The Goal Is The Repair, Not The Lawsuit: What Colorado HOA Boards Should Consider Before Suing A Builder

Fourteen years ago, we cautioned Colorado homeowners associations against a “ready, fire, aim” approach to construction-defect litigation. In The Hidden Dangers of Construction Defect Litigation, we suggested a fairly simple proposition: when legitimate construction defects exist, the goal should be to get them repaired. Litigation should be a last resort, not an end in itself.

Much has changed in Colorado construction-defect law since then. But a recent Douglas County case, and significant amendments to the Colorado Common Interest Ownership Act (“CCIOA”) enacted in 2025, provide good reasons for HOA board members and owners to revisit that basic premise.

The question is not whether an association should protect itself when legitimate construction defects exist. Of course it should. Nor should a board simply accept whatever repair a builder proposes without independent technical advice. The better question is this:

If a responsible builder is ready, willing, and able to make an appropriate repair, is the community better served by getting the building fixed, or by pursuing years of litigation in hopes of recovering enough money to pay someone else to fix it later?

A recent case illustrates why that question matters.

What Happens After the Construction-Defect Case Is Over?

In Corcoran v. The Highlands at Stonegate North Condominium Association, a Douglas County District Court entered a judgment exceeding $1.25 million against a condominium association after years of water intrusion and mold contamination in an owner’s residence. The case did not involve claims against the original builder. Those construction defect claims had been resolved years earlier. That is what makes Corcoran particularly interesting. Ultimately, the story did not end with the judgment. Rather, the association subsequently filed for Chapter 11 bankruptcy protection after Corcoran sought to garnish association funds to collect it.

By way of background, the Highlands at Stonegate HOA had previously pursued construction-defect litigation concerning its community. According to the trial court’s findings, the Highlands at Stonegate HOA and its property manager knew that the association recovered approximately $4 million less in its 2016 construction-defect settlement than it needed to make the repairs. Yet the court found that the association did not impose or attempt to impose a special assessment, obtain a loan, or otherwise raise funds to address the repair shortfall. In short, the construction-defect litigation had ended but the construction problems had not.

Beginning in approximately 2017, the homeowner in Corcoran repeatedly experienced and reported water intrusion. The court ultimately found that water entered through multiple locations associated with common elements the association was obligated to maintain, including the foundation, exterior walls, and roof.

The association did perform some work during the ensuing years, including replacement of a front porch and a hail-damaged roof. But the court found that those repairs were undertaken for reasons other than addressing the homeowner’s water-intrusion complaints and that the association did not meaningfully investigate those complaints until after she filed suit in 2022.

The court found the Highlands at Stonegate HOA liable for both breach of its declaration and negligence. It entered damages of $1,258,135.48, including nearly $600,000 attributed to personal injuries.

Corcoran is a trial-court decision, not binding Colorado appellate precedent, and nothing in the court’s order establishes that the original builder offered to make appropriate repairs before the Highlands at Stonegate HOA commenced its earlier construction-defect litigation. We therefore cannot know whether the Highlands at Stonegate HOA could or should have avoided that litigation. The case, however, demonstrates something much broader:

A construction-defect settlement and a repaired community are not the same thing.

A Settlement Check Does Not Fix a Building

That distinction was one of the concerns we identified more than a decade ago in The Hidden Dangers of Construction Defect Litigation.

Construction-defect cases can be expensive. Lawyers must be paid. Engineers and other experts must be paid. Depositions, destructive testing, document management, mediation, arbitration, and trial all have costs. Cases also settle. Ultimately, the amount ultimately recovered may bear little relationship to the amount an association’s experts once estimated would be required to perform every repair identified during litigation. That can leave the association with an uncomfortable problem.

Assume, for example, that experts identify $10 million in necessary repairs. After years of litigation, the association obtains a $10 million gross recovery. That may sound to owners like a complete victory, but gross recovery is not necessarily the amount available to repair the property.

After paying attorneys’ fees, expert fees, litigation expenses, and other costs, the association may have substantially less than $10 million available to perform $10 million in identified repairs. The lawyers and experts have been paid according to their agreements. The association must still repair the buildings.

