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FD Interests, LLC v. Fairways at Buffalo Run Homeowners Association, Inc.

Court of Appeals of Colorado, First Division

September 26, 2019

FD Interests, LLC, Plaintiff-Appellant,
v.
Fairways at Buffalo Run Homeowners Association, Inc., Defendant-Appellee, and Fairways Builders, Inc., Buffalo Run Fairways, LLC, and Fairways Homes, LLC, Third-Party Defendants-Appellants, and William D. Monhollin Trust, the Nancy L. Monhollin Trust, Janice Van Gundy, and Jennifer Van Gundy, Third-Party Defendants-Appellees.

          Court of Appeals No. 18CA0977 Adams County District Court No. 16CV31316 Honorable Emily E. Anderson, Judge

          Hatch Ray Olsen Conant LLC, Robert W. Hatch, II, Christopher J. Conant, Erica G. Behm, Denver, Colorado, for Plaintiff-Appellant and Third-Party Defendants-Appellants

          Altitude Community Law, P.C., William H. Short, Lakewood, Colorado; Fowler, Schimberg, Flanagan & McLetchie, P.C., Andrew R. McLetchie, Eden R. Rolland, Golden, Colorado, for Defendant-Appellee

          The Sweetser Law Firm, P.C., Daniel A. Sweetser, Denver, Colorado, for Third-Party Defendants-Appellees

          OPINION

          GROVE, JUDGE.

         ¶ 1 In this dispute concerning the interpretation and reformation of a residential development's common interest community declaration, appellants, FD Interests, LLC (FDI), Fairways Builders, Inc. (Builders), Buffalo Run Fairways, LLC (BRF), and Fairways Homes, LLC (Homes) (collectively, the Developer Entities), appeal the trial court's judgment in favor of appellees, Fairways at Buffalo Run Homeowners Association, Inc. (the HOA), and unit owners the William D. Monhollin Trust, the Nancy L. Monhollin Trust, Janice Van Gundy, and Jennifer Van Gundy.

         ¶ 2 The trial court concluded that the entire property, including both the developed and undeveloped portions of The Fairways at Buffalo Run (the Property), was subject to the terms of the legal document that created the HOA - the "Amended and Restated Declaration of Covenants, Conditions and Restrictions for Fairways at Buffalo Run Homeowners Association, Inc." (the CCR). The trial court found that the "parties d[id] not dispute the fact that the [CCR] was intended to govern the common interest community now known as The Fairways at Buffalo Run." But after identifying inconsistencies in the Property's chain of title, the court reformed the CCR by adding BRF to the CCR's signature line, because despite its sole ownership of the Property at the time, it had not executed the CCR. The court reasoned that this reformation would cure the title defects.

         ¶ 3 We conclude that the trial court accurately determined that the CCR encompassed the entire Property when the community was established. This resolved the title concerns that the HOA and unit owners raised and made it unnecessary for the trial court to rule in equity to reform the CCR. Nonetheless, because the trial court's erroneous exercise of its equitable powers did not affect any party's substantial rights, we conclude that this error was harmless and therefore affirm.

         I. Background

         ¶ 4 This case requires us to consider two main issues. First, did the CCR encompass the entire Property from the outset or did it exclude the undeveloped portions of the Property from the community until they were specifically annexed into the development through recordation of supplemental plats and declarations? Second, do the errors in the chain of title for the Property and the units built on it warrant reformation of the CCR? We address those questions after outlining this matter's complex factual and procedural background.

         A. Factual Background

         ¶ 5 In October 2005, FDI and Fairways Land, LLC purchased the Property, twelve and one-half acres of real property adjacent to the Buffalo Run Golf Course in Commerce City. The Property's legal description was "Lot 1, Block 1, The Villages at Buffalo Run East, Filing No. 3." The purchase transaction culminated in the October 13, 2005, recordation of a special warranty deed that was dated October 6, 2005.

         1. Pre-Development and the Onset of Title Problems

         ¶ 6 Acquiring the land was the first step in developer Robin J. Harding's plan to create and operate the Property, a community designed for construction of up to sixty-nine patio homes. Harding formed several entities to carry out the project. He owned or ultimately managed those entities - including FDI, Builders, BRF, and Homes - and he signed documents on their behalf over the course of the Property's development.

