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Modern Neighborhood

Board Newsletter | Issue 2
July 2023

Legislative Summary

2023 Legislative Session Summary
Key Updates Affecting HOA Communities

Judge's Gavel on Books

The Colorado legislature passed several bills this session that impact communities in Colorado. A full summary of and recommended actions for the 2023 bills were sent to all board members last month, however, we thought it was important to provide a quick summary of the laws that impact communities.

SB23-178 Water Wise Landscaping – Effective August 9, 2023

  • The bill amends CRS 38-33.3-106.5 to address xeriscaping and landscaping.

  • Affects Single Family (detached) communities.

  • These communities cannot prohibit the use of xeriscape, artificial turf, or drought-tolerant or nonvegetative landscapes that provide a ground covering to: property owned by or for which the owner is responsible; to  a limited common element for which the owner is responsible; or any tree lawn or right-of-way for which an owner is responsible.

  • Single Family communities are required to select and preapprove 3 water-wise garden designs in front yards for owners to choose from. Communities may select from designs already created by Colorado State University (https://plantselect.org/design/downloadable-designs/ ) or another entity that creates such designs.  If HOA creates its own, it must comply with principles of water-wise landscaping.

  • HOA must revise guidelines which:  do not prohibit artificial turf in the backyard;  do not unreasonably require use of hardscape on more than 20% of the landscaping area on the property;  allow for installation of at least 80% drought-tolerant plants; and do not prohibit vegetable gardens in the front, back or side yard of the property.

HB23-1105 Homeowners’ Association and Metropolitan District Homeowners’ Rights Task Forces - Effective May 24, 2023  

This bill establishes a task force to examine issues impacting certain homeowners’ rights in HOAs and metropolitan districts, including fining practices, foreclosure practices, communications, and document availability.  The task force is to be appointed by August 1, 2023.  All homeowner associations are required to notify their owners about the task force before the task force holds its first meeting.  The new law does not say when this first meeting occurs, nor does it mandate how notice is to be sent. Advance HOA Management notified all community owners of this task force as required by the bill.

HB23-1233 Electric Vehicle Charging and Parking Requirements - Effective May 23, 2023

In addition to amending other statutes regarding electric vehicle charging stations, this bill expands upon CCIOA, which already allowed owners to install level 1 or level 2 electric vehicle charging stations on or in their unit or their limited common elements, subject to certain limitations.  Under the new law, owners will be allowed to install these charging stations not only on or in their units or limited common element parking areas, but also in an assigned or deeded parking space assigned to a unit and a parking space accessible to both the owner and other owners.  The new law also prohibits any restrictions based on whether the vehicle is a plug-in hybrid vehicle or plug-in electric vehicle.

 

If you have questions or would like further information on the 2023 Legislative actions, please reach out to your Community Manager. 

Insurance

An Update on HOA Insurance in Colorado
Insurance Basics and the State of the Industry 

Image by Tierra Mallorca

Catastrophic and severe weather in Colorado is creating unprecedented turmoil in the insurance market for HOAs in Colorado. This is compounded by rapidly increasing construction costs, rising property values, supply chain disruptions and general economic inflation.  Many of our HOA partners are experiencing significant increases in premiums.   We want to remind our Boards about the basics of HOA insurance and provide an update on the market. 

The Basics: What insurance is the Association supposed to carry?

Associations are required by their governing documents and state law (Colorado Common Interest Ownership Act) to have specific types of insurance. The main types of insurance coverages and recommended limits (unless specified in the governing documents) are as follows:

  • Property Insurance: Association must maintain property insurance on the common elements for broad form covered causes of loss. This insurance must be for not less than the full insurable replacement cost of the insured property, less applicable deductibles. Recommended coverage limit depends on value of property.

  • Liability Insurance: Association must maintain commercial general liability insurance against claims and liabilities arising in connection with the ownership, existence, use or management of the common elements. Recommended coverage limit of $1,000,000 each occurrence; $2,000,000 aggregate.

  • Fidelity Insurance: This type of insurance covers misdeeds by officers, directors, and Association employees. CCIOA requires Associations maintain fidelity insurance of at least two months of operating expenses, plus reserves.

  • Non-Owned Automobile Liability: Even if an Association has no automobiles, a Board member or committee member driving while on Association business is covered if the Association has such coverage. This can be secondary to the driver’s primary coverage. Recommended coverage limit of $1,000,000.

  • Umbrella: Extra layer of insurance that provides additional protection beyond existing limits of other policies. Recommended coverage limit of $5,000,000.

  • Workers Compensation: Statutory coverage for employees who are injured or become injured or ill ‘in the course and scope’ of their job.  This is important coverage even for communities that do not have employees.  It is important to have a policy that includes coverage for board members and volunteers.