That is not a criticism of attorneys being paid for their work or of legitimate construction-defect litigation. Sometimes litigation is unavoidable. A builder may deny responsibility, propose an inadequate repair, lack the financial ability to perform the work, or simply refuse to engage in a meaningful repair process.

That said, an HOA board should understand the economics before, rather than after, it commits the community to litigation. Colorado’s General Assembly now appears to agree.

Colorado Law Now Requires Owners to See More of the Economics

CCIOA has increasingly moved the decision whether to commence construction-defect litigation beyond the boardroom and into the hands of the owners who ultimately bear its consequences.

Before an association commences a construction-defect action, the association must provide owners with a description of the alleged defects, the relief sought, and a good-faith estimate of the benefits and risks of the proposed action.

But the required disclosures go considerably further. Owners must be told about the association’s arrangement with its construction-defect attorneys. If counsel is working on a contingency, the disclosure specifically identifies the contingency percentage and whether it will be calculated against the gross or net recovery. Owners must also receive information concerning anticipated litigation costs, including expert-witness, deposition, and filing expenses.

CCIOA requires associations to give owners an unusually candid warning: “There is no guarantee that the association will recover enough funds to repair the claimed construction defect(s).”

The required disclosure goes on to warn that if the defects are not repaired, additional property damage may occur and the useful life of common elements may be reduced. Those are not warnings created by builders or defense attorneys. Those are disclosures the Colorado General Assembly determined owners should receive before deciding whether their association should pursue construction-defect litigation.

The Builder Gets to Speak, Too

CCIOA also gives owners an opportunity to hear something other than the case for litigation. The construction professional against whom the action is proposed must be invited to the owners’ meeting and given an opportunity to address the owners concerning the alleged defects.

Importantly, the statute expressly contemplates that the builder’s presentation may include an offer to remedy the alleged defects under Colorado’s Construction Defect Action Reform Act. That creates an opportunity for a much more meaningful discussion. What does the association contend is defective? What does its engineer say is necessary to repair it? Does the builder agree there is a problem? If so, what does the builder propose to do? Can the association’s independent engineer review the builder’s proposed repair? Can that engineer observe the work and verify that it has been properly completed? If the builder is prepared to perform an appropriate repair, what exactly does the association expect to gain by rejecting that repair and pursuing a monetary recovery instead?

Those questions should not be answered blindly in favor of the builder. They should also not be answered blindly in favor of litigation counsel, either. The board’s responsibility is broader than maximizing the value of a legal claim. Its job is to act in the best interests of the association and its owners.

Colorado’s New Law Makes “Net” Matter Even More

The 2025 General Assembly added another important provision to CCIOA. The new section, § 38-33.3-303.5(5), provides: “An executive board that is successful under a construction defect claim or settlement shall first use net monetary damages or net proceeds received pursuant to the claim to repair the construction defect.”

The choice of the word “net” is important. The statute does not pretend that the amount recovered in litigation is necessarily the amount that will be available for repairs. It directs the association to use the net monetary damages or net proceeds first to repair the construction defect. Read together with the disclosures required before litigation, CCIOA now presents owners with the economics at both ends of the process.

Before litigation: Owners must be told how the lawyers will be paid, what additional litigation expenses may be incurred, and that there is no guarantee the association will recover enough to perform the repairs.

After a successful claim or settlement: The association must use what remains net first to repair the defects.

That leaves a question every owner should consider before voting to sue:

If our objective at the end of this process is to use the money left over to repair the building, and the builder is offering to make an appropriate repair now, which path is actually better for our community?

What If the Net Recovery Isn’t Enough?

The new statute answers what the association must do first with its net recovery. It does not eliminate the harder problem: What happens when the net recovery is insufficient to perform all of the necessary repairs?

That is precisely the risk we identified years ago. If an association needs $10 million to perform the repairs but has only $7 million available after the litigation concludes, someone must decide what happens to the remaining $3 million.

