I thought I had retired the “Arizoonie”.  This was originally an annual award I gave to the state that proposed the dumbest community association proposed law each year.  The nickname “Arizoonie” was given because Arizona continually won the award and that is also why I stopped giving it – the same state won every year.

Well, this year, I have to bring it out of mothballs and award it to Colorado. I spent a day listening to the Colorado Senate hold hearings on the – what is supposedly an overhaul of construction defect issues that, according to the builders lobby and Chambers of Commerce, is preventing the construction of condominiums, and especially, low-cost condominiums, in Colorado.

What this is, is basically a “get out of jail free” card for developers and those who profit with them.  Nothing wrong with profits, but this builds in a lot roadblocks if you think you’ve bought a badly built unit in an association.

At the end of the hearings, just before the Committee vote, I heard Senator Heath say very simply that the proposed bill actually did nothing to solve the stated problem of building more multi-family units in Colorado.

I should point out that other states are considering this type of legislation.  It seems like the Developer/mortgage banking/real estate/development attorney lobby is following the ALEC* scheme for accomplishing their goals through state legislatures and naming bills in a way that implies one thing, but accomplishes something entirely different.

The first part of the bill has to do with making sure that when a developer puts a requirement for arbitration into the documents, that the association cannot amend those documents to remove that requirement when it comes to construction defects.

The next part I have to put in exactly as it is written so you can see for yourself: (caps are theirs)

38-33.3-303.5. Commencement of litigation by executive board
– notice to unit owners – disclosure of projected costs – consent.

(1) (a) In the event BEFORE the executive board, pursuant to section 38-33.3-302 (1) (d), institutes an action asserting defects in the construction of five or more units, the provisions of this section shall apply. For purposes of this section, “action” shall have the same meaning as set forth in section 13-20-803 (1), C.R.S. ANY LEGAL ACTION (emphasis added, see below), INCLUDING A CONSTRUCTION DEFECT CLAIM,

(b) the executive board shall substantially comply with the provisions of this section.

(1.5) AS A CONDITION PRECEDENT TO ANY CONSTRUCTION DEFECT CLAIM, THE PARTIES MUST SUBMIT THE MATTER TO MEDIATION BEFORE A NEUTRAL THIRD PARTY MUTUALLY SELECTED BY THE PARTIES TO THE CONSTRUCTION DEFECT CLAIM. IF THE PARTIES ARE NOT ABLE TO AGREE UPON A MEDIATOR, THEY MAY USE AN ALTERNATIVE SELECTION METHOD SPECIFIED IN THE GOVERNING DOCUMENTS OR, IF NO ALTERNATIVE SELECTION METHOD IS SPECIFIED, MAY PETITION THE DISTRICT COURT IN THE JURISDICTION IN WHICH THE COMMON INTEREST COMMUNITY IS LOCATED TO APPOINT A MEDIATOR FOR THE CONSTRUCTION DEFECT CLAIM

WITH RESPECT TO A CONSTRUCTION DEFECT CLAIM, the notice required by paragraph (a) of this subsection (2) shall state MUST BE PREPARED AND SIGNED BY A PERSON OTHER THAN, AND NOT EMPLOYED BY OR OTHERWISE AFFILIATED WITH, THE ATTORNEY OR LAW FIRM THAT REPRESENTS OR WILL REPRESENT THE ASSOCIATION IN THE CONSTRUCTION DEFECT CLAIM AND MUST CONTAIN a general description of the following:

(I) The nature of the action CONSTRUCTION DEFECT CLAIM and the relief sought; and

(II) The expenses and fees that the executive board anticipates will be incurred BY THE ASSOCIATION in prosecuting the action CONSTRUCTION DEFECT CLAIM, INCLUDING:

(A) ATTORNEY FEES, CONSULTANT FEES, EXPERT WITNESS FEES, AND COURT COSTS, WHETHER INCURRED BY THE ASSOCIATION DIRECTLY OR FOR WHICH IT MAY BE LIABLE IF IT IS NOT THE PREVAILING PARTY OR THAT THE ASSOCIATION WILL BE REQUIRED TO PAY IF IT ELECTS NOT TO PROCEED WITH THE CONSTRUCTION DEFECT CLAIM;