  • Directors and Officers (D&O): D&O policies cover some but not all negligent acts that allege mismanagement of association affairs. Recommended coverage limit of $1,000,000.

  • Additional Important Endorsements:  These are optional but important for certain items that may be excluded in the standard policy. Examples are equipment breakdown, ordinance and law, and sewer & drain backup.

  • Flood:  If located in a flood zone, lenders will often require the association to obtain flood insurance.

 

We recommend that you schedule a meeting annually with the insurance broker to review the policies.  Also, we recommend that if the community is a condominium or other attached home communities, that an Insurance Responsibility Chart and policy be in place that defines who is responsible – the Owner or the Association. Whatever can be put in place to ensure both the Board and the members understand who is responsible, the procedure for submission of a claim, and who is responsible for paying deductibles is incredibly valuable.  Work with your legal counsel for guidance!

What insurance should the homeowner carry?


Typical policies for homeowners are listed below.  Owners must work with their own insurance brokers to ensure they are properly covered.  

  • HO-3 or HO-5 Policy: Typical homeowners’ insurance for those who own a single-family unit. 

  • HO-6 Policy: Homeowners’ insurance for those who own a condominium or co-op unit. This policy can cover liability claims, damage to condo unit and belongings, and additional living expenses for displacement.  This policy also includes loss assessment (owners should confirm their loss assessment coverage does not contain exclusions or restrictions on deductible recovery assessments) and it is recommended that owners obtain $50,000 in coverage.


How has the insurance market changed and what is the impact on community associations?

Since 2019, insurance has increased an average of 52%. Rates are increasing due to the number of natural disasters (fire, flood, hail), inflation and profitability struggles within insurance companies, a hardening reinsurance market, properties being underinsured and increasing coverage (Marshall fire showcased this), the number of claims made by the Association, and the location of the property. Beyond these weather and insurance market dynamics , increasing construction costs and supply chain disruptions are contributing to increased premiums. As a result, many carriers have backed out of the Colorado insurance market. This means that fewer carriers are willing to insure communities and the market is becoming more consolidated amongst a small group of carriers. Ultimately, these factors have contributed to huge increases in premiums. 

How can the Association combat huge premium increases?


The Association has a few options should the increases in insurance premiums go beyond the budgeted amount:

  • Special Assessment or Revising the Budget: Look at your governing documents to determine whether the Association can special assess for insurance. Most documents allow this. A special assessment could involve a meeting, specific approval process by the membership, or even a budget change to incorporate the Special Assessment. Keep in mind, the approval process can take time, so start planning early. 

  • Loan: Look at your governing documents to determine whether the Association can obtain a loan for the insurance premium. Most Associations allow the Board to borrow money. A loan could involve an approval process by the membership and there are qualifications the Association needs to meet to obtain a loan (i.e., cannot have over a certain number of delinquencies, any litigation, etc.). Obtaining a loan will also require Board members to submit information in the application process. 

  • Borrow from Reserves: The Association could take a loan from Reserves to help pay for insurance. Monies borrowed from Reserves should be paid back so plan on including additional monies in your normal monthly transfer to Reserves and ensure you budget accordingly. You do not want to risk liquidating your Reserve bank account and not having money for emergencies or other capital improvement projects. 

  • Changing the Governing Documents: Work with the Association’s legal counsel on amending the governing documents to move certain insurance responsibilities to the Owner. This can be done even in attached unit communities with shared walls. It can be easier for owners to obtain insurance coverage for just their unit as the risk on the insurance company is lower than insuring the entire community. Review your governing documents to know the amendment process. This is a lengthy process, so plan ahead. 

Wildfire Mitgation

Wildfire Mitigation
Reducing the Risk to Your Home and Community 

Image by Steve Adams

Living in Colorado, one of the main attractions to the area is its exquisite natural beauty and quiet, forested setting. With the abundance of trees and native plants, Colorado’s landscape offers a unique environment that must be preserved. However, due to the richness of natural growth in the State, one of the biggest risks we face is wildfire. We can’t prevent all wildfires, but we all share a responsibility to reduce our risk by adapting to those wildfires.

What is wildfire mitigation?
Wildfire mitigation is the implementation of a variety of precautionary measures taken before a wildfire ignites to reduce its severity and negative impacts, such as the destruction of homes and buildings. Mitigation can protect a property, so it requires little or no assistance from firefighters, which allows them to focus their efforts on extinguishing the fire. 

