A homeowners association (HOA) is an entity that is typically organized as a nonprofit corporation. (This type organization may also be commonly called a "property owners association" or POA.) As a corporation, an HOA must file articles of incorporation, files annual Federal and State tax returns and has voting shareholders. The HOA is assigned various powers, restrictions and responsibilities by a type of real estate document commonly know as a declaration of covenants, conditions and restrictions ("Declaration" document). The Declaration document creates a "covenant-controlled community" by virtue of all home lots within the community being attached and subject to the Declaration document. The Declaration document is a public real estate document filed with the county clerk and recorder's office. In addition to providing restrictions on the use of land and minimum requirements for maintaining land, the Declaration document contains rules and restrictions on how the HOA is operated.
The HOA's articles of incorporation establishes the shareholders of the HOA as the owners of all homes located within the covenant-controlled community created by the Declaration document. So, when you buy a house in a covenant-controlled neighborhood, you also automatically become a shareholder of the HOA corporation. Regardless of how many residents live within a house and regardless of how many people jointly own a house, each house is assigned one vote when voting on HOA matters. Per CRS 38-33.3-301, HOA membership is restricted to owners of lots in the common interest community. Thus, renters or non-owner residents in a household do not have the power to vote on HOA matters.
An HOA is a private entity managed by a board of directors elected by the members of the HOA. All facilities owned by an HOA are privately owned facilities for the benefit of the members of the HOA.
The articles of incorporation for all HOAs are public documents filed with the Colorado Secretary of State. The purpose of the articles of incorporation is to document the basic legal and ownership structure of the entity, the primary purposes and powers of the entity and procedures to dissolve the entity. Articles of incorporation rarely contain rules and procedures governing the operation of the HOA corporation and its board members.
Generally, the bylaws of an HOA corporation establishes the rules and procedures that govern the operation of the HOA corporation and its board members. Unlike articles of incorporation, corporate bylaws are not publicly accessible documents. The bylaws can only be modified by the vote of homeowners who are shareholders in the HOA. The HOA Board does not have the authority to modify or amend the HOA's bylaws. The bylaws typically do not address specific procedural and operational issues. Such issues are addressed by written policies adopted by the Board.
Within the Colorado Common Interest Ownership Act (found within article 33.3 of title 38 of the Colorado Statutes), section 306 requires all HOA corporations to include rules in its bylaws that at a minimum address the following issues:
For HOAs where 30 or more units comprises the total shareholders of the HOA, CRS 38-33.3-306 requires the HOA bylaws to include the following provisions:
Board policies are designed to address specific procedural and operational issues that are not otherwise specifically addressed by the HOA’s bylaws, articles of incorporation or the declaration document. To avoid confusion, board policies should be documented as written policies. Unlike articles of incorporation, written board policies are not publicly accessible documents. Board policies must be adopted by the majority of directors serving on the board. The Board may be required to provide advance notice to the homeowners regarding proposed Board policy changes, but homeowners do not get to vote on proposed board policy changes.. If homeowners disagree with the written policies of the HOA Board, the homeowners' primary recourse is to vote to remove and replace the directors serving on the Board.
Within the Colorado Common Interest Ownership Act (found within article 33.3 of title 38 of the Colorado Statutes), section 209.5 requires all HOA corporations to adopt the following nine "responsible governance policies":
Collection of unpaid assessments;
Handling of conflicts of interest involving board members;
Conduct of meetings, which may refer to applicable provisions of the nonprofit code or other recognized rules and principles;
Enforcement of covenants and rules, including notice and hearing procedures and the schedule of fines;
Inspection and copying of HOA records by unit owners;
Investment of reserve funds;
Procedures for the adoption and amendment of policies, procedures, and rules;
Procedures for addressing disputes arising between the association and unit owners; and
When the HOA has a reserve study prepared for the portions of the community maintained, repaired, replaced, and improved by the HOA; whether there is a funding plan for any work recommended by the reserve study and, if so, the projected sources of funding for the work; and whether the reserve study is based on a physical analysis and financial analysis.
If the HOA fails to adopt the above policies, Colorado statutes may limit the powers of the HOA to (1) enforce homeowner compliance with the CC&Rs and (2) collect unpaid assessments from homeowners.
A metropolitan district (aka "metro" district) is a quasi-municipal corporation and political subdivision of the State of Colorado. In other words, metro districts are governmental entities recognized by the State of Colorado. Although the creation of a metro district must be approved by the city in which the metro district's boundaries will be located, a metro district is a financially and politically independent entity from the city that authorized the creation of the metro district. (If the boundary of the metro district does not reside within a city or town, then the county commissioners must authorize the creation of the metro district.)
Before an organizational election can be held by the landowners in a proposed metro district, the Municipal Government in which the metro district will be located must approve the district’s proposed service plan. A metro district service plan delineates the powers and responsibilities of the district authorized by the Municipal Government. Municipal Governments cannot authorize powers to a metro district beyond the powers allowed for special districts under the Special District Act (Title 32 of the Colorado Revised Statutes). Thus, Municipal Governments determine which powers allowed under the Special District Act may be exercised by metro districts. Typically, Municipal Governments ensure the powers allowed to be exercised by the metro district per the district’s service plan do no overlap or interfere with the powers the Municipal Government desires to exclusively retain and exercise. State laws prohibit Municipal Governments from transferring to metro districts certain powers reserved exclusively for Municipal Governments (for example, police powers).