(B) THE IMPACT ON THE VALUE OF THE UNITS THAT ARE THE SUBJECT OF THE CONSTRUCTION DEFECT CLAIM, BOTH DURING THE PENDENCY OF THE CONSTRUCTION DEFECT CLAIM AND AFTER ITS RESOLUTION, AS WELL AS THE IMPACT ON THE VALUE OF THOSE UNITS IF THE ASSOCIATION DOES NOT MOVE FORWARD WITH THE CONSTRUCTION DEFECT CLAIM;

(C) THE IMPACT ON THE MARKETABILITY OF THE UNITS THAT ARE THE SUBJECT OF THE CONSTRUCTION DEFECT CLAIM, INCLUDING THE IMPACT ON THE ABILITY OF OWNERS TO REFINANCE AND BUYERS TO OBTAIN FINANCING, DURING THE PENDENCY OF THE CONSTRUCTION DEFECT CLAIM AND AFTER ITS RESOLUTION;

(D) FOR ANY UNITS WHERE THERE ARE NO ALLEGATIONS OF DEFECTS IN THE DESIGN OR CONSTRUCTION, THE IMPACT ON THE VALUE AND MARKETABILITY OF THE UNITS, INCLUDING THE IMPACT ON THE ABILITY OF THE OWNERS TO REFINANCE AND BUYERS TO OBTAIN FINANCING DURING THE PENDENCY OF THE CONSTRUCTION DEFECT CLAIM OR AFTER ITS RESOLUTION;

(E) THE MANNER IN WHICH THE ASSOCIATION PROPOSES TO FUND THE COST OF THE CONSTRUCTION DEFECT CLAIM, INCLUDING ATTORNEY FEES, CONSULTANT FEES, EXPERT WITNESS FEES, AND COURT OR ARBITRATION COSTS, INCLUDING ANY PROPOSED SPECIAL ASSESSMENTS OR USE OF RESERVES; AND

(F) THE ANTICIPATED DURATION OF THE CONSTRUCTION DEFECT CLAIM AND THE LIKELIHOOD OF SUCCESS.

(c) WITH RESPECT TO A CONSTRUCTION DEFECT CLAIM:

(I) THE NOTICE REQUIRED UNDER PARAGRAPH (a) OF THIS SUBSECTION (2) MUST BE SENT AT LEAST SIXTY DAYS BEFORE SERVICE OF THE NOTICE OF CLAIM UNDER SECTION 13-20-803.5, C.R.S., AND BEFORE HIRING ANY EXPERTS OR CONSULTANTS, OR INCURRING OR AGREEING TO PAY ANY EXPERT FEES OR CONSULTANT FEES, IN CONNECTION WITH THE CONSTRUCTION DEFECT CLAIM; AND

(II) THE CONSTRUCTION DEFECT CLAIM IS NOT AUTHORIZED UNLESS THE EXECUTIVE BOARD OBTAINS THE WRITTEN CONSENT OF THE OWNERS, OTHER THAN THE DECLARANT, OF UNITS TO WHICH AT LEAST A MAJORITY OF THE TOTAL VOTES, EXCLUDING VOTES ALLOCATED TO UNITS OWNED BY THE DECLARANT, IN THE ASSOCIATION ARE ALLOCATED, AFTER GIVING NOTICE IN ACCORDANCE WITH THIS SUBSECTION (2).THIS CONSENT MUST BE OBTAINED DIRECTLY AND NOT AS A RESULT OF PROXY VOTING.

18 (d) WITH RESPECT TO ANY LEGAL ACTION OTHER THAN A CONSTRUCTION DEFECT CLAIM DESCRIBED IN PARAGRAPH (c) OF THIS SUBSECTION (2), THE NOTICE REQUIRED UNDER PARAGRAPH (a) OF THIS SUBSECTION (2) MUST BE SENT AT LEAST THIRTY DAYS BEFORE SERVICE OF THE SUMMONS AND COMPLAINT.

