November 19-December 2, 2014 —
COLORADO REAL ESTATE JOURNAL
— Page 23
Law & Accounting
W
hen the Colorado
real estate market
was booming in
the early years of the prior
decade, developers executed
and recorded documents – dec-
larations – creating certain cov-
enants, conditions and restric-
tions on new real estate devel-
opments.
These declarations were sin-
gle-party “agreements” creat-
ing residential condominium
regimes and planned commu-
nities. The declarant, as defined
in these declarations, concur-
rently organized and incorpo-
rated nonprofit associations to
act as an owners association
for the real estate development.
In most instances, the decla-
rations stated that the declar-
ant intended to develop the
property in accordance with
the Colorado Common Inter-
est Ownership Act. Although a
detailed discussion of CCIOA
is beyond the scope of this
article, the creation of common
elements and the ownership of
those common elements have
created current-day headaches
for a variety of parties.
First, lenders that may have
acquired the property through
foreclosure or deed-in-lieu of
foreclosure may discover that
it does not own landscaping
tracts or roadways to access
platted lots. Second, poten-
tial buyers, often from lenders
as contract sellers, determine
during due diligence that they
must purchase the common
elements from the original
declarant in addition to the
developable lots. Third, associ-
ations may receive notice of tax
liens or tax sales of common
elements ostensibly owned by
the association but title con-
tinues to be in the name of the
original declarant.
Initially, lenders failed to
require the borrower to deliv-
er an assignment of declarant
rights as part of the collateral
securing acquisition or con-
struction loans at loan origi-
nation. The legal description
on the deed of trust typically
describes the platted lots as col-
lateral and does not include the
common elements. Then, lend-
ers that may have acquired the
property through foreclosure
or deed-in-lieu of foreclosure
subsequently discover that the
bank did not acquire title to
the landscaping tracts or road-
ways tracts that provide neces-
sary access to platted lots. Sub-
s e q u e n t l y,
lenders failed
to
require
d e f u n c t
b o r r o w e r s
to
deliver
assignments
of declarant
rights in con-
nection with
f orec l osure
actions
or
deed-in-lieu
transactions.
Co l o r a d o
statute de-
fines “Special
Declarant Rights” as reserved
rights that benefit the declar-
ant, specifically, to complete
improvements indicated on
plats and maps filed with the
declaration; to exercise any
development right; to main-
tain sales offices, management
offices, signs advertising the
common interest community
and models; to use easement
through the common elements
for the purpose of making
improvements within the com-
mon interest community or
within real estate, which may
be added to the common inter-
est community; to make the
common interest community
subject to a master associate;
to merge or consolidate a com-
mon interest community of the
same form of ownership; or to
appoint or remove any office
of the association or any execu-
tive board member during any
period of declarant control.
Further, Colorado stat-
ute requires that in order to
transfer these reserved rights,
a recorded assignment of
special declarant rights is
required. The assignment must
be recorded in every county
in which any portion of the
common interest community
is located. Without an executed
and recorded assignment, the
special declarant rights remain
with the declarant. Lend-
ers should require borrowers
to specify that the lender is
assigned the special declarant
rights exercisable upon foreclo-
sure or delivery of a deed-in-
lieu. Colorado statute permits a
lender to succeed to all special
declarant rights and declare in
the assignment that lender is
holding the rights solely for
transfer to another person. If
the lender simply holds the
special declarant rights, then
the lender will not be subject
to liability or obligations of the
declarant.
Then, potential buyers, often
from lenders as contract sell-
ers, determine during due dili-
gence that they must purchase
the common elements from the
original declarant in addition
to the developable lots. Some
purchasers, searching for the
next great deal, fail to deter-
mine in due diligence that the
property acquisition did not
include all the tracts that con-
stitute, or should constitute,
common elements under the
declaration. In each instance,
the lenders and purchasers
often own islands of proper-
ty within a sea of common
elements that continue to be
owned by the original declar-
ant. Unless the lender acquired
title to the common elements,
then the potential buyer must
approach an often-disgruntled
declarant to purchase the nec-
essary tracts.
Last, associations may receive
notice of tax liens or tax sales
of common elements ostensi-
bly owned by the association
but title continues to be in the
name of the original declar-
ant. Many associations have
discovered that the declarant
failed to deed the tracts to the
association. Relying on dedica-
tion language in recorded plats
and development plans, associ-
ations mistakenly believe that
common elements are owned
by the association. In the mean-
time, taxes continue to accrue
and remain unpaid on land-
scaping and roadway tracts.
Colorado common law states
that dedications on a plat can
only be made to public entities,
so any dedication to an asso-
ciation is ineffective to convey
ownership of the common ele-
ments to an association. An
association should confirm that
it has a recorded deed from the
declarant for the common ele-
ments to the association.
Lenders, potential buyers
and associations all are experi-
encing issues arising from the
recession and developer failing
to convey common elements
to an association before the
developer lost the property in a
foreclosure action or conveyed
the property by deed-in-lieu.
The ownership of these com-
mon elements is an important
detail to examine during due
diligence to acquire the lots or
for a lender to loan on these
residential developments in
the next decade.
s
Christine L.
Hayes
Director, real estate
practice group, Senn
Visciano Canges,
Denver
6400 S. Fiddler's Green Circle
Suite 1000
Greenwood Village, CO 80111
Phone (303) 796-2626
Fax (303) 796-2777
Deals. Litigation. Great Service.
Merc Pittinos
Matt Dillman
Abe Laydon
Attorneys at Law
