Court of appeals rules that HOA lien is not spurious, despite claim that annexation was invalid

Today, the Colorado Court of appeals reversed a order that had deemed a homeowner association’s lien to be spurious.

The case arose after a developer approved a property owner’s application to annex additional real estate to a community in 1999. Several years later, the developer repurchased the property through a foreclosure sale. Despite its prior approval of the annexation, the developer refused to pay community maintenance assessments, which prompted the association to record a lien under its covenants and a statutory provision of the Colorado Common Interest Ownership Act (CCIOA).

The parties remained in a standoff until 2016, when the Colorado Supreme Court announced two decisions that adopted a stricter standard for annexing property into communities subject to CCIOA. Relying on this new authority, the developer at Stroh Ranch argued that the 1999 annexation was no longer valid. The district court agreed and declared the association’s lien to be spurious. 

The court of appeals reversed and awarded attorney fees to the association. The court held that the association’s lien was not a spurious lien because it was both provided-for by CCIOA statutes and had been agreed-to by the property owner under the terms of the 1999 annexation form. The court held that the annexation form was not a spurious document because, even if it did not technically comply with the 2016 caselaw, this alleged invalidity was not “readily open to notice or observation.”

The court’s opinion was unpublished and therefore does not create binding precedent, but it may nevertheless serve as a caution for property owners seeking to attack liens under Colorado’s spurious lien and document statute.

Attorney Jesse Witt represented the association in the appeal, Stroh Ranch Development, LLC v. Stroh Ranch Business Circle, Inc., Case No. 2017CA1481 (Colo. App. Dec. 13, 2018)(unpublished).

For an expanded discussion of this issue, please see Mr. Witt’s full summary here.

Witt named to 2018 Super Lawyers

The Witt Law Firm is proud to announce that Super Lawyers has recognized lawyer Jesse Howard Witt as the Top Rated Construction Litigation Attorney in Boulder Colorado.

Super Lawyers is a rating service of outstanding lawyers who have attained a high-degree of peer recognition and professional achievement. Super Lawyers selects attorneys using a patented multiphase selection process. Peer nominations and evaluations are combined with independent research. Each candidate is evaluated on twelve indicators of peer recognition and professional achievement. Selections are made on an annual, state-by-state basis. The objective is to create a credible, comprehensive and diverse listing of outstanding attorneys that can be used as a resource for attorneys and consumers searching for legal counsel. Since Super Lawyers is intended to be used as an aid in selecting a lawyer, it limits the lawyer ratings to those who can be hired and retained by the public. This is the sixth time that Super Lawyers has recognized Mr. Witt.

CTLA publishes Witt’s article on statute of repose

The Colorado Trial Lawyers Association published a new article from Jesse Witt this week. The article discusses the history of Colorado’s statute of repose for construction defect claims and analyzes a recent decision that corrects a flaw in the statute that has nettled litigators since 1986. Click here to read the full text.

The article expands on comments that first appeared in this blog.

Colorado’s new construction defect law takes effect in September: What you need to know.

Colorado’s new construction defect law officially takes effect this month. Although HB 17-1279 was passed in May, the statutory text provides that it only applies “with respect to events and circumstances occurring on or after September 1, 2017.” With that date now upon us, practitioners should be mindful of the law’s new requirements.

The law applies to any lawsuit wherein a homeowner association files a construction defect action on behalf of two or more of its members. “Construction defect action” is defined broadly to include any claims against construction professionals relating to deficiencies in design or construction of real property. Before an association may commence such an action, its board must follow several steps.

First, the board must schedule a meeting of all homeowners and notify the affected construction professionals of the time and place.

Second, after waiting at least five days, the board must deliver notice of the meeting and the potential construction defect action to all homeowners at their last known addresses. This notice must also go to the construction professionals. The notice must include a description of the alleged construction defects with reasonable specificity, the relief sought, a good-faith estimate of the benefits and risks involved, and a list of mandatory disclosures concerning assessments, attorney fees, and the marketability of units affected by construction defects.