         ¶ 7 On October 31, 2005, BRF recorded a final plat for the Property, which encompassed all twelve and one-half acres and stated that BRF was the owner. BRF, however, did not own the Property at that time. FDI and Fairways Land did.

         ¶ 8 On November 2, 2005, FDI and Fairways Land conveyed the Property to BRF by way of a special warranty deed.

         ¶ 9 On December 20, 2005, FDI, Fairways Land, and BRF recorded a plat amendment stating that they were the owners of the Property. The only difference between the final plat and the plat amendment was that the plat amendment listed FDI and Fairways Land as the Property owners along with the record owner, BRF. But FDI and Fairways Land had transferred their ownership interest in the Property to BRF on November 2, 2005.

         ¶ 10 On January 24, 2006, Builders, as the declarant, recorded the CCR.[1] Builders did not own the Property - BRF did - yet the first sentence of Section 1.1 stated that "Declarant owns those certain parcels of land . . . more particularly described in Exhibit A . . . (the 'Real Property')." The property listed on Exhibit A was "The Fairways at Buffalo Run, " which the parties agree covered the entirety of the Property.

         ¶ 11 Section 1.1 also stated that the declarant "wishe[d] to create a common interest community . . . for Fairways [a]t Buffalo Run Homeowners Association, Inc., " and that it would "develop the Property . . . as a Planned Community . . . in accordance with the terms and provisions of the Colorado Common Interest Ownership Act."

         2. Construction Begins and Title Problems Continue

         ¶ 12 Development of the property began after Builders recorded the CCR. From June 2006 through December 2009, Builders constructed fifteen residential units situated in five buildings of three units each, on parcels of approximately 12, 000 square feet. Before construction, BRF would convey the parcel to Builders. For parcels developed after December 1, 2006, when BRF conveyed its interest in the Property to FDI, FDI would convey the parcel to Builders.

         ¶ 13 The pattern established for development and construction of the five buildings was to (1) create a metes and bounds description of each parcel slated for construction; (2) in accordance with the CCR, on the completion of each parcel's development, complete and record a supplemental declaration; and (3) record a supplemental plat depicting the three constructed units. Consistent with the CCR, through these actions the Developer Entities annexed each newly built unit into the community.

         ¶ 14 Builders sold the first unit on September 7, 2006. After that sale, under the terms of the CCR, the HOA took sole responsibility for and paid all costs associated with the upkeep and maintenance of the entire Property. FDI continued to own the undeveloped portions of the Property, however, so the Developer Entities paid the real property taxes assessed against those portions. 3. Construction Pauses and the Development Deadline Expires

         ¶ 15 As required by section 38-33.3-205(1)(h), C.R.S. 2019, the CCR set a deadline for development activity. In pertinent part, Article 6 of the CCR, titled "Declarant's Rights and Reservations, " permitted the declarant to continue to develop the Property until "the later of (i) the date which is seven (7) years following the recordation of this CCR or (ii) the date which is five (5) years following the recordation of the most recently recorded CCR[.]" In essence, once two years had passed, the Developer Entities' development rights would not expire unless there was a gap of more than five years between construction projects.

         ¶ 16 That, however, is exactly what happened. Construction stalled during the Great Recession, and on December 31, 2009, the Developer Entities recorded their most recent supplemental declaration, thereby starting the five-year clock on the development deadline. By the time the Developer Entities were set to resume construction, the time limit had expired. Thus, in January 2016, after FDI conveyed a sixth 12, 000-square-foot parcel to Homes, and Homes attempted to develop that parcel, the HOA blocked it from entering the Property.

         B. Procedural History

         ¶ 17 After being denied access to the Property for further development, the Developer Entities sued the HOA in August 2016. Numerous counterclaims, third-party complaints, and cross-claims followed. In brief, the Developer Entities' complaint sought:

• a finding of private nuisance, an injunction ensuring access to the Property, and ejectment against the HOA;
• a declaratory judgment that FDI and Homes owned the undeveloped portion of the Property; and
• in the event that the request for declaratory judgment failed, the imposition of an equitable lien and recovery for unjust enrichment in the form of real property taxes paid for the Property by FDI.

         ¶ 18 Counterclaims by the HOA and the unit owners, who were all members of the HOA and appeared to be aligned, requested:

• a declaratory judgment seeking a determination of the ownership of the undeveloped portion of the Property by the HOA against FDI, Fairways Land, BRF, Homes, ...

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