Perhaps the association imposes a special assessment. Perhaps it borrows money. Perhaps it uses reserves. Perhaps repairs are phased or reprioritized. Or perhaps some repairs simply aren’t performed.

Corcoran demonstrates why the last alternative can have serious consequences. The trial court found that the Highlands at Stonegate HOA knew its prior construction-defect recovery was approximately $4 million short of what it needed for repairs. Years later, when an owner repeatedly complained of continuing water intrusion, the court found that the Highlands at Stonegate HOA failed to adequately investigate and address the problem.

When the Highlands at Stonegate HOA asserted the business judgment rule as a defense, the court rejected it. The problem was not merely that the court disagreed with a decision the board had made. The court found that the association had failed to gather the information necessary to understand the water intrusion and therefore had not made an informed decision about how to respond.

As we discussed in an earlier HHMR article, A Closer Look at an HOA Board Member’s Duty to Homeowners, Colorado’s business judgment rule can provide important protection for informed, good-faith decisions by association directors.

But Corcoran illustrates an important distinction:

The business judgment rule protects the exercise of business judgment. It may not protect the failure to exercise judgment at all.

The court even acknowledged that the Highlands at Stonegate HOA’s post-lawsuit conduct might, viewed by itself, satisfy the business judgment rule. What it would not do was retroactively excuse the preceding years of inaction.

Filing the Construction-Defect Case Does Not End the Board’s Responsibility

There is another reason board members should pay attention. CCIOA’s definition of a “construction defect action” is broad. For purposes of the owner-approval statute, it expressly encompasses certain claims for breach of fiduciary duty or for acts or omissions of executive-board members that arise from alleged construction defects or seek the same or similar damages.

In other words, the board should not view the decision as: “If we sue the builder, we have protected ourselves.”

The board’s obligation is broader. If legitimate defects exist, how will they be investigated? How will they be repaired? If the builder offers a repair, is it technically adequate? If litigation is pursued instead, what will likely be available net to perform the work? If that amount is insufficient, where will the remaining money come from? And after the litigation ends, how will the board ensure that the known conditions are actually addressed?

Hiring construction-defect counsel and filing a lawsuit does not transfer those governance responsibilities to the lawyers. Resolving the lawsuit does not make them disappear.

Repair First Does Not Mean “Trust the Builder”

None of this means an association should simply accept a builder’s word that everything will be taken care of. An association confronting legitimate construction concerns should obtain competent, independent technical advice. It should understand the nature and extent of the conditions. If a builder proposes repairs, the association’s consultants should evaluate whether the proposed scope is technically appropriate.

The association can insist upon documentation. Its engineer can review repair details. Appropriate agreements can define the scope and preserve rights. The association’s consultants can observe the work. Completed repairs can be inspected and verified.

Sometimes that process will fail. If the builder denies a legitimate defect, refuses to perform an appropriate repair, cannot perform it, or proposes a repair that the association’s qualified professionals reasonably conclude will not solve the problem, litigation may be entirely appropriate.

Litigation remains an important tool. But it is a tool for achieving an objective. It should not become the objective itself.

Before You Vote, Ask What Success Looks Like

Colorado’s revised statutory process gives owners considerably more information than they once received before their association commenced construction-defect litigation. It tells them about the claims and risks. It tells them how the lawyers are being compensated. It tells them about litigation costs. It expressly warns them that even a recovery may not produce enough money to make the repairs. It gives the builder an opportunity to address the owners and potentially offer a remedy. And, if litigation succeeds, it now requires the association to put the net proceeds first toward repairing the defects.

Owners should use that information. If your community faces legitimate construction defects, don’t blindly trust the builder. But don’t blindly trust anyone else, either.

Understand the defects. Obtain independent technical advice. Understand any repair the builder is offering. Understand what litigation is likely to cost. Pay attention to the difference between gross recovery and net recovery. Ask whether the likely net recovery will actually fund the repairs. And ask what happens if it does not.

Most importantly, ask what success looks like. Is success a large settlement announcement? Is it winning an arbitration? Is it obtaining a judgment? Or is it having the problems properly repaired so that owners can go back to living in, enjoying, refinancing, and selling their homes?