Suing an HOA can be tricky
If you are like most Summit County property owners, you belong to a homeowner association (HOA), which exists to enforce a recorded declaration of restrictive covenants. HOAs play an important role in maintaining community standards, but what happens when an owner feels that the HOA is exercising its power too broadly? Factors for a homeowner to consider carefully before commencing litigation against his HOA include the following: The homeowner must incur his own attorney fees and costs in any dispute, while an HOA can spread those expenses among all its members. In addition to paying his own expenses, a homeowner may have to pay his share of the HOAs litigation expenses in the form of assessments. An HOA may receive the benefit of a free defense provided by insurance, which can be a disincentive to the HOA settling a dispute. In the event that a homeowner obtains a judgment against his HOA, the HOA can potentially assess the homeowner a share of what it is required to pay the homeowner in damages. Colorado law generally protects directors of an HOA from individual liability for their actions or omissions unless their behavior is wanton and willful. This limitation on liability is intended to encourage owners to participate in HOA governance, but it has the unfortunate side effect of detaching responsibility from authority, sometimes encouraging abuses of power. Directors of an HOA are not liable for conflicts of interest (such as contracting on behalf of the HOA with a company that they own) if the potential conflict was adequately disclosed and the deal is otherwise fair. HOAs can require a homeowner to submit his dispute to mediation or arbitration, delaying his ability to get a day in court.Although HOAs seem to act like tiny governments, Colorado courts have rejected the idea that owners can challenge HOAs for violating Constitutional rights. Instead, Colorado courts have found that an HOAs declaration is like a contract agreed to by the owners when they purchase their properties. As result, the homeowner should review the declaration carefully before filing a lawsuit.The Colorado Court of Appeals recently considered a declaration that specifically permitted caretaker residences and guest houses. When a majority of the owners voted on an amendment banning guest houses, an owner filed a suit alleging that the HOA violated his constitutional rights. The court rejected those claims and used principles of contract law to decide that the amendment was enforceable.This decision suggests that rights a homeowner thought were assured when he purchased his property can be taken away. As further examples, one HOA recently banned short-term rentals, even though an owner had rented out his property for years and relied on this source of income. The realties of HOA law in Colorado dictate a homeowner should consider carefully before commencing litigation against his HOA. When a homeowner takes a minority position on a given issue, the law often does not provide meaningful safeguards to protect the homeowners expectations. Often the best approach is diplomacy, or if enough owners are aggrieved, they can try to vote the bums out of office using proxy votes obtained from other owners. Noah Klug is an attorney with Bauer & Burns, P.C. in Breckenridge. He may be reached at (970) 453-2734 or Noah@BreckenridgeLawyer.com.
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