Are we at risk?
Colorado faces the largest increase in homes and businesses threatened by wildfire of any state in the nation, and the threat of wildfires will only increase exponentially across Colorado in the next 30 years. The most at-risk properties are in El Paso, Douglas, and La Plata counties, but rising temperatures and drought conditions are increasing the risk across the state. Vegetation and fuel sources, possible ignition sources, and topography and weather all impact an area’s vulnerability.

What can we do?
In an effort to preserve each community’s landscaping, and even individual homes, there are several tips to help mitigate the risk of a fire within the community, and therefore, protect each homeowner’s property. These are steps you can take with your individual property to help with fire reduction. We do urge homeowners to take necessary steps to help with mitigation. 

See the below for a brief overview of helpful tips for homeowners and Associations. While the following information is not exhaustive, and strategies and laws vary by region, homeowners and communities can use it as a rough guide.

  • Consider having a Risk Reduction Specialist from the local fire district attend a meeting and discuss fire safety with the Board and community. 

  • Landscaping tips:

    • Remove dead leaves and needles from gutters regularly.

    • Remove dead leaves and needles from base of exterior walls and from under decking.

    • Mow grass and weeds to a height of 4” or less. Create beauty bands surrounding native areas.

    • Mow or treat shrubs that re-sprout aggressively every 3-5 years or more depending on growth rates.

    • Remove branches that hang over the roof/chimney. 

    • Thin and prune dead plants and remove ladder fuels beneath trees.

    • Avoid creating continuous areas of wood chips on the ground. 

    • Plants that contain flammable resins, saps and oils are bad choices to have within 30 feet of homes. These “bad” plant species include Gambel oak, juniper, Pfitzer, cedar, arborvitae, Mugo pine, piñon pine, Austrian pine, and bristlecone pine, as well as decorative conifers such as Alberta or Norway spruce. They dry and vaporize quickly, which makes them vulnerable to igniting quickly. They also release significant heat.

  • Building tips:

    • Place charging devices on a solid nonflammable surface. 

    • Check for loose outlets. Fires can start inside walls when electrical connections are not solid.

    • Replace damaged electrical or extension cords. Pay attention to extension cords that are not designated for use outside.

    • Don’t overload outlets and power strips. 

    • Plug appliances directly into the wall. 

    • Know how to turn off electricity to your home.

    • Never put water on an electrical fire.

    • Ensure the roof has Class A fire rating.

    • Screen attic, roof, eaves, and foundation vents with 1/8in metal mesh.

    • Use tempered glass for windows.

  • Homeowner tips:

    • Register for the County’s reverse emergency notification systems. 

    • Have an evacuation plan established. It should identify a location in a different zip code where family members will meet if they are separated when an evacuation is ordered or become separated while evacuating. It also should consider options for children old enough to stay home alone on any other day, but not old enough to drive.

    • Have a designated communications plan with someone who will act as the family information officer. 

    • Inventory your home before an emergency occurs. Work with your individual insurance agent to cover the proper value of the home and contents. 

ADDITIONAL RESOURCES
•    Colorado's Wildland|Urban Interface | Colorado State Forest Service | Colorado State University (colostate.edu)
•    Colorado Forest Atlas
•    CO Strategic Wildfire Action Program | Department of Natural Resources (DNR) (colorado.gov)
•    
Xcel Energy - Wildfire Mitigation Program

 

Financials 4-23

Financials Corner
The Budget Process 

Working with Financial Documents

It’s July, which means budget season is officially upon us! Partnering with our boards in developing the annual budget is an essential task, as the budget has a direct impact on the financial and physical health of the community and property values. It is the single most important tool a community needs to manage and implement the association’s objectives effectively, while maintaining fiscal responsibility. 

Typically, two budgets will be adopted for each association: an operating budget and a reserve budget. The operating budget pays for the services that help carry out the everyday functions in the community, such as landscaping, management costs, security, insurance and taxes, utility expenses, office expenses, legal expenses, and general maintenance of common areas. 

The reserve budget is used for larger-scale capital improvement projects that don’t necessarily occur on an annual basis and are determined per your reserve study or capital improvement program. Examples of reserve expenses would be roof replacements, road and sidewalk repair, mechanical system replacements, etc. 

We recommend the below steps for boards/managers in developing the operating budget:

 

  1. Set Goals. Boards should plan for long-term goals to avoid maintenance and financial issues that could cause hardships for residents. Your reserve study is a critical tool in ensuring your community is appropriately saving and planning for current and future expenditures to maintain and replace the common elements.

  2. Review Historical Data. Examining prior year actuals helps to determine trends and anticipate future cost that may impact the operating fund. 

  3. Don’t Defer Maintenance. Include operating expenses in your budget for the upkeep and general maintenance of the community, to include painting cycles, fence repairs, siding repairs, pool furniture. This will keep your community well-maintained and aesthetically pleasing for residents. 

