The overlap between metropolitan/special districts and Common Interest Communities (HOAs, POAs, condominiums, cooperatives, timeshares) (“CICs”) can sometimes be confusing. There are many similarities, but numerous differences too. As a real estate practitioner, it is important that Colorado licensees understand those similarities, differences, and where the two overlap.
The purpose of this article is not to provide you with a detailed side-by-side comparison of special districts and Common Interest Communities, but instead,
provide you, as licensees, some information to consider so that your customers are better able to understand the required disclosures and make more informed decisions.
The Colorado Contract to Buy and Sell Real Estate (the “CBS”) is used for the vast majority of real estate transactions in the State of Colorado. This document
includes mandatory disclosures for real estate located in special districts, as well as for real estate located in CICs.
In short, a special district is considered a special taxing district and is considered a local government (i.e., political subdivision of the state, which make up a third level of government in the United States). Because Colorado law limits the services that county governments can provide to residents, districts have been created to fill the gaps that may exist in the services that counties provide. The CBS discusses certain information which can be found at Paragraphs 8.4 and 8.5, but since these documents are public because the special district is a governmental entity, buyers or sellers may have to request these documents directly from the special district. The most common special district documents for buyers to review include:
A. Service Plan: A Service Plan is required for every special district. Another way to consider a Service Plan is as the charter for the special district. It sets forth
the type of district and what the territory of the district is. It also sets forth several important limitations on the district including the mill rate limit (the
taxation rate) and the amount of money a developer can incur as debt.
B. Ballot Issues: Ballot issues are important documents for a potential purchaser to review and understand. These documents explain election rules and address other issues such as debt obligations and bond issues.
The CBS also includes provisions which require disclosures at Paragraph 7 that pertain to the governing documents of any applicable CIC. Because CICs are treated as private companies, buyers and their brokers are not entitled to copies of these documents until they are under contract, but the CBS does set forth a deadline for these documents to be exchanged between buyer and sell after the CBS has been executed. Some important CIC governing documents include:
A. Declaration of Covenants, Conditions, and Restrictions: Declaration of Covenants, Conditions, and Restrictions (sometimes called “CCRs”) are a mandatory document that are created when the community was originally developed. This document may be amended, but any amendment would require the consent of a significant amount of community support. Whether amended or not, this document is filed in the Clerk and Recorder office for the county or counties where the association is located.
B. Articles of Incorporation: Associations are treated like private corporations under Colorado law, and most associations are organized as nonprofit corporations. This document, the Articles of Incorporation, is filed with the Colorado Secretary of State. The Colorado Secretary of State does have a business entity look-up tool which can be used to locate any publicly available information about an association’s business filing.
C. Bylaws: Bylaws are also a mandatory document for the association, but, unlike the CCRs, this document is not filed with the county. An original of this document also would have been prepared by the developer (in CICs, the developer is referred to as the “Declarant”).
D. Rules & Regulations: Rules and Regulations are not a required document for an association, but they are common. Colorado law gives the authority to a duly elected board to draft and implement Rules & Regulations, provided that the Rules & Regulations are in accordance with the Bylaws and the Declaration.
E. Association Governance Policies: Governance Policies are a series of documents that are required to be prepared and implemented by the board. Specifically, section 38-33.3-209.5 of the Colorado Common Interest Ownership Act (also called “CCIOA”) sets forth the required governance policies.
There are more than 4,500 special districts across Colorado and the HOA Information & Resource Center estimates that 46.9% of the total population of the State of Colorado resides in a Common Interest Community.1 Understanding that, it is statistically likely that Colorado licensees will have transactions in special districts, CICs, or both. By taking the time to review the CBS, as well as understanding the documents that govern special districts and CICs, you will be more likely to enjoy a smooth and successful closing process.
The HOA Information & Resource Center recently offered a webinar the overlap of special districts and CICs. You can review that presentation here:
https://dre.colorado.gov/recent-hoa-forums.
You can also learn more about your basic rights and responsibilities under the Colorado Common Interest Ownership Act
(“CCIOA”) and the Colorado Nonprofit Corporation Act at the HOA Center’s website:
https://dre.colorado.gov/hoa-center
