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COLORADO REAL ESTATE JOURNAL
— May 18-May 31, 2016
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A
recent decision of
the Colorado Court
of Appeals concern-
ing the Marin Metropolitan
District formed in connection
with the Landmark develop-
ment in Greenwood Village
has sent tremors through the
real estate, financial and legal
communities. It has resulted
in legislation being introduced
in the waning days of the Gen-
eral Assembly to address some
aspects of the decision and may
result in changes in the ways
developers form districts for
new developments or redevel-
opment of existing properties.
A real estate developer caused
the district to be formed to
finance infrastructure for a new
a development called European
Village. To make the numbers
work, the developer included
in the district the Landmark
Towers condo project, which an
entity controlled by the devel-
oper was developing adjacent
to European Village. In order
to qualify electors for the dis-
trict organizational election, the
developer entered into option
contracts with six individuals.
The contracts were for the pur-
chase of an undivided one-twen-
tieth interest in a 10-by-10-foot
parcel. The contracts obligated
the organizers to pay taxes
on the parcel. While the con-
dos were being developed, the
developer entered into purchase
and sale contracts (which did
not obligate the buyers to pay
taxes until closing) with about
130 buyers. On Nov. 6, 2007, the
election was held. The six vot-
ers approved the organization
of the district, the initial board
of directors and the issuance of
debt and the levy of taxes. No
notice of the district or the elec-
tion was provided to the con-
tract purchasers of the condos.
The closings of the sale of the
condos occurred after the elec-
tion. In 2008, the district issued
$30.49 million of bonds. About
$8 million was initially released
for use by the district but a por-
tion of the proceeds was mis-
used by the developer. The Tow-
ers received no benefit from the
bond issue. The condo owners
association brought an action to
recover taxes paid during the
last four years and to enjoin the
levy of future
taxes.
The
court ruled in
favor of the
owners.
There are
two principal
holdings in
the decision.
First, the con-
tracts which
the developer
entered into
with the six
individuals to
qualify them to vote at the elec-
tion were sham contracts and
thus insufficient to qualify them
to vote. The court held the con-
tracts were a sham for the fol-
lowing reasons: The parcel size
was so small as to not have any
beneficial use; the obligation to
pay taxes was illusory since the
contracts waived any right to
seek specific performance or to
seek damages; there was testi-
mony that the organizers agreed
that no one would have to pay
taxes; none of the organizers
paid the down payment; none
of the organizers paid property
taxes; and none of the contracts
were recorded. The second prin-
cipal holding was that the con-
tracts with the 130 condo pur-
chasers were sufficient to qualify
them to vote even though the
contracts did not obligate the
purchasers to pay property taxes
until the closings on the condos,
at which time the property taxes
for the year were pro rata. As
a result, the court held that the
election was not validly held
because ineligible voters partici-
pated and the constitutionally
required notice of the election
was not given to the condo pur-
chasers.
The court’s decision is not lim-
ited to the unique and bad facts
of the Landmark case. The con-
cern that many in the real estate,
financial and legal communities
have with the decision is that
many districts have been formed
over the years by a developer or
property owner qualifying elec-
tors through the use of purchase
and sale contracts which have
some of the characteristics to the
contracts used in the Landmark
case. As a result, there has been
concern that the elections held in
many districts could be invalid
as well.
Immediately after the court’s
decision was published April
21, the market for metropolitan
district bonds essentially shut
down. There were at least six
transactions scheduled to close
in the days following April 21
that did not close. There were
also many transactions being
readied to come to market,
which were put on hold.
In response to the decision, a
group of concerned profession-
als in the legal, real estate and
financial sectors began work on
a legislative solution to at least
part of the concerns with the
breadth of the court’s decision.
This resulted in the introduction
in the General Assembly of Sen-
ate Bill 211. The bill validates the
qualifications of all persons who
have voted at previous district
elections (except where such
qualifications are currently the
subject of litigation) and it vali-
dates the qualifications of per-
sons who have previously been
appointed to or elected to serve
on a district board (except where
such qualifications are currently
the subject of litigation). This bill
has been approved by the Gen-
eral Assembly and is awaiting
the governor’s signature. Once
the bill becomes law, the market
for special district bonds will
again begin to function. Law-
yers involved in such transac-
tions will, however, perform
extra diligence to determine that
at the time of the relevant elec-
tion there was no one like the
Landmark 130 condo contract
purchasers who could assert
that they were denied the right
to vote at the election.
For elections conducted in the
future, lawyers will likely find
ways to qualify electors that dif-
fer from the contracts used in
the Landmark case. It is also
possible that there may be leg-
islation in the next session of
the General Assembly to make
changes to laws on elector quali-
fications for district elections.
And it is possible that the defen-
dants in the Landmark case will
appeal to the Supreme Court.
s
Dee Wisor
Attorney, Butler
Snow LLP, Denver
