To make Craft Companies LLC’s new 920 single-family home Independence development southeast of Denver more affordable, Principal Tim Craft said the development will not have a homeowners association.
Instead, it will be run by a quasi-governmental organization known as a special district.
“We do see this as a trend that will continue in the master-planned community space,” Craft said.
Several lawyers such as Matthew Dalton, a partner at the law firm Spencer Fane, told Denver Business Journal that they have also seen this trend. His firm is involved in forming more than a dozen new special districts this year to run residential developments in Denver, Colorado Springs, Aurora and the areas north of Denver impacted by the growth in development spurred by the oil and gas industries.
Special districts collect revenues for services by taxing property rather than collecting homeowners association, or HOA, dues.
“The fact that taxes are collected also means that the homeowner should be able to deduct the cost of services on his or her federal income tax return, rather than paying nondeductible HOA dues,” Dalton said. “The homeowner may pay the same dollars to the district through taxes, but the actual out-of-pocket cost is approximately 30 percent less.”
A study by the real estate website Trulia found that average HOA fees increased in the Denver metro by 38.8 percent between 2005 and 2015.
Homeowners associations are legal entities that enforce the covenants, or agreed-upon rules, of a neighborhood.
In 2017, there were 8,006 registered homeowners associations in Colorado, according to the Colorado Division of Real Estate.
That’s 851 less than there were in 2013.
Natriece Bryant, the chief administrative officer of the Colorado Department of Local Affairs, said that since the passage of a law in 2004, metropolitan special districts, which are a type of special district, have had the ability to "furnish covenant enforcement,” similar to HOAs.
Of the 69 metropolitan special districts in Denver County, 27 have been formed since 2013, according to a Denver Business Journal analysis of Colorado Department of Local Affairs data on special districts.
Transparency is also an added bonus of metropolitan special districts, according to Carolynne White, the co-chair of Brownstein Hyatt Farber Schreck’s real estate department. She said many of her developer clients are exploring using special districts in lieu of HOAs, which can can be more transparent than HOAs.
“A district, once it’s formed, is a government entity that is subject to CORA, sunshine laws, government audits, budgeting laws and conflict-of-interest laws,” White said.
Metropolitan special districts can dramatically lower insurance costs for the neighborhood due to their protection under the Colorado Governmental Immunity Act. But this same immunity can limit damages for homeowners seeking to sue.
For instance, if a metropolitan special district failed to maintain a swimming pool and someone became sickened or injured, Dalton said the district’s exposure is $350,000 for injury to any one person and $999,000 if more than one is injured in the same incident.
“On the other hand, the HOA insurance coverage will be whatever the limits are, and if the HOA is underinsured, then all of the homeowners may be subject to assessment for the difference,” Dalton said. “So there are risks either way, but the limited liability is what keeps the overall insurance costs down for the district and its taxpayers.”
He added that if there is a claim against a special district under federal law, such as for discrimination, the state immunity limits don’t apply.
Craft said metropolitan special districts can be difficult to form.
“It is more complicated in terms of compliance,” Craft said. “It’s treated like a mini-town.”
But he said that the added compliance is worth it for the sake of affordability. Independence’s homes will start in the $300,000 price range, whereas Denver’s median home sale in recent months has been north of $430,000.
“As all of us are searching for ways to help with affordability and attainability,” Craft said. “Even a change to the tune of $200 a month can help potential homeowners.”
2018 Denver-Area Commercial Real Estate Brokerages
Ranked by Total dollar amount of sales brokered in the Denver area in 2017
Rank Business name Total dollar amount of sales brokered in the Denver area in 2017 1 Newmark Knight Frank/ARA, A Newmark Co. $2.61 billion 2 HFF LP $1.95 billion 3 Cushman & Wakefield $726.43 million View This List
The number of homeowners associations in the state is shrinking.