Can a metropolitan district benefit your neighborhood?

Metropolitan districts have been a form of local government in Colorado for over 50 years.  Over the years, the Colorado legislature has tweaked and modified the laws pertaining to metropolitan districts in an effort to provide a self-governance model that allows Colorado citizens to operate their own communities and neighborhoods in an efficient and openly democratic manner. However, for many homeowners, metropolitan districts remain a mystery.

As thousands of homeowners and the Colorado legislature continue to struggle dealing with the numerous seemingly inherent problems of homeowner associations (HOAs), there are several neighborhoods where HOAs have successfully consolidated into or collaborate with their neighborhood metropolitan district.

Not every covenant-controlled neighborhood can or should consolidate or collaborate with their neighborhood metropolitan district.  For example, HOAs comprised solely of multi-family units will not likely be able to operate as a metropolitan district. (Click here to lean more about our advocacy efforts on behalf of multi-family homeowners.) Also, a metropolitan district operating model will not likely be desirable for private, gated communities. (Metropolitan districts can only manage public land and assets.)

However, that being said, the financial and operational benefits metropolitan districts offer over HOAs can be significant.  Homeowner tax breaks, grant monies for capital projects and regular state subsidies of operating budgets are just a few of the benefits that can accrue to a metro district. One of the many benefits metropolitan districts offer covenant-controlled neighborhoods is the opportunity to virtually eliminate the collection battle that exists between HOAs and homeowners.

Eliminating collection problems is the key

The primary goal of Colorado homeowners associations (HOAs) is to protect and improve the quality of life and home values within covenant-controlled neighborhoods. However, the biggest obstacle to achieving that goal for most HOAs is collections. The never-ending ups and downs of homeowners' personal finances creates a continual, significant financial burden on HOAs in the form of collection costs and bad debt write-offs. Medical problems, job loss, addictions, divorce, secondary education, military service and credit card debt are just a few of the many issues that continually impact homeowers' personal finances. (On top of that, how often do you see people stretch their finances dangerously thin to purchase the maximum amount of house possible?) HOAs are continually exposed to these unpredictable credit risks as they continue to collect assessments from homeowners to fund neighborhood operations.

Money spent on collections is money that could have been spent on park equipment, new trees, pool repairs or community social events. In other words, money spent on collections is money that could have been spent improving the quality of life within your neighborhood.

 Question 1: What is the total bad debt expense and collection costs incurred by your HOA over the past 5 to 7 years?

Unlike HOAs, metropolitan districts have the ability to fund operations through property taxes--which are virtually 100% collectible due to protections provided to metropolitan districts under Colorado law. In addition, Colorado laws regulate and cap the collection rates that can be charged by the property tax collectors (i.e. the county treasurers). For the larger populated counties in Colorado, the collection fee is capped at 1.5% of gross property taxes collected. No management company, law firm or collection agency is able to provide collection services to HOAs at such low rates AND achieve a virtual 100% collection success rate.

Eliminate the Collection Distraction and Focus on the Important Issues in the Neighborhood

The significant benefits from solving the collection problems of a covenant-controlled neighborhood is not just financial in nature. For many HOAs, the collection process requires a significant amount of time and attention from its board members and management company. By solving the collection problem, board members are able to spend more of their volunteer time concentrating on addressing the quality-of-life issues within their neighborhood.

 Question 2: What percentage of your HOA board's volunteer time is directly or indirectly spent addressing collection issues?

Covenant enforcement, maintenance of recreational facilities and landscaping, long-term financial planning and community building social events are just a few quality-of-life issues that board memebers and property managers can focus on when the significant distraction of collections is eliminated.

Homeowner Compliance with Covenants Improves under a Metro District Model

Many homeowners believe the majority of covenant violations in their HOA-operated neighborhoods are attributable to renter-occupied properties. This may be true in some cases. However, for the majority of HOA-operated neighborhoods, homeowners that owe significant past-due balances to the HOA generally comprise the majority of homes with the most severe covenant violations. When you think about it, this makes a lot of sense. Homeowners who are in collections with an HOA's attorney are usually more worried about wage garnishment and home foreclosure than they are about painting the faded trim on their house, replacing a dead tree or repairing a damaged garage door. When homeowner accounts are turned over to the attorneys for collection, such homes become much more likely to incur (and fail to address) subsequent covenant violation fines from the HOA.

In many cases, we have noted homeowner attitudes towards covenant compliance diminishes significantly when their accounts are turned over to attorneys for collection. As the unpleasant collection process between delinquent homeowners and HOA attorneys drags on, the homeowners in many cases become less inclined to perform maintenance of their home exteriors and yards.

Question 3: What percentage of severe violations identified in your neighborhood are attributable to homes where the homeowners are in collection with the HOA's attorneys?

With very few exceptions, neighborhood services funded through metropolitan districts avoid the collection battles and related conflicts with their homeowners. Thus, the average homeowner response rate to covenant violation notices usually improves when collection issues are eliminated within the neighborhood. Solving the collection problem within neighborhoods does not eliminate the existence of severe covenant violations. However, by funding operations through property taxes, neighborhoods can remove certain significant root causes (e.g. the collection conflict between homeowners and their HOA) that were previously driving higher violation rates throughout the neighborhood.

Improving the Home Values

To summarize what has already been stated to this point: When the collection issues facing a covenant-controlled neighborhood are resolved, two benefits are realized. First, board members are able to spend more time addressing the quality-of-life issues impacting their neighborhood. Second, certain factors driving higher rates of covenant violations are significantly reduced or eliminated.

When board members can spend more time addressing quality-of-life issues in their neighborhood and the neighborhood's covenant violation rate is reduced, homeowners are less likely to "look for greener pastures" and sell their homes. When the rate of homes for sale in a neighborhood declines, simple economics would imply that (assuming constant buyer demand) home prices would increase. By giving homeowners more reasons to stay in the neighborhood, a covenant-controlled neighborhood will be able to achieve its ultimate goal of protecting and improving home values.

Question 4: What has been the turnover rate for homes in your neighborhood in the last 12 months? 36 months?

Again--for most neighborhoods, it all starts with fixing the perpetual collection problem.

Contact us to learn more about whether your community can benefit from your neighborhood metropolitan district!  (Click here to learn more about the free comprehensive neighborhood analysis we perform for covenant-controlled neighborhoods.)