BUILDING MOMENTUM: Some city, state lawmakers say affordable housing hinges on limiting lawsuits

AURORA | Gas leaks. Water-damaged walls. Crumbling facades. Welcome home.

The presence of just one of those issues equals a headache for any homeowner. But when all three happen at the same time, the situation gets nightmarish — fast.

Unfortunately for Brian Matise, that terrible trifecta was a daily reality for many residents of The Flats at Fulton Court in Aurora when he was the chairman of the five-member board of the development’s homeowners’ association 10 years ago.

“When the gas fireplaces would be burning, it would vent right into the units so you would have this noxious odor, which made it impossible to operate the fireplace,” Matise said. “Other complaints ranged from water intrusion to mold to the artificial stone on the side of the buildings falling off — if you spend close to $200,000 on a condo, you don’t expect it to look like it’s falling apart.”

Inundated with complaints, Matise filed a class-action lawsuit against the developer of the 136-unit Aurora complex, the now defunct DelWest Developers, in 2006 — a case he helped win three years later. He said had he not been able to file the lawsuit, the nearly $1 million needed to fix the Flats development constructed in 2001 would have instantly drained his HOAs reserve fund and resulted in saddling each homeowner in the development with an assessment between $5,000 and $10,000.

“These are not minor inconveniences, these are problems that are expensive for the HOA to fix on their own,” Matise said. “New HOAs that have just been created by developers don’t have the resources to pay for these problems on their own, and they are resulting in homeowners walking out on properties, foreclosure and failure of the HOA.”

For Matise, those difficult conclusions never came to fruition. But a pair of bills currently working their way through the Colorado Legislature take aim at the feasibility of lawsuits like the one Matise filed nearly a decade ago.

Co-sponsored by Senate Majority Leader Mark Scheffel, R-Parker, and Jesse Ulibarri, D-Commerce City, SB 177 would make it more difficult for owners of single and multifamily homes to sue builders for shoddy or inept construction. If passed, the bill would require the approval of the majority of property owners in a condo complex, as opposed to just the majority of the homeowners’ association board, to pursue class-action litigation for construction defects. The measure also largely negates any possibility of collective legal action for condo owners, and instead would require that disputes be settled through arbitration or mediation.

Proponents of the bill say that if passed, it would reignite a largely stagnant affordable housing and condo market across the metro area.

“This is one of the few issues where we would prefer that the state would take a leading role on it because for us, we immediately would start implementing new builds if it did come through,” said Meghan Dollar, legislative and policy advocate for the Colorado Municipal League. “Our biggest focus is getting back on track more diverse and affordable housing options and we just don’t see that right now.”

Builders say that insurances costs are too high to build multi-family projects because it’s too easy for unhappy homeowners to sue and win in Colorado.

Over the past several years, construction of multi-family, owner-occupied housing in the metro area has dropped from about 25 percent of all development down to about three percent, according to Housing Colorado, a Denver-based membership association for the affordable housing industry. The same organization reports that home values rose by approximately 15 percent in the metro area last year alone.

Aurora City Councilwoman Molly Markert echoed Dollar’s thoughts on the importance of the Legislature spearheading the bill as opposed to various municipal solutions being patched together across the metro area. Aurora’s Public and Governmental Affairs Committee, which Markert sits on, took a position of active support of SB 177 at a meeting late last month.

Markert added that the coming light rail line, and potential multi-family housing near the line, could be hampered if the bill weren’t passed.

Reynolds pointed to seven specific TOD sites in Denver, such as 38th and Blake, 11th and Sheridan, and 25th and Stout, where developers have shied away from constructing hundreds of affordable units.

But critics of SB 177 argue that there is no empirical evidence the bill would reinvigorate the region’s affordable housing, and that it would strip homeowners of their crucial right to defend themselves against second-rate construction.

“We’ve looked deep into the Division of Insurance and courts across 50 states and there is zero data that any portion of this bill will do anything to spur affordable development, none,” said State Sen. Morgan Carroll, D-Aurora. “There’s some assumption underneath the bill that basically if you take away consequences for shoddy construction that will get more units built, but using that to get units built actually hurts poorer people.”

Carroll emphasized the impracticality of the bill’s stipulation for having to obtain approval from all residents in a multi-family development in order to pursue litigation as opposed to just the majority of those in an HOA.

As board director of his HOA back in 2005, that’s a notion Matise said he knew to be painfully true.

“The current law in Colorado is that an HOA can pursue action as long as we notify everyone,” Matise said. “If we had to get approval for all the members, it would be impossible — it was hard to get a 20 percent quorum for annual meetings.”

The bills could face an uphill battle in the coming weeks as they work through the Senate and potentially head to the Democrat-controlled House, where leaders have forecast a gloomy fate. Colorado House Speaker Dickey Lee Hullinghorst has long been an outspoken critic of similar reform measures.