NOVEMBER NEWSLETTER Colorado’s 2012 Wild Fires

NOVEMBER NEWSLETTER Colorado’s 2012 Wild Fires The devastating wild fires named the “High Park Fire” and the “Waldo Canyon Fire” engulfed hundreds of homes wiping out personal valuables and real property continue to make headlines. Property owners are looking to their homeowner insurance companies for “fair” settlements. Many insured property owners have high expectations and are beginning to realize the reality of insurance settlements: Disappointment is a function of expectation and coverage packages do not always meet an insured’s perceived value. Burn areas sustained varied damage to the natural environment. Structures including 600 plus homes experienced partial damage to total destruction. Claims are being estimated to reach $450 million when considering both fires. The Waldo Canyon fire invaded the city limits of Colorado Springs and destroyed 346 homes while the High Park fire burned 90,000 acres and erased 259 homes. The High Park fire damaged Lory State Park, Horsetooth Mountain Park, Pingree Park, Rist Canyon and the Poudre Canyon and invaded mountain communities with principal residences as well as mountain vacation cabins. The Waldo Canyon fire destroyed homes with a mix of custom homes, patio homes, condos and townhomes with mortgages and manicured landscapes. Now comes the next chapter: the rebuilding of entire subdivisions and developments. Current settlements with private owners may not necessarily meet replacement costs. Current owners, with limited funds, may test the protective covenants which govern the entire subdivision. A huge challenge for an HOA is to protect the value of the entire community and direct the rebuilding with the current covenants. Many property owners fear that neighbors could hire different architects and builders and thus create a mishmash of homes with clashing designs and materials as pointed out in an article dated 7-29-2012 in the Denver Post entitled “Fire and rain.” Neighborhood design review groups may be powerless to enforce the current covenants. One idea being floated is to create a special taxing district which would have greater authority than the HOA to dictate and enforce design guidelines as a community rebuilds as well as exercising the ability to borrow funds in the form of issuing bonds to pay for rebuilding an infrastructure. Remember, city and county governments are often constrained in their ability to provide the necessary infrastructure to supply the services buyers require for home ownership including:  Street improvements  Water facilities and services  Sanitation facilities and services  Park and recreation facilities  Traffic – related safety protection improvements  Transportation facilities and services  Television relay and transmission facilities and services  Mosquito control facilities and services CRS Title 32 provides for the creation of special taxing districts and metropolitan districts to fill the gap between the services a city or county are able to provide and the services residents require or desire. These districts have various financial powers including the power to tax, assess fees and issue tax-exempt bonds to pay for the improvements. The district pays for the bonds by levying a property tax on all property within its boundaries. Many developers in Colorado create special tax districts when they control and own the entire subject property for which the development is to occur. The developer creates a service plan that is either approved by city or county authorities. The builder/developer then follows a petition, election and judicial review process. The special taxing district becomes a financial mechanism for the builder/developer when bonds are issued; thereby, raising the necessary funds to pay for the infrastructure. The ultimate purchasers pay those bonds back in the form of taxes. Once a buyer purchases within a special taxing district, the buyer along with all the other owners become responsible for the debt incurred by the special taxing district. If, in the case of a sale, the purchaser reviews the “certificate of taxes due” and if they desire to perform further due diligence concerning a certain district(s), the Real Estate Commission’s real estate contract recommends contacting the county treasurer, board of county commissioners, the county clerk and recorder or the county assessor. The buyer should also contact with the Division of Local Government (303 866 2156) and order a “profile” of the subject district and then review the information about a district’s debt amount, annual payments, mill levies and services provided. Here are the questions a prudent buyer/owner may also ask:  Who governs the district?  Does the district operate and maintain facilities and improvements?  What are the outstanding amounts remaining to be paid?  How long before the debt is retired?  What authorized but unissued debt remains in the future for the district? A Special District Transparency Information sheet is a good tool of disclosure issued by the district itself listing current board members and officers. Reviewing the board minutes will also give a purchaser an insight into the daily workings of the district. Districts have over the years received additional powers from the Colorado legislature including covenant control and enforcement. Districts are becoming a popular tool for the developer, not only to raise funds and build infrastructure, but to manage and control the development after completion. Dues are paid by the owners to a taxing district, not to an HOA....thereby permitting a further tax deduction for the owners within the district. Existing HOA’s may also take advantage by converting to a special taxing district when existing improvements are to be repaired or replaced or improved. Funds could be raised without incurring huge assessments upon the current owner/members by issuing bonds to be paid back over many years. By Ron Childs