Opinion: Here’s why state lawmakers should consider revoking HOA powers to fine, and strictly limit foreclosure of HOA liens  

By Deborah Goonan, Independent American Communitiesdeborahgoonan@gmail.com

What’s in House Bill 22-1137?

Here are some key provisions of Colorado HB22-1137, as available at the Legislature’s website as of the date of this blog post. Please note that future amendments are likely, because of ongoing active debate.

I have inserted a few comments regarding some of the provisions, which are shown in italics.

I encourage you to read the entire bill and track its progress here: https://leg.colorado.gov/sites/default/files/documents/2022A/bills/2022a_1137_01.pdf)

HB22-1137 proposes to accomplish the following objectives:

  • Limits the HOA’s maximum fine (original draft proposal is $50 per day up to a $500 total).
  • Set an 8% cap on the interest rate an HOA can charge on unpaid assessments, fees and fines, and subsequent collection accounts. 
  • Limits the HOA’s total monetary recovery from collections or foreclosure to three times the amount of unpaid regular and special assessments. ( Comment:The intent of this provision appears to be setting limitations on the amount of legal and collection fees that a law firm or collection agency can recover, thus reducing the HOA collection industry’s perverse incentives to aggressively pursue homeowners. However, the current draft of this bill does not require a collections agency or law firm to fully reimburse the HOA’s unpaid assessments, plus interest, before paying its own legal fees. Potentially, the HOA collection agents would be able to collect their exorbitant fees, and leave the HOA high and dry. Legislators should amend the bill to ensure that application of past due payments pays off the underlying debt (HOA fees and assessments) first, prior to paying legal and attorney fees. )
  • Requires the HOA board of directors to affirmatively vote to pursue collection liens, up to and including foreclosure, at an open meeting. Without the board’s vote of approval, the HOA or its agents may not pursue collections or foreclosure. (In short, the bill would require that the buck stops with the HOA board, as it should.
  • Prior to initiating an HOA foreclosure, this bill:
    • Requires the HOA to provide an official notice of lien, and also make two additional documented attempts to contact the owner by other methods. ( e-mail, phone call, in-person visit, etc.)
    • Requires the HOA to offer a payment plan to the owner. The allowable terms of an HOA repayment plan are currently being negotiated among stakeholders. However, the bill currently states that an HOA can only pursue foreclosure if its offer of a payment plan is rejected by the property owner. Also, if an owner agrees to a payment plan, but then misses three payments, the deal is off, and the HOA can pursue foreclosure. (Comment: if the owner is truly in dire financial circumstances, adding fines or additional payments on top of regular payments won’t help them get current on their obligations, especially with added late fees and interest. This bill doesn’t allow the HOA to defer payments for undue hardships or bankruptcy, nor does it allow the HOA to write off any of the loss as uncollectible.)
    • Requires the HOA to provide contact information for a local foreclosure counseling service, as well as several other social or legal services that may help the owner avoid losing their home.
  • Enables either party — the homeowner or the HOA — to pursue the other party in Small Claims Court for collection of fines or monetary damages related to violations of the HOA’s governing documents, up to the current limitation for Colorado Small Claims, $7,500. Small Claims Court may also issue injunctions related to disputes over alleged violations of the HOAs governing documents. 
  • The Legislature is currently debating amending the bill to exclude adjudication of HOA collection of past due assessments in Small Claims Court. (This would essentially eliminate an option for homeowners to avoid costly litigation in Civil Court.)
  • With regard to reserve studies, requires the HOA to provide an “annual reconciliation” of the reserve account in relation to needs documented by the most recent reserve study. The information is required to be made available to all members, preferably by posting on the HOA’s website. (Comment: a small nod in response to the sudden condo collapse in Surfside, FL, in June of 2021, and not directly related to HOA fines and foreclosures.)

Many IAC readers who are new to HOA-homeownership, or those who have lived blissfully unaware of such heavy handed HOA abuse, are probably shocked to learn that dozens of owners in Colorado HOAs are set to lose their homes — and potentially all of their home equity — all because they ignored or disputed HOA fines. 

Why is Colorado Legislature considering these HOA regulations?

The legislation comes in response to widespread local reports of 119 recently filed HOA foreclosures in Colorado, 50 of which have been filed by the Green Valley Master HOA. 

State Legislators have enabled HOAs to fine homeowners and foreclose HOA liens. Now they can reverse course.