In 1992, the Taxpayer Bill of Rights (aka TABOR) was approved by Colorado voters as an amendment to the Colorado Constitution. TABOR is located in Section 20 of Article X ("Revenue") of the Colorado Constitution. As applied to metro districts, TABOR requires metro districts obtain voter approval before issuing debt, increasing mill levies or increasing tax revenue.
Corporate-controlled metro districts do not act like legitimate governments and the "voters" of such metro districts typically vote to unanimously approve such metro districts to issue hundreds of millions (and in some cases billions) in debt to fund the construction of public infrastructure that is budgeted to cost a small fraction of the debt authorized to be issued by the District. No legitimate governments have ever asked voters to authorize the issuance of debt where the annual principal and interest payments would far exceed the total annual income generated by the current and future taxpayers living within the district. And, no legitimate voter base would ever authorize their government to issue debt that requires annual debt payments that exceeds the taxpayers annual income.
The following statutes are relevant to Colorado metro districts:
The following chart provides a high-level overview of several important differences between using an HOA versus a metro district to provide services to a neighborhood.
Financial Powers / Process
|Can generate revenue through property tax assessments?
|Can generate revenue through flat fee assessments?
|Power to "tax" homeowners
|The annual budget is automatically ratified unless 50.1% of all lots vote against the proposed budget. Regular assessments proposed by the HOA board (regardless of the amount) that are not vetoed by homeowners becomes a legally binding debt on the homeowners.
|Proposals to increase taxes above voter authorized limits requires approval of a simple majority of district residents who cast a vote via the mail-in ballot election process. Property taxes assessed within the voter-established limits are a legally binding debt on the homeowners.
|Power to borrow money
|Yes, with voter approval
|Yes, with voter approval
|Assessments are charged to
|The owners of the property
|Home buyers inherit the debts of the prior homeowners?
|No. Debts owed to the HOA by the prior homeowner remains attached to the prior homeowner.
|Yes. Debts owed to a metro district remains attached to the property - regardless of a change in ownership of the property.
|Unpaid monthly HOA dues for up to 6 months has a priority lien on the homeowners' property above the home mortgage. Any other amounts owed to the HOA could be wiped out through bankruptcy or foreclosure.
|Any amounts owed to a metro district has a priority creditor status over home mortgages or any other liens attached to a property. Only Federal and State income tax liens have higher priority over metro district liens.
|Collection success rate
|HOAs regularly collect less than 100% of assessments and write offs are higher during recessions
|Districts historically collect close to 100% of assessments [Note A] regardless of whether the economy is in a recession
|Collection fee arrangements are established between HOA and management companies and collection attorneys. Costs are higher compared to metro districts but can be offset by charging homeowners late fees and interest on past due balances.
County treasurers collect property tax assessments and charge a fixed collection fee equal to a % of gross property taxes collected. The % fee is established by Colorado statutes and ranges between 1.0% and 5.0%. [Note B]
[CRS 30-1-102(1) and 30-1-101]
Voting Powers / Process
|Voting power distribution
|One vote per household within the HOA
|Each registered voter living within the metro district plus all individuals living outside of the metro district who (1) own property within the metro district and (2) are registered to vote in the State of Colorado
|Vote in person or by proxy at the HOA annual or special meetings
Mail-in ballot elections that must follow State election law per CRS 1-13.5
(No need to attend an election meeting or assign over voting power to others via a proxy form)
Financial Assistance / Opportunities
|State tax subsidy (funded from vehicle registration fees collected throughout Colorado)
|The annual subsidy is set by the State and is based on total registration fees collected each year. The annual subsidy is allocated to each county based on a formula of total state road miles within the county divided by total state road miles within the state. [Note C]
|Great Outdoors Colorado grant program
|No eligible to apply
Eligible to apply
(Check service plan to ensure city has not restricted eligibility)
|County parks and open space grant programs
|Not eligible to apply
Eligible to apply
(Check service plan to ensure city has not restricted eligibility)
Transparency with Homeowners
|Audited financial statements
Not required unless (1) the HOA has annual revenues or expenditures of at least $250,000 and (2) an audit is requested by the owners of at least one-third of the units in the HOA.
|Metro districts must have an audit performed annually, unless the district’s revenue and expenditures are less than $750,000. Most districts with outstanding debt are also required by the lenders to have an audit performed annually.
|Oath of office required for board members?
|Primary regulatory body
HOA Division with the State’s Department of Regulatory Agencies
Note: The HOA Division has no enforcement powers.
Division of Local Government (DLG) within the State’s Department of Local Affairs
Note: The DLG has no enforcement powers
|Board meeting notification requirements to residents
Notification requirements established in bylaws, board policies and State laws
Minimum notification requirements established by board policies and State laws
[CRS 32-1-903; CRS 24-6-402]
Note A: The primary reason for the high collection success rate for metro districts is due to the metro districts' statutory liens which has priority over all bank mortgages and other liens attached to a property. To protect their claim on a property from the higher-ranking claims of metro districts, banks and other lien holders will typically ensure property taxes are paid even if the homeowner fails to pay the property taxes.
Note B: The counties of Adams, Arapahoe, Boulder, Douglas, El Paso, Jefferson, Pueblo, and Weld are counties of the second class and change a collection fee equal to 1.5% of gross property taxes collected.
Note C: For Adams County, the subsidy has historically ranged between $0.06 to $0.12 on every property tax dollar collected from homeowners. For less populous counties with less state roads such as Pitkin County, the subsidy has historically ranged from $0.03 to $0.06 on every property tax dollar collected from homeowners.
Note D: One example of county grant programs is the Adams County Open Space Grant Program which reviews in the Spring and Fall of each year grant requests for financial support to acquire or improve public open spaces.