The Department of Regulatory Agencies (DORA) released its Sunset Review for the HOA Information and Resource Office on October 15, 2019 (Report). This article summarizes that Report and makes some observations. Please review the Report and draw your own conclusions. This article contains the opinions of the author, and not the opinions or positions of Altitude Community Law P.C.
A “sunset review” is periodic governmental assessment of Colorado boards, programs and functions to determine if they should be continued and funded by the General Assembly. The process focuses on balancing the least restrictive form of regulation consistent with protecting the public interest. (See Review cover letter and Report page 5. References to the Report cite to the page number of the Report.)
The Report states there are 7,881 active homeowner associations (p. 6). The HOA Information and Resource Office received an average of 1,543 complaints per year over a five year period (pp. 14 and 18). The Report notes that the Office did not have the power to investigate complaints, so the Office does not know if the complaints had merit (p. 18). The Report notes that 60% of Colorado’s population lives in an HOA (p. 6). Colorado’s population is approximately 5.77 million people. Sixty percent of that figure is approximately 3.46 million people. An annual average of 1,543 complaints from a population of 3.46 million people living in HOAs is .0004% (4 complaints per every 10,000 HOA residents) which is a very small number. While there are undoubtedly some people who did not know how to complain or chose not to file a complaint, the small percentage suggests Colorado’s HOA governance situation is not dire.
The Report notes the Office received 5,161 requests for information in one year. (Cover letter, p. 2). When contrasted against the much smaller number of complaints discussed above, that statistic is informative. Requests for information about HOAs were more than three times the number of complaints. If every lack of information was coupled with a problem, there would have been more complaints filed. This suggests that the larger issue is the lack of awareness and education about how HOAs operate. This author has over 36 years of experience practicing law in Colorado, much of it involving community associations. A recurring theme in community association disputes arises from a lack of owner education about the governing documents affecting the property they own. (The author includes both unit owners and HOA representatives in this statement.) The understandable difficulty, complexity and expense to find and purchase a home often leads to situations where the owners have not focused on the detailed and voluminous documents which will have real impacts on use and governance of their property.
The Report notes that complaints decreased in 2017 and 2018, which was a few years after Community Association Manager (CAM) licensing took effect. (CAM licensing no longer exists in Colorado after July 2019). Over the past decade, many more HOAs have put their governing documents online for ease of access. The public has become more aware of HOA processes through mandatory governance policies which all HOAS must adopt. The author concludes that the public’s growing awareness, coupled with the requirements of CAM licensing and the outreach resulting from the HOA Information and Resource Office, all contributed to greater owner awareness and education plus more responsive HOAs.
The Report concludes with two basic recommendations (pp. 16-20): to continue the HOA Information and Resource Center for five years (until 2025), and to direct the Office to implement a dispute resolution process for HOA complaints. The process proposed is that the Office investigates complaints, and then acts as mediator. If mediation is unsuccessful, the Office could issue a written decision. If a party does not agree with the written decision, one or both of the parties could request that the complaint be heard by an administrative law judge.
The author agrees with the first recommendation, but disagrees with the second. In our complicated and information-driven world, it is clearly beneficial to the public interest and to the community association industry for an accessible neutral to serve as a repository for HOA information and resources. As noted above, the statistics in the Report reveal a lack of information about how HOAs operate. Anything which promotes awareness and education is a positive influence.
The second recommendation is unnecessary, burdensome and expensive. First, all HOAs are required to adopt a dispute resolution policy, a process which can be individually tailored to the size, style and preferences of the community. A self-developed process fits better than a uniform, governmentally-imposed, statewide process. There is no demonstrated need for governmental intrusion into every neighborhood dispute. The CCIOA statute guarantees an owner the right to participate in meetings, to vote on budgets, to elect board members, and to an HOA hearing before any fine is imposed. The proposed state-run process is burdensome because it requires a complaining owner and responding HOA to spend time and money to educate an uninformed third-party about the details of their dispute, instead of having it resolved by people who are the most familiar with the facts, the community and the governing HOA documents. The government never moves fast, so disputes will linger.
Mediation is a very powerful process, but it would be extremely impossible for the government investigator (who has conducted an investigation and issued a written decision) to then serve as a neutral mediator. This is because the person wearing their investigator hat has already drawn conclusions, and is unlikely to be neutral (or be perceived as neutral, which is equally important) by both of the disputing parties. Mediation works best when the mediator chosen by both parties comes to the process with an open mind. Finally, the process of then proceeding to an administrative law judge (ALJ) is both complicated and expensive. HOA disputes which are run through a governmental, bureaucratic process will lead to HOA costs, which costs will be shifted to all of the other unit owners who are not involved in the dispute. In addition, all taxpayers will pay for this new arm of the government. If informal dispute resolution does not succeed, unit owners already have the small claims court process available to litigate smaller HOA disputes promptly and effectively. The proposed complaint/mediation/ALJ process makes HOA dispute resolution slower, more complicated and more expensive.
The source of many HOA disputes is the lack of information, awareness and communication. Strategies to overcome those deficits are the keys to preventing, minimizing and streamlining such disputes. Education and awareness are far preferable to governmental regulation and still more procedures. Despite the costs, the author favors CAM licensing because of his belief that CAM licensing improved community management. But that is another topic for another day. This article is about a sunset.
Please contact the attorneys at Altitude Community Law with any questions at 303.432.9999.