In a significant move to address Colorado's housing affordability crisis, Governor Jared Polis recently signed House Bill 1272, now officially known as the Colorado American Dream Act, into law. This legislation aims to remove longstanding barriers that have discouraged residential developers from building affordable, middle-market housing- particularly townhomes, duplexes, and other multi-family formats.
The Act reflects a shift in policy emphasis from high-end development to more inclusive housing solutions shaped through extensive stakeholder input and legislative revision, The law's stated goals include expanding access to homeownership, particularly for first-time buyers, by promoting the construction of affordable and high-quality homes. It also seeks to lower the excessive legal and insurance costs that have historically made entry-level residential development less attractive to builders.
Third-Party Inspections: Raising the Standard of Construction Oversight
A key component of the Act is the establishment of a third-party inspection program designed to improve construction quality and legal accountability. Under this system, builders must engage an independent, qualified inspector- someone with expertise relevant to the inspected components- unaffiliated with the project, and not designated as a nonparty at fault. These inspectors are responsible for reviewing the construction during the build process and verifying compliance with applicable codes, architectural plans, and manufacturer instructions. Builders are required to certify, prior to the issuance of a certificate of occupancy, that any issues were addressed and resolved.
Incentives for Builders: The Multifamily Construction Incentive Program
Beginning January 1, 2026, the law introduces the Multifamily Constriction Incentive Program, offering developers a pathway to reduce legal exposure while committing to consumer protections. Builders who opt into the program must provide written warranties covering workmanship and materials for one year, electrical and plumbing systems for two years and structural components for six years. Participation also requires third-party inspections and the filing of a notice of election in the local property records before units are listed for sale. Withdrawal from the program is only permitted before the final certificate of occupancy is issued.
Revised Requirements for Program Construction Defect Claims
The Act significantly alters the construction defect claims process for Program Claims, especially for lawsuits against architects and engineers. Plaintiffs in these cases must now file a certificate of review at the time of the filing of the complaint. This certificate must include an expert's statement confirming that the defendant's alleged negligence falls below professional standards. Failure to file the certificate, unless justified by good cause, will result in dismissal of the complaint.
The law provides exceptions where a public entity contracts for both design and construction services or where the statute of limitations or repose is about to expire. In such cases, the plaintiff may file the certificate within 28 days of the complaint. Defendants who wish to name a nonparty architect or engineer as at fault must also submit a certificate of review at least 45 days before trial.
Claims must meet certain thresholds to be actionable under the program. A construction defect must result in tangible harm, such as property damage, bodily injury, loss of use, or an unreasonable risk to occupant safety or structural integrity. Importantly, Program Claims based only on superficial or technical code violations will not be allowed.
Limitations Periods and Tolling Provisions for Program Claims
Claimants must first exhaust all reasonable remedies under any applicable warranty before bringing a lawsuit. For non-designer builders, the statute of limitations is six years from substantial completion if the defect was discovered, or should have been, within the warranty period. For architects and engineers, the same six-year limitation applies, provided their work met the professional standard of care .
Additionally, the statute of limitations is tolled during the warranty remedy process (up to one year or until completed) and for 60 days following the required notice-of-claim process. Tolling also applies for mitigation efforts but is capped ay one year.
Affirmative Defenses: Limiting Liability Under the Program
Builders may raise a range of affirmative defenses to liability, particularly in program claims. These include natural disasters exceeding design specifications, vandalism or terrorism, homeowner neglect or misuse, and failure to perform routine maintenance when the homeowner had written notice of maintenance schedules. Liability may also be limited if the defect resulted from post-sale alterations, ordinary wear and tear, or abuse of the structure or its components.
Claims Process for Program Claims: Notice, Response, and Settlement Offers
Claimants are required to give builders written notice of the defect at least 75 days before filing suit (90 for commercial properties). Builders then have 90 days from the end of their inspection period to issue a formal response, which may include a settlement offer, a denial with explanation, or a scope-of-work report detailing planned repairs.
If an extension is needed and not agreed upon, the parties must select a neutral third party to evaluate the reasonableness of the request. All offers must be made with 210 days of the initial notice. If the claimant unreasonably rejects a good faith offer, they may be required to pay the builder's attorneys' fees and costs. Conversely, a builder who fails to make a reasonable offer may be liable for the claimant's fees and costs.
Insurance Protections and the Duty to Mitigate Program Claims
Importantly, the Act protects builders' insurance coverage by prohibiting insurers from canceling or reducing coverage simply because the builder makes an offer to settle or repair a defect under the statute . It also reaffirms the claimant's duty to mitigate damages and clarifies that claimants cannot recover damages resulting from their unreasonable failure to do so- unless the cost of mitigation was prohibitive or beyond the claimant's means.
Homeowners' Associations and Collective Action
The Act clarifies the authority of homeowners' associations (HOAs) to bring construction defect claims. An HOA must secure the approval of owners holding at least 65 percent of voting interests to file a claim, except in cases involving nonresidential facilities with repair costs under $50,000 or when the HOA itself contracted for the work. Proceeds from successful claims must first be applied to repair the underlying defect.
Conclusion: A Policy Shift Toward Attainable Homeownership
In sum, the Colorado American Dream Act is a comprehensive reform package designed to revitalize the state's middle-market housing supply. By balancing developer protections with consumer safeguards, streamlining litigation procedures, and incentivizing higher construction standards, the law aims to make home ownership more attainable for Colorado's working and middle-class families, preserving the ideal of the "American Dream" for generations to come.