"We got a letter from the attorney that was e-mailed to us that said we would be allowed to fly our flag," Smith said.
He added that he hasn't received a complete explanation for why he was told originally to take the flag down.
"The attorney said it was a covenant about advertising and billboards," he said of a quote the homeowners associations had given to an area newspaper.
9NEWS was the first to tell Smith's story, which has since been featured in several news outlets across the country. The letter Smith received threatened to fine him and a neighbor who was also flying the flag a fee of up to $100 per day.
Featuring a rattlesnake and the motto "Don't Tread on Me," the Gadsden Flag has history dating back to the Revolutionary War. In recent years, it has been displayed at Tea Party rallies.
Smith maintains he is not a member of the Tea Party, though he says he agrees with some of its philosophies on government.
Colorado law protects a homeowner's right to display the American flag and political signs during election season, despite the rules of individual HOAs.
An HOA attorney contacted by 9NEWS said Smith's case fell into a gray area because the flag could be considered a "political sign," which would be protected under state law, or it could be considered a "decoration," which would not be protected but would require the HOA to strictly enforce a policy forbidding all homeowners from displaying any kinds of decorative flags.
The most recent letter sent to Smith from HOA lawyer Elina Hindley states: "Please be advised, we have discussed this situation with the board of directors and the board has decided to allow the Tea Party flag to remain displayed on your property. Thus, you may disregard the request contained in the original letter."
"The board was told to back down, at which point they promptly all resigned," Smith said.
He was once the HOA board of directors' president and has now volunteered to serve on the board again, along with his neighbor across the street who also displays the Gadsden flag.
(KUSA-TV © 2010 Multimedia Holdings Corporation)