniform format for such documents, so that potential home buyers can easily compare the prospectuses of various H.O.A. corporations.

While the exact contents and format are to be determined, information in this document should include, but not be limited to

a) amount of assessments (“H.O.A. dues”), both current and historical, per unit

b) other sources of the H.O.A.’s income (e.g., fines)

c) budget information, both current and historical

d) information about the Board of Directors

e) information about the management company and law firm and other vendors

f) past and pending litigation

g) list of violation notices and fines issued by the H.O.A. corporation

1) with some provision to protect the privacy of the individual homeowners

h) list of liens filed and held by the H.O.A. corporation

i) list of foreclosure actions by the H.O.A. corporation

j) the governing documents of the H.O.A. corporation, including but not limited to

1) the Declaration

2) the CC&Rs

3) the Bylaws

4) any other rules and policies

k) quantify by how much the H.O.A. corporation has enhanced (or harmed) the values of the properties under its governance, so homeowners and potential buyers can make fully informed decisions about their real estate investment.

Publicly traded corporations are required to file regular disclosure documents with the Securities and Exchange Commission so that investors can make informed decisions. Given that a buying a home is the largest investment for most people, there is no reason that H.O.A. corporations should not be required to do the same.

If our legislators are serious about increasing the transparency of homeowner associations – and I do not for one second believe that they are – then they would require that this type of information be easily available to members of the public before they even begin the process of buying a home. And available to our law makers so that they can use the information to craft legislation and measure the success (or lack thereof) of the laws they pass.

But that will never happen. Because the last thing that the H.O.A. industry special interests who govern half of Colorado’s population, and our public policy makers, want is informed and empowered homeowners.