Homeowners cry foul over rule change
Covenants axed after lots sold for affordable housing
Few people have bought into the Hollow Creek subdivision at the west end of Fruita. But those who did, did so for specific reasons — the stucco exteriors, the high-quality interior finishes, the strict rules that require a certain amount of landscaping.
Yet it’s precisely because the market for his 40-home development shriveled over the past three years that Terry Ruckman says he chose to cut his losses and sell the balance of the lots.
That collision between homeowners who thought they were settling into an upscale development and a buyer who intends to downsize has generated an outcry from some Fruita residents.
Several Hollow Creek homeowners are upset because Ruckman, without consulting or notifying them, relaxed the covenants and sold the remaining 34 lots to affordable-housing provider Housing Resources of Colorado. The private nonprofit group plans to build out the rest of the subdivision, possibly beginning this fall.
Homeowners claim the change to the covenants is illegal, unethical and will deflate their property values. Some say they are contemplating a lawsuit.
“There is a right way to go about this project, and there is a wrong way to go about this project. We believe the agreement between Hollow Creek and Housing Resources of Western Colorado is the wrong way,” homeowner Tom Kelly told Fruita City Council members in pleading for help during a recent meeting.
Ruckman claims he has done nothing wrong and was under no obligation to disclose anything about the change to the covenants or the sale. He said he needed to sell the lots at a discount to avoid bankruptcy.
“It’s not a good situation all the way around. These people have to realize it’s not me. I would have loved to sell the homes, but I lost my money,” he said.
An attorney who specializes in real-estate law and has represented both developers and homeowners’ associations said Hollow Creek homeowners are facing an uphill battle.
“I can empathize with them, but I think they’ve got a tough road,” said Mark Payne, a lawyer with Winzenburg, Leff, Lurvis and Payne in Denver who has practiced law in Colorado for 28 years.
Housing Resources Executive Director Dan Whalen said the agency came across Hollow Creek last fall during its search for lots to incorporate into its self-help program, which reduces down payments in exchange for buyers helping build their own homes. He said Ruckman initially wasn’t interested in selling the balance of the subdivision but later changed his mind.
Ruckman sold the balance of the lots to Housing Resources for $1.1 million in January after the developer altered the covenants at Whalen’s request, according to Whalen.
The change reduced the minimum house size from 1,600 square feet to 1,160 square feet, halved the minimum number of trees and shrubs required for landscaping and lifted the requirement that cooling units be ground-mounted.
Whalen said the old covenants didn’t fit in with the types of homes his agency builds. He said Housing Resources wouldn’t have purchased the lots without the covenants being relaxed.
Hollow Creek homeowners complain that Ruckman never told them or sought their permission to change the covenants, an omission they believe violates the Colorado Common Interest Ownership Act. A portion of the law, which pertains to the creation and operation of homeowner associations, dictates that a developer can’t change a homeowner association’s covenants without approval from 67 percent of the existing homeowners.
Kelly and fellow homeowner Janet Brazfield bought their homes last year for just under $300,000. They say Housing Resources’ plans to build homes that will sell for roughly half that amount will cut into their home values and cause them to lose equity they’ve built.
“They’re harming us with our own money,” Kelly said.
Ruckman, though, contends he had control over the covenants and didn’t need homeowners’ approval to change them. In addition, he said he’s not sure why homeowners are upset because Evening Breeze, an adjacent subdivision, contains homes owned by Housing Resources.
“The ones that are complaining about it already have those types of houses in their neighborhood now,” he said.
Payne said the only instance in which a developer would have to seek homeowner approval to change covenants is if the amendment creates or increases “special” rights for the developer.
Payne said while homeowners conceivably could argue Ruckman gained a “special” right by changing the covenants, he’s not aware of any case law that addresses that particular section of state statute.
“It will be a challenge for them,” he said. “If they were to pursue this through a lawsuit, they’ll probably get some sympathy from a judge. But sympathy doesn’t go very far.”
Whalen said he has told homeowners that Housing Resources will attempt to build homes in the 1,600-square-foot range immediately next to theirs, leaving the smaller homes to be placed elsewhere in the subdivision. He said the agency also would be willing to turn around and sell some of the lots it purchased to other builders or individual buyers so not all of the homes would be of the self-help variety.
Hollow Creek residents say that’s not enough.
“I’m not a sue-happy person,” Brazfield said. “I’m not one that’s going to want to rush out and file lawsuits just to make a quick buck. All I want is my original covenants back, which I purchased under good faith, and that would make me perfectly happy.
“It’s a moral and ethical issue.”
The battle in Fruita is similar to one that played out earlier this year in Palisade. Housing Resources took advantage of the depressed housing market to buy 30 lots in Wine Valley Estates, prompting concerns from the two existing homeowners in the subdivision that their property values would suffer.