January 19, 2019

Colorado Court of Appeals: Lots Annexed by Development Were Not Annexed in Compliance with CCIOA

The Colorado Court of Appeals issued its opinion in Ryan Ranch Community Association, Inc. v. Kelley on Thursday, March 27, 2014.

Summary Judgment—Homeowners Association Assessments.

In early 2003, Charles Ochsner verbally agreed to sell John Kelley seven lots (Kelley Lots) of the Ryan Ranch property. In summer 2003, Kelley learned that Ochsner was going to sell the majority of the Ryan Ranch property to the Ryland Group, Inc. (Ryland), the entity that would eventually create Ryan Ranch Community Association, Inc. (HOA) and record the Declaration of Covenants, Conditions, and Restrictions (Declaration). Kelley confirmed with Ochsner and Ryland the verbal agreement to purchase and received assurances that Ryland was not purchasing the Kelley Lots. The parties agreed that the Kelley Lots would not be included in the HOA.

In September 2003, Ryland and Ochsner signed a contract for the sale of parcels in Ryan Ranch to Ryland in two phases, which specifically excluded the Kelley Lots. In October 2003, Ochsner and Kelley and his wife signed a contract for the Kelley Lots. They also signed an agreement providing that (1) the Kelley Lots would not be subject to the maintenance obligations of the HOA to be formed by Ryland, and (2) Ryland would record covenants excluding them from the HOA. No such exclusion covenants were ever recorded.

The 2003 contract excluding the Kelley Lots was reaffirmed by Ochsner and the Kelleys in May 2005. However, when the Ryan Ranch Filing 2 plat map was recorded on November 17, 2005, it included the Kelley Lots. The December 20, 2005 reconveyance deed conveying the Kelley Lots from Ryland back to Ochsner was recorded, as was the Ochsner deed conveying the Kelley Lots to the Kelleys. Ryland never intended to annex the Kelley Lots into the Ryan Ranch community.

In June 2006, the Kelleys sold one of the Kelley Lots to a contractor who constructed a home and sold the lot to the Zimmermans. In September 2010, the HOA asserted that the Kelley Lots had been “automatically annexed” to the HOA and sought to recover past assessments, penalties, and fees from the Kelleys and the Zimmermans. Defendants counterclaimed for a declaratory judgment that Ryland had not annexed the Kelley Lots in compliance with the Colorado Common Interest Ownership Act (CCIOA) or the Declaration, and asserted principles of equitable conversion operated to preclude the transfer of the Kelley Lots from Ochsner to Ryland.

The HOA moved for summary judgment and defendants requested the court to determine as a matter of law that the Declaration did not apply to their properties. The trial court granted the HOA’s motion and denied defendants’ motion.

On appeal, defendants’ argued it was error to grant summary judgment to the HOA because: (1) the Kelley Lots were not annexed in compliance with CCIOA; (2) Ryland did not annex the Kelley Lots in compliance with the Declaration; and (3) Ryland did not “own” the Kelley Lots at the time of the alleged annexation. The Court of Appeals agreed with the first argument and did not address the others.

CCIOA was the controlling statute in this case and prevails over the Declaration. To exercise a development right under CCIOA, a developer must comply with the plat and map requirements of CRS §38-33.3-209 and the recording requirements of CRS §38-33.3-217(3).

Defendants argued that to exercise a reserved development right, CCIOA requires the recording of an amendment to the declaration that must contain certain information and be properly indexed. The Court agreed that the recording of the Official Development Plan and the Declaration was not sufficient to meet these requirements. The original Declaration cannot logically be considered an amendment to itself such that it could annex the Kelley Lots. Moreover, nothing was denominated as an amendment, nothing assigned indentifying numbers to newly created units, there was no reallocation of interests among all units, and no common elements were described. Nothing on the Filing 2 plat map subjected the described property to the Declaration.

The Court’s determination resolved the HOA’s claims for breach of contract, recovery of unpaid assessments, and foreclosure of liens. However, it did not resolve the unjust enrichment claim. On remand, the trial court was ordered to revisit that claim. Attorney fees were awarded to defendants as prevailing parties under the Declaration and CRS §38-33.3-123(1)(c).

Summary and full case available here.

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