Nearly all of the foreclosures began when homeowners were fined by Green Valley for minor offenses, such as parking their vehicles on their own property, but outside of their garages; not moving their empty cans back to their garages quickly enough after trash pickups; having slightly too long grass in their yards, and other violations based upon petty, purely aesthetic restrictions and rules commonly enforced by HOAs.

Sound unbelievable? 

Many IAC readers who are new to HOA-homeownership, or those who have lived blissfully unaware of such heavy handed HOA abuse, are probably shocked to learn that dozens of owners in Colorado HOAs are set to lose their homes — and potentially all of their home equity — all because they ignored or disputed HOA fines. 

What’s going on in Green Valley Master HOA?

In Green Valley, it turns out that most of the homeowners facing foreclosure by their HOA have faithfully paid their mortgages and HOA assessments (dues) for years. That’s right, this is not a case of owners not paying their maintenance fees. 

Nevertheless, Green Valley Master HOA justifies its harsh actions, pointing out that its power to fine and foreclose is enabled by state law. They repeat the HOA-industry’s cold-hearted propaganda that, somehow, homebuyers actually want the HOA to come down hard on scofflaws who violate aesthetic standards. They claim that homebuyers ‘agree’ to such draconian enforcement measures when they sign a thick stack of legal papers at the time of purchase. 

Some striking excerpts from local reports by CBS-affiliate CBS4 reveal just how aggressive HOAs can be. 

‘The Master Homeowners Association for Green Valley Ranch issued a statement over growing community concerns the association is going too far with violation fines and subsequent foreclosures. Of the 119 foreclosures in Denver, 50 of them are within the HOA’s community.

“The Homeowners Association of Green Valley Ranch creates curb appeal and increases property values by enforcing promises that the homeowners made to one another about the condition and upkeep of their properties,” the association wrote in a statement to CBS4. “The Colorado Common Interest Ownership Act authorizes the HOA to enforce fines and makes those fines an automatic lien on property.”’

‘CBS4 reached out to the governor’s office to see if he plans to issue a temporary moratorium on these foreclosures to buy these folks some time. A spokesperson for his office issued the following statement:

“This is deeply troubling and another sign of how certain homeowners’ associations can be deeply flawed and have far reaching, unchecked powers. We are monitoring this situation and evaluating what can be done at the state level or in partnership with the state legislature. We are also supportive of legislative efforts to reduce the power of HOAs to prevent cases like this.”’

Source: https://denver.cbslocal.com/2022/03/14/green-valley-ranch-hoa-statement/

Green Valley Master HOA fines leading to HOA foreclosure

In another report on Denverite.com, an HOA member reveals that Green Valley homeowners are not being threatened with foreclosure for failure to pay their ‘dues.’ That’s because Green Valley Ranch Metropolitan District ( a local government entity ) collects maintenance and service fees through regular annual property taxes. Most mortgage holders pay a monthly share of property taxes to their lender, where the money is held in escrow. Homeowners without a mortgage pay taxes directly to their local governments, not to the Master HOA for Green Valley.

Therefore, the Metropolitan District would pursue nonpayment of taxes that cover essential services and maintenance fees for Green Valley. But the currentHOA liens are not related to unpaid community ’dues’ collected as taxes. 

“None of the Green Valley Master HOA’s board members responded to requests for comment for this story.

Eric Gravenson, who has been involved with various aspects of the Green Valley Master HOA for 25 years, told us none of the recent cases are likely related to missed annual dues. In 2007, members of the HOA voted to allow the Green Valley Ranch Metropolitan District, a quasi-governmental organization, to collect dues through annual property taxes. The vote also turned the metro district into a “contractor” that would handle all issues related to covenant violations, fines and collections. He said it’s one of the only such configurations in the state. Both organizations are led by residents.”

Source: https://denverite.com/2022/03/09/a-denver-hoa-is-threatening-to-foreclose-on-resident-homes-over-aesthetics/

What’s really disturbing to me about this report is the fact that the Metropolitan District, a ‘quasi-government organization,’ is a ‘contractor’ for the Master HOA. In other words, Green Valley HOA corporation has made an agreement with Green Valley Ranch Metropolitan District — the hyperlocal neighborhood government — to enforce purely aesthetic covenants and restrictions. 

In my opinion, this kind of action by a governmental entity, a Special District, the Green Valley Ranch Metropolitan District, should be legally challenged as unconstitutional and unenforceable. A local government has no business enforcing private deed restrictions — their Constitutional duty is limited to adjudicating disputes, not unilaterally imposing fines and other penalties on behalf of a private HOA corporation.