  4. Obtain Bids from Contractors. Don’t wait until the last minute to obtain updated pricing from your vendor partners. Begin the process early and ensure the scope of services in your contracts are aligned with your community’s maintenance requirements and goals. 

  5. Review Collections. Reducing delinquencies can save your community money. If you have collection issues in your community, budgeting for uncollectable/bad debt may be needed. 

  6. Determine Assessments. One main outcome of developing an operating budget is determining the assessment rate per unit needed to fund the expenses. We recommend always starting with expenses to estimate cost, then you can determine revenue needed and source, and if an increase in assessments or a special assessment will be required. 

 

Our managers are trained annually on budget planning and our internal procedures, but they need to partner with Board members to make sure budget deadlines are met.  Below is the timeline we are all striving to achieve for calendar year budgets.  

  1. July – Begin drafting budget and obtaining bids and add budget planning to the next board meeting agenda. 

  2. August – Present draft budget to boards.  If this requires an additional board meeting, then set the date.  Conducting a review via Zoom or Teams can be very productive.

  3. September-October – Approve final budget and establish assessment billing procedures

  4. October-November – Hold budget ratification meetings, typically in conjunction with your annual meeting.

  5. Following budget ratification – Advance HOA generates assessment billing and imports 2024 budgets.

Source – CAI Budgeting Best Practices

Source - CAI Budgeting Basics 

Covenant Enforcement
A Reminder on Colorado House Bill 22-1137 

Covenant Enforcement
Image by Petar Tonchev

Summer is in full force and with the sun comes everyone’s favorite part about HOA living – covenant enforcement. It’s been almost a year since Colorado House Bill 22-1137 came into effect and we want to remind our boards how this law works and what to expect. 

  • Notices must be sent via First-Class Mail, Certified Mail, and email: Previously, violations were not required to be sent via certified mail. This new requirement increases postage costs to HOAs.   

  • Violations must be allowed 30-day cure periods: Per the statute, owners have 30 days to cure an alleged violation before the association can issue a fine. Further, owners are allowed two consecutive 30-day cure periods before they can be sent to an attorney for action. 

Below is the standard process that the majority of Advance HOA communities have adopted: 

  • Courtesy Notice (First-Class and email): 10 days to cure, no fine after ten days if not cured. 

  • First Notice of Violation (First-Class, email, and Certified): 30 days to cure, fine after 30 days if not cured. 

  • Second Notice of Violation (First-Class, email, and Certified): 30 more days to cure, fine after another 30 days if not cured, able to send to attorney if desired.

  • Third Notice of Violation (First-Class, email, and Certified): 30 more days to cure, fine after another 30 days if not cured, able to send to attorney if desired.

Note that the law does not require a Courtesy Notice. Advance HOA Management’s default approach will be to send a Courtesy Letter before an official Notice. We’ve learned that most violations are addressed after a friendly courtesy note, and they do not need to be sent certified which will save the community additional costs. 


One exception to this timeline – Health and Safety Violations may have a 72-hour cure period.

 

  • A cure letter must be sent: If the resident cures the violation, they may provide visual evidence, and if deemed cured, the Association will send a Notice of Cure including a statement of any violation fines. These do not need to be sent as Certified mail and will be emailed and mailed. 

  • There are fine limits and no foreclosures: The total fines for a given violation may not exceed $500. Further, the law removes the ability for a community to foreclose on an owner for lack of payment on violation fines. This limits the ability for community’s to hold owners accountable for violations of the covenants. 

This is the first enforcement season with this new legislation and HOAs are still learning how courts will rule on the more ambiguous aspects of this bill and the jury is still out as to what extent it will impact a community’s ability to enforce their covenants and their costs.

Note that this law applies to HOAs and excludes Metro Districts. Metro Districts may continue to follow their existing covenant enforcement policies. 


There were two additional bills passed last year that impact covenant enforcement.


HB22-1139 – HOAs Cannot Regulate Use of Public Rights-of-way:  Associations are prohibited from regulating the use of the public right-of-way. If the streets are public, the community cannot enforce any rules related to how they are used. Yes, that means RVs can stay on the streets and the community doesn’t have the authority to issue a violation.


 HB-1314 – Towing Carrier Nonconsensual Tows:  This bill clarifies the rights of the owner of a vehicle and outlines requirements for a towing operator when a vehicle is parked on private property.  Associations are no longer allowed to tow a vehicle from a common parking area due to expired tags.  Associations are prohibited from towing a vehicle from a common parking area with less than twenty-four (24) hour notice. 
 

Please click the links below to read the House Bills in their entirety:

Information contained in this newsletter is general in nature for the purpose of education and is not intended as legal advice.
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