SB 15-177   Listen to the hearings http://coloradoga.granicus.com/MediaPlayer.php?view_id=41&clip_id=7432  (7+ hours if you can take it NOTE: Scroll to about the 13:00 minute mark for it to start)

So, before you can start any legal action, you have to tell all of the owners a whole bunch of stuff, but you can’t hire any experts, say an engineer, architect or attorney, to actually determine what is wrong, or how much it would cost to fix, or whether or not it is actually the developer’s responsibility, or to help you write the notice.  So I guess you just make up some numbers to tell the owners, who are then expected to give you permission, in writing, to proceed.  That makes sense only if you’re looking for a way to throw a monkey wrench into the situation.

Also, the statement “ANY LEGAL ACTION” would require a board to notify every owner, in writing, of any proposed legal action, including bylaw enforcement, collections, vendor disputes, which, of course, would add significantly to the upfront costs, which, of course, would then be added onto the bill charged to the owner in collections and enforcement.  One supporter of the bill said this wasn’t what it meant, but I think, the fact that its repeated in the last paragraph, sort of belies that claim.  Imagine how excited a delinquent owner will be to see his/her name sent out to all of the other owners as the reason for an upcoming legal action.  Really badly written!!  (NOTE: I’m not an attorney so my reading of these issues may be off, but I’m relying on what other attorneys have said in articles and in the testimony)

Arbitration isn’t cheap, as many pointed out.  A lot of the money has to be paid up front, and in the past, has often been fronted by the association’s attorney handling the case.  The legislators seem to think it’s fine for attorneys to front the money, so they didn’t bother trying to find a way to reduce those costs.  The point of this legislation is to increase the costs, increase the requirements and try to wear out the consumers looking for solutions to the problems left by the developers.

Nevada is one of the states considering similar legislation.  The excuse used there is the gigantic fraud case that’s been going on for awhile.  One part of the criminals activities involved filing sketchy construction defect lawsuits, hoping to get a quick settlement.  The actions of a criminal enterprise shouldn’t be the reason to screw over every other home buyer in the state, but I’m not holding my breath, given the way state legislatures are moving recently.

Anyhow, we’ll see how it goes as the legislation winds its way through the political process.  I would like to point out one other issue for the HOA/condo haters out there that so often try to point out that CAI doesn’t represent owners.  CAI is trying to take on one of the largest, toughest lobbies in the U.S. – the developers/mortgage bankers/real estate/ developer attorney coalition.  This group is the main reason that association documents rarely require anything that might impede the sale of a unit, or increase the costs of a developer with respect to the association.  And they’re the reason for this bill and others like it.  If CAI didn’t care about owners, they could just ignore this, since it really doesn’t impact their manager base.  But they know it’s not right, just as any condo or homeowner knows it’s not right.  The owners in the associations in Colorado, and in the other states where this type of legislation is showing up, need to stand up and be heard, because this is being pushed through by a very powerful bloc.

*ALEC –  Through the secretive meetings of the American Legislative Exchange Council, corporate lobbyists and state legislators vote as equals on ‘model bills’ to change our rights that often benefit the corporations’ bottom line at public expense. ALEC is a pay-to-play operation where corporations buy a seat and a vote on ‘task forces’ to advance their legislative wish lists and can get a tax break for donations, effectively passing these lobbying costs on to taxpayers.

Along with legislators, corporations have membership in ALEC. Corporations sit on ALEC task forces and vote with legislators to approve “model” bills. They have their own corporate governing board which meets jointly with the legislative board. (ALEC says that corporations do not vote on the board.) Corporations fund almost all of ALEC’s operations.

Participating legislators, overwhelmingly conservative Republicans, then bring those proposals home and introduce them in statehouses across the land as their own brilliant ideas and important public policy innovations—without disclosing that corporations crafted and voted on the bills.

ALEC boasts that it has over 1,000 of these bills introduced by legislative members every year, with one in every five of them enacted into law. ALEC describes itself as a “unique,” “unparalleled” and “unmatched” organization. We agree. It is as if a state legislature had been reconstituted, yet corporations had pushed the people out the door.   http://www.alecexposed.org/wiki/ALEC_Exposed