The Denverite reporter claims this is a unique arrangement in Colorado. But similar Special District and Master HOA arrangements exist in large scale developments located in other states, including The Villages in Florida. That’s why Colorado Legislature’s action on this issue should be closely monitored by homeowner and property rights advocates nationwide. 

Regardless of the type or size of the HOA-governed community — most of which do not rely on a Special District (government) entity to help with enforcement of covenants — HOA fines and foreclosures adversely affect many thousands of homeowners across the U.S. each year. 

Green Valley Master HOA justifies its harsh actions, pointing out that its power to fine and foreclose is enabled by state law. They repeat the HOA-industry’s cold-hearted propaganda that, somehow, homebuyers actually want the HOA to come down hard on scofflaws who violate aesthetic standards. They claim that homebuyers ‘agree’ to such draconian enforcement measures when they sign a thick stack of legal papers at the time of purchase. 

To regulate HOAs, state lawmakers should consider revoking HOA powers to fine and foreclose

In some ways, HB22-1137 leans in the right direction. It proposes to reduce the size of the HOA management and legal industry’s Cash Cow for HOA fines, liens, and foreclosures. 

Through HB22-1137, State Legislators are at least beginning to acknowledge the need to set reasonable constraints on the amount of HOA fines, interest, added fees. Likewise, the bill helps to put a damper on the HOA-collection industry’s collection of windfall legal fees for its so-called ‘services’ to HOAs.

I agree with the bill’s original drafters that it’s wise to require HOA board members to vote, at an open meeting, on their decision to pursue collections against an owner. This is far better than the common practice HOA board members taking a hands-off approach, and deferring their fiduciary responsibilities to a property manager or HOA attorney. 

All well and good.

However, in my opinion, a simpler and more effective way to eliminate abuse would be to revoke the unilateral, unfettered powers of HOAs to fine members and foreclose on homes to recover liens on past due accounts. 

Admittedly, this proposal may sound radical to homeowner board members and HOA-industry trade group lobbyists, who tend to embrace authoritarian leadership styles.

But I think we can find better ways to manage HOA corporations. I don’t think it’s necessary to impose harsh punishments on owners who break petty rules or, due to difficult personal circumstances, fall behind on HOA dues and maintenance fees.

And I certainly don’t think we should be upholding HOAs as the right hand of local government, or, as in the case of Green Valley, vice versa. It’s time to unblur the lines between government and private HOA boards. Government’s job is to provide public services and to represent the best interests of all of its constituents, not to hand over duties to private HOA corporations and yield to the demands of stakeholders that profit from the HOA industry.

Legislators need to understand that, more often than not, when HOAs levy fines and pursue HOA foreclosures, it stirs up animosity in communities. That angers owners, and increases the possibility of legal challenges and internal rebellions against the HOA board. It’s unreasonable to expect owners to accept, without question, the all-too-common heavy-handed HOA enforcement of the governing documents.

Government’s job is to provide public services and to represent the best interests of all of its constituents, not to hand over duties to private HOA corporations and yield to the demands of stakeholders that profit from the HOA industry.

The HOA power imbalance

Specifically, our current HOA-governance model in the U.S. gives HOA boards broad power to punish owners with fines, property liens, and, ultimately, foreclosure. To make matters worse, in more than half of U.S. states and Territories, HOAs can foreclose non-judicially — the HOA does not require court review or approval of a judge.

The HOA board can take these draconian actions without ever having to go to court. The board simply appoints an enforcement committee, then consults with an HOA lawyer that is paid for by the collective purse of the homeowners in the community association.

You see, a homeowners association is a one-sided, top-down organization. Members at large have no equivalent rights or remedies to either force the HOA board to fulfill its obligations, or to deter board from disrespecting owner and resident rights. Incredibly, homeowners have nowhere to turn — besides the Civil Courts — even when their HOA is blatantly breaking local, state, or federal laws.

A homeowner has no legal right to withhold a portion of HOA fees, and use that money to hire and pay for contractors to make repairs that are the so-called contractual responsibility of the HOA. (Ironically, when landlord fails to make timely repairs, a tenant does have this rights.)

In the past several weeks alone, I have heard from home and unit owners suffering from property damage due to the HOA’s failure to maintain or repair common elements. These are serious problems such as recurrent sewage backups in their lower level condo unit, single family home properties experiencing flooding due to poor stormwater drainage, and leaky roofs or patio doors in condominium buildings.

In the past