How Can HOAs Afford a Construction Defect Lawsuit Without a Special Assessment?

Worried About Funding a Construction Defect Lawsuit? Here's What Most Boards Don't Know

You are sitting in a board meeting reviewing a reserve study. The report flags cracked foundations, water intrusion behind the siding, or failing stucco across multiple buildings. The defects are real. The repair estimates are staggering. And then someone asks the question that stops the conversation cold: "How would we even pay for a lawsuit?"

If your board has frozen at that moment, you are not alone. Fear of a special assessment, and the homeowner backlash that comes with it, keeps valid claims from ever being filed.

Here is what most boards do not realize: most HOAs do not need special assessments to pursue construction defect claims. At Nelson Law Firm, we have successfully resolved over 1,000 cases and recovered more than $500 million for homeowners and HOAs across five states. This article walks through how that is possible.

Why Financial Fear Stops Valid Claims in Their Tracks

Construction defects are common in Colorado communities, especially in newer developments built during high-volume construction cycles. Boards have a fiduciary duty to investigate and address defects affecting common elements, and ignoring the problem is rarely a safe option.

Yet many boards mistakenly believe litigation requires hundreds of thousands of dollars in upfront legal fees. That misconception leads boards to either ignore defects or pass costly special assessments unnecessarily.

The Colorado Construction Defect Action Reform Act (CDARA) and the Colorado Common Interest Ownership Act (CCIOA) sets specific procedures HOAs must follow, including notice of claim requirements and homeowner voting thresholds. CDARA also imposes strict deadlines, which makes delay genuinely dangerous.

The cost barrier most boards fear, however, is largely a myth in modern construction defect practice.

What Is a Contingency Fee Arrangement?

A contingency fee arrangement is the financial engine that makes construction defect litigation accessible for HOAs. Here is how it works in plain language:

• The law firm advances all litigation costs 
• The HOA pays nothing out of pocket during the case
• The firm only collects a fee if and when the case results in a recovery
• The fee is a percentage of the recovery, not an hourly bill
• If there is no recovery, the HOA owes nothing for attorney time

This structure aligns the law firm's incentives directly with the HOA's outcome. We only succeed when the community succeeds.

It also creates a built-in screening process. Experienced construction defect firms typically only accept cases they believe have strong merit, which gives the board an additional layer of confidence before moving forward.

Who Actually Pays for Experts, Testing, and Court Costs?

Boards often worry about the costs that can stack up during litigation:

• Engineering experts to investigate defects
• Destructive testing of building components
• Forensic reports and expert witness fees
• Court filing fees, depositions, and mediation costs

Under most contingency arrangements with experienced construction defect firms, the law firm advances all costs. They are reimbursed from the recovery at the end of the case, not paid by the HOA during litigation.

The HOA does not write checks while the case moves forward. Reserve funds remain intact for normal community operations.

This is what makes the contingency model work for HOAs specifically. A board can pursue a multi-million dollar claim without disrupting the community budget or depleting reserves.

Why Most HOAs Don't Need Special Assessments

Once you understand how contingency arrangements work, the financial reality becomes clear:

• Operating budgets stay untouched
• Reserve funds are not depleted by legal fees
• Monthly dues do not increase to fund the case
• Homeowners do not receive surprise assessment notices for legal costs

There are limited exceptions worth noting. Some communities choose to fund minimal early investigation costs from reserves. An experienced construction defect attorney can outline these scenarios upfront so there are no surprises.

The takeaway: your board can present litigation to homeowners as a no-out-of-pocket-cost path to recovery. That framing transforms community backlash into community support.

Consider language like this for board communications: "We are pursuing accountability from the builder at no cost to homeowners."

What About the CDARA and CCIOA?

CDARA and CCIOA impose procedural requirements before an HOA can file suit. These include formal notice to the builder, giving the builder a statutory opportunity to inspect and offer to repair or settle, and in most cases a homeowner vote before the action is filed. 

Here is the important part: these requirements are procedural, not financial obstacles. An experienced firm guides the board through each step.

Notice and voting requirements actually strengthen the case by demonstrating the board followed proper procedures. And these steps cost the HOA nothing under a contingency arrangement.

How Nelson Law Firm Helps HOAs Pursue Claims Without Financial Risk

Nelson Law Firm has recovered over $500 million for clients and successfully resolved more than 1,000 cases. Our quality-over-volume approach means we carefully select cases, and our trial-ready reputation pressures builders toward fair settlements rather than drawn-out battles.

Attorneys Mark Nelson and Colleen Nelson bring decades of CDARA experience to every consultation, helping boards understand their options before any commitment is made.

Next Steps for Boards Considering a Construction Defect Claim

If your board suspects construction defects, here is a clear playbook:

• Document suspected defects 
• Avoid signing settlement offers or releases from the builder without legal review
• Be aware of CDARA statutes of limitation and repose, which can bar claims if missed
• Schedule a no-cost consultation with an experienced construction defect firm to evaluate the claim
• Present the contingency fee structure to homeowners to address financial concerns proactively

Taking the first step costs your community nothing. Waiting, however, can cost everything if statutory deadlines pass.

If your board is weighing whether to pursue a claim, contact us for a confidential case evaluation. There is no cost to learn where your community stands.

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