Third, the board must conduct the actual meeting of the homeowners. The construction professionals named must be allowed to attend and address the unit owners during the meeting. The construction professionals may make an offer of repairs to the homeowners at that time, but they are not obligated to do so. The meeting must occur between ten and fifteen days after the mailing of the second notice, or else the subsequent vote will be void. There is some ambiguity in the statute, and boards may therefore wish to schedule this meeting exactly ten days after mailing to avoid future challenge.

Fourth, the board must tally the votes of all homeowners on whether to proceed with the construction defect action. The vote can occur by any written means but must occur within ninety days of the mailing of the notice, and this time period may not be extended. Subject to certain exceptions, the association may only proceed with the construction defect action if a majority of voting homeowners approve the construction defect action. Some homeowners are excluded from this vote: The Association need not count votes from the developer or its affiliates, banks that own homes, owners deemed to be nonresponsive, or owners of homes of a type in which no defect is alleged in communities where common expenses are not shared.

The law contains a number of nuances and technical requirements not discussed in this summary, and associations considering a potential construction defect action should contact a qualified attorney to ensure compliance with its provisions. Some associations may also have to follow other requirements contained in their covenants or in local ordinances, to the extent such terms are not preempted by state statutes.

HB 17-1279 does not obviate the existing requirement that an association serve a construction professional with a notice of claim and consider an offer of repairs prior to commencing a lawsuit or arbitration. The new law contemplates that the notice of claim would be sent first, and that the meeting and vote would occur if the construction professional’s response to the notice of claim was inadequate. The statutes of limitation and repose remain tolled during both the notice of claim period and the subsequent voting period.

The new law was enacted to address builders’ perceived fear that HOA boards were filing construction defect lawsuits without notifying their members. Opponents of the bill noted that the first Construction Defect Action Reform Act had already established mandatory notice requirements back in 2001, but builders claimed that these requirements did not go far enough. Stakeholders on both sides of the debate agreed to support HB 17-1279 as a compromise in 2017 in hopes of spurring more condominium construction without sacrificing consumer protections.

Attorney Jesse Witt was active in negotiations over the content of HB 17-1279 at the state capitol, and The Witt Law Firm is available to assist board members and others with questions about the new requirements of HB 17-1279. The firm also maintains strategic partnerships with specialists in homeowner association elections and voting requirements, and it has construction experts available to evaluate potential claims. Please visit for more information.

Colorado Supreme Court rules that developers can retain perpetual control over HOA covenants

The Colorado Supreme Court ruled today that developers can retain control over community covenants in perpetuity by recording a covenant that requires declarant consent to any amendments. Although the Colorado Common Interest Ownership Act (CCIOA) states that such controls should be void, the court nevertheless ruled that a declarant may veto amendments that alter the dispute resolution procedures for construction defect actions at any time.

The case of Vallagio at Inverness Residential Condominium Ass’n v. Metropolitan Homes, Inc., __ P.3d __, 15CO508, arose when the community’s members discovered widespread construction defects. When the declarant developed the project, it had recorded a declaration of covenants that purported to waive the homeowners’ right to a jury trial and instead require that any construction defect disputes be resolved by a private arbitration panel. The declaration also prohibited the homeowners from recovering attorney fees and costs, and it limited the declarant’s liability for damages. Consistent with CCIOA, the declaration allowed the homeowners to amend their covenants by a 67% vote, but it recited that the declarant could veto any such amendment prior to the sale of the last unit to a homeowner. The covenants further stated that the declarant must consent to any amendment that altered the construction defect restrictions.

When the developer refused to make acceptable repairs to the defects, the Vallagio homeowners voted to amend their covenants to eliminate the restrictions and liability limitations. Their vote occurred after the sale of the last unit and passed with a 67% majority, but the declarant did not provide its consent. Shortly thereafter, the association filed suit to recover the cost of repairing the defective work and damages for violating the Colorado Consumer Protection Act (CCPA), and it demanded a jury trial. The association named the declarant as a defendant along with the community’s general contractor and two former board members.

The defendants moved to compel arbitration and argued that the homeowners’ vote was ineffective without the declarant’s consent. They further argued that arbitration clauses in homeowners’ individual purchase agreements bound the association. In response, the association asserted that the homeowners’ vote was valid, that the requirement of declarant consent was void under CCIOA’s provisions for amending covenants, that only the declarant (not the other defendants) had standing to enforce the arbitration covenants, that the homeowners’ individual purchase contracts did not bind the association, and that CCPA claims were not arbitrable. The district court agreed with the association and denied the defendants’ motion.

The defendants appealed, and a division of the Colorado Court of Appeals reversed. The division concluded that, although CCIOA prohibits a declarant from recording covenants that require more than a two-thirds majority vote to amend a declaration, CCIOA did not invalidate a covenant that required a declarant’s consent to such an amendment. The court rejected the defendants’ argument that the purchase contracts bound the association, but it held that CCPA claims could be subject to arbitration on remand. The division remanded the case for determination of whether the other defendants had standing to enforce the arbitration covenant, or whether this term only protected the declarant itself from suit.

After granting certiorari review, the supreme court affirmed the court of appeals. The court held that the provisions of CCIOA that invalidate higher voting percentages for declaration amendments did not preclude declarants from adding a separate requirement that they consent to amendments that passed with the required 67% majority. The court found support for its decision in other sections of CCIOA that require declarant consent, apparently choosing to ignore the statutory language that creates express exceptions for those situations.

The court also rejected the association’s argument that declarant-consent provisions violate CCIOA’s prohibitions on terms that favor the declarant over other unit owners. The court declined to consider the association’s alternative argument that perpetual declarant control violates CCIOA’s other provisions that impose a time limit on exercise of declarant rights, prohibit unconscionable contract clauses, and allow an association to terminate contracts with a declarant; the court found that these issues had not been fully briefed.

Finally, the court ruled that CCPA claims can be subject to binding arbitration, and that public policy does not prohibit a contractual waiver of a consumer’s right to file such claims in court.

Justices Márquez and Coats dissented from the majority. They recognized that, while CCIOA contemplates the possibility of declarant consent, the consent-to-amend provision at Vallagio evades the limitations and prohibitions of CCIOA “by effectively allowing the Declarant to grant itself permanent veto power over a supermajority of unit owners and thus unilaterally control the Association’s ability to amend the Declaration, even after the Declarant’s control period ends.” They further recognized that, while the majority’s decision arose in the context of a construction defect dispute, “its logic will permit declarants to control homeowners’ associations’ affairs into perpetuity simply by drafting self-serving provisions and then including a consent-to-amend provision that allows the declarant to demand consent to the amendment of any provision in the declaration.” This goes directly against CCIOA and the protections that the legislature enacted for homeowners.

Arbitration can be a quick, effective means of dispute resolution between sophisticated parties who choose to engage in alternative dispute resolution. Parties with equal bargaining power can specify what discovery is needed, how quickly the case must be resolved, and whether to limit administrative fees. Unfortunately, many corporations see arbitration as a way to avoid state consumer protection remedies, and they try to foist complicated, slow, costly procedures on consumers by inserting unfair arbitration clauses into form contracts. In the homebuilding context, national developers have begun to record such clauses in community declarations, giving homeowners zero opportunity to negotiate the terms or opt out of unfavorable terms. The Vallagio case provides one such example of this tactic. Unfortunately, Colorado courts have now ruled that this is permissible.

How this will affect homebuilding in the state remains to be seen. Last month,the General Assembly passed a compromise bill on construction defect litigation intended to spur housing construction by requiring homeowner association boards to provide additional notice to their members before filing suit over negligent work. This law, coupled with the Vallagio decision, may embolden some developers to cut corners on quality control and offer more cheap multifamily homes in the name of affordable housing.

Today’s decision comes on the heels of two other cases in which the Colorado Supreme Court ruled that CCIOA offers little protection for homeowners against developers who draft self-serving declarations, Ryan Ranch Community Ass’n v. Kelley, 380 P.3d 137 (Colo. 2016), and Pulte Home Corp. v. Countryside Community Ass’n, 382 P.3d 821 (Colo. 2016). The supreme court has now made clear that it will enforce covenants and statutes that benefit developers while ignoring covenants and statutes that benefit homeowners. Unless the legislature acts to strengthen CCIOA and make clear that the courts must uphold its consumer protection terms, this trend is unlikely to stop.

Colorado passes compromise bill on construction defects

Suzanne Leff speaks to the media

Attorney Suzanne Leff speaks to the media about HB17-1279, flanked by Senator Jack Tate, Representatives Alec Garnett, Cole Wist, and Lori Saine, and Governor John Hickenlooper.

After four failed attempts, Colorado legislators have finally reached a compromise on construction defect legislation.

This afternoon, HB17-1279 gained unanimous approval from the House Committee on State, Veterans, and Military Affairs. The bill is expected to pass both chambers easily and be signed into law by Governor John Hickenlooper.

Proponents say that a bill is needed spur more condominium construction in the state. They contend that homebuilders have been reluctant to construct multifamily projects in recent years based on a perceived fear that small groups of homeowners can file lawsuits in the name of their community associations without adequate the consent of other members. A 2013 study found that quality control and insurance costs only reduce homebuilder profits by a small amount, but concerns about litigation have nevertheless prompted some construction professionals to focus on constructing apartments and other products.

Many of these arguments date back to 1991, when the General Assembly enacted the Colorado Common Interest Ownership Act. After hearing testimony that there were not enough building inspectors to keep up with the fast pace of construction in the early 1990’s, legislators empowered community associations to bring suit for construction defects on behalf of their members. Since then, homebuilders have repeatedly tried to roll back these protections and reduce their exposure to liability for defective work. In 2001 and 2003, the General Assembly enacted the Construction Defect Reform Act, which requires association boards to disclose a list of claimed defects and advise their members before filing suit. Some contended, however, that these changes were not enough.

Lawmakers rejected bills requiring binding arbitration and supermajority vote requirements in 2013, 2014, and 2015. Efforts to introduce a similar bill in 2016 fell apart. In 2017, however, the stakeholders were able to agree on a compromise that assuaged the homebuilders’ remaining fears while still maintaining adequate protections for homebuyers.

With several amendments made in committee, the 2017 bill establishes several new requirements for community associations. Before an association files a construction defect suit, it must first make certain disclosures and gain the approval of 51% of its members, subject to exceptions for properties owned by development parties or banks. The association has ninety days to hold a meeting and conduct its vote, and the statutes of limitation and repose are tolled during this time. The responsible construction professionals must be allowed attend the meeting and speak to the membership. The bill provides that its requirements supersede higher vote thresholds recited in covenants or local ordinances; this should add a new and important protection for homeowners.

Speaking today at the State Capitol along with Hickenlooper and others, Community Associations Institute attorney Suzanne Leff acknowledged that this was a compromise bill with sacrifices on both sides. Nonetheless, while it may not immediately change the landscape, HB17-1279 should finally end the argument that homeowner association boards are filing lawsuits without proper notice and consent. Now, the burden shifts to the homebuilders to make good on their promise to deliver quality, affordable condominiums to Colorado buyers.

Colorado finally corrects thirty-year old flaw in construction defect statute of repose

The Colorado Supreme Court has finally settled a decades-old conundrum surrounding the state’s construction defect statute of repose.

A statute of repose is similar to a statute of limitations insofar as both restrict the time a party can bring a claim. A statute of repose period begins on a fixed date (such as the day someone finishes work on a project), while a statute of limitations period begins when someone discovers an injury (such as a defectively installed window).

In 1986, at the height of the so-called “tort reform” movement, the Colorado General Assembly voted to shorten both the statute of repose and the statute of limitations for construction defect claims. Historically, Colorado’s statute of repose had given a homeowner ten years following construction to file an action, and its statute of limitations had required that any such action be filed within three years of the date that the claimant discovered a defect. After 1986, however, these time periods changed; the new statute of repose required suits to be filed within six years of the end of construction, and the new statute of limitations gave claimants only two years following discovery of the physical manifestation of a defect to seek legal relief.[1]

Although these amendments were intended to benefit builders by shortening their exposure to construction defect claims by homeowners, they had an unexpected consequence. Based on the broad wording of the 1986 statute, courts concluded that the new statute applied to all construction defect claims against all construction professionals, including indemnity claims filed by developers against their subcontractors.[2] This was a change from prior law, which had recognized: “The virtually universal rule is that a claim for indemnity does not accrue, and therefore the limitations period does not begin to run, until the indemnitee’s liability is fixed i. e., when he pays the underlying claim, or a judgment on it.”[3]

For example, consider the following timeline. In 1987, a developer hires a carpenter to install a window on a new home under a subcontract that requires the carpenter to provide indemnity for any defects in his workmanship. In 1988, a homeowner buys the house. In 1992, the homeowner discovers that the window is leaking but does not know why. In 1994, the homeowner sues the developer for water damage. In 1995, the developer pays to repair the water damage after determining that the leak occurred because the carpenter failed to flash the window correctly. According to the subcontract, the developer should be able to demand indemnity from the carpenter for those repair costs. But under the 1986 statute, the developer’s third-party claim for indemnity would be barred because more than two years have passed since the homeowner discovered the manifestation of the defect in 1992, and more than six years have passed since the end of construction in 1988.

This result—that a claim for indemnity could accrue and expire before a developer had paid anything on the loss, or perhaps even identified what trades were responsible—came as a shock to many in the industry, and it led to “shotgun style” pleadings, in which a developer named in a lawsuit would immediately sue every subcontractor on the job for indemnity, even if many of those subcontractors had no involvement with any alleged defects.

This caused insurance premiums to rise and prompted Colorado’s first Construction Defect Action Reform Act (CDARA) in 2001. CDARA amended the 1986 statute of limitations and repose to add a new section stating that, notwithstanding the limitations and repose periods, an indemnity claim against a third party would not arise until the underlying claim was resolved, and that the indemnitee would then have ninety days to pursue an indemnity claim. In the example above, the developer would have had ninety days after settling with the homeowner in which to sue the carpenter for indemnity.

That was the intent, at least. In 2008, the Colorado Court of Appeals ruled that CDARA had only succeeded in changing the two-year statute of limitations, not the six-year statute of repose.[4] This interpretation gave developers extra time in cases where a defect had manifested early in the repose period, but it provided little relief in situations where a homeowner filed suit closer to the six-year mark. Indeed, even if developer did not have a statute of repose problem at the outset of a case, the slow pace of litigation could cause the six-year period to expire during the pendency of the lawsuit. Thus, these decisions encouraged a return to the era of shotgun pleadings that CDARA had sought to curta il. In two subsequent decisions in 2012 and 2016, the court of appeals adhered to this interpretation and ruled that the statute of repose could be even shorter for subcontractors who only worked on a discrete portion of a job.[5]

In 2013, the General Assembly voted down a bill that would have corrected this problem, citing concerns over other portions of the bill that would have weakened consumer protections for homebuyers.[6] Later attempts to amend CDARA focused on limiting homeowner rights and did not address the courts’ incorrect interpretation of the statute of repose.

Finally, however, the supreme court took up the issue in 2016. In Goodman v. Heritage Builders, Inc.,[7] the court overruled the three court of appeals decisions. The court correctly recognized that CDARA was intended to provide developers a ninety-day window following settlement or judgment with a homeowner to pursue indemnity claims against subcontractors or others responsible for the underlying damage, even if that occurred more than six years after construction.

In Goodman, a couple purchased a home from Heritage Builders in 2006. In late 2011, the couple sold to a new owner. Several months later, the new owner discovered construction defects. Unable to reach an informal resolution, he sued Heritage Builders in 2013. Heritage Builders then filed a third-party complaint for indemnity against the responsible subcontractors, but the district court entered summary judgment in the subcontractors’ favor, finding that the indemnity claims had not been filed within six years of the 2006 completion date.

Although a summary judgment order would typically be appealed to the Colorado Court of Appeals, the Colorado Supreme Court granted an original proceeding based on the novel issues presented and ordered the subcontractor to show cause why summary judgment should not be set aside. The court announced its final decision in March 2017. The court first reviewed the statutory language of CDARA and its statement that indemnity claims could be brought within ninety days of resolution “notwithstanding” the other provisions of the statute. The court then concluded that this language clearly indicated the drafters’ intent to allow developers more time beyond the six-year statute of repose to bring third-party indemnity claims. The court therefore made its rule absolute and vacated entry of summary judgment.

How this opinion will affect future litigation remains to be seen. Some have argued that a shorter statute of repose is crucial “to relieve those involved in the construction business of the prospect of potentially indefinite liability for their acts or omissions.”[8] Such a concern may be exaggerated, however, given the fact that most subcontractors’ liability insurance arises from “occurrence” policies triggered by the date of loss, not the date that a claim is made.[9] In that context, the Goodman case should not expose subcontractors to significant liability beyond the existing statute of repose period. Even if an indemnity claim was made decades after work was performed, the claimant would still need to prove that the property damage occurred during the first six to eight years following construction, or else the claim would be untimely. So long as subcontractors have paid their premiums during the statute of repose period, those policies should cover their liability, regardless of when the claim was actually made; they need not fear perpetual exposure to indemnity claims.

In sum, Goodman appears to be the solution to a thirty-year puzzle over Colorado’s construction defect statute of repose. For the time being, the issue appears to be settled. Should the legislature start tinkering with the statute again, however, then the next fix may be decades away.

[1] See Colo. Rev. Stat. § 13-80-104.  The 1986 amendments incorporated an element of accrual into the statute of repose, such that the actual period could vary between six and eight years. Discussion of these scenarios is beyond the scope of this article.

[2] Nelson, Haley, Patterson & Quirk, Inc. v. Garney Cos., Inc., 781 P.2d 153, 155 (Colo. App. 1989).

[3] Duncan v. Schuster-Graham Homes, Inc., 194 Colo. 441, 447, 578 P.2d 637, 641 (1978)

[4] Thermo Dev., Inc. v. Cent. Masonry Corp., 195 P.3d 1166, 1167 (Colo. App. 2008).

[5] Sierra Pac. Indus., Inc. v. Bradbury, ___ P.3d ___, 2016 COA 132, (Colo. App. Sept. 8, 2016); Shaw Constr., LLC v. United Builder Servs., Inc., 296 P.3d 145 (Colo. App. 2012).

[6] Colo. 69th Gen Ass. S.B. 52 (2013) “Transit-oriented Development Claims Act of 2013.”

[7] 2017 CO 13, ___ P.3d ___ (Colo. Mar. 20, 2017).

[8] Sierra Pacific, supra n.5, ¶ 26.

[9] See Jesse Howard Witt & Marci M. Achenbach, “Insuring the Risk of Construction Defects in Colorado: The Tenth Circuit’s Greystone Decison,” 90 Den. U. L. Rev. 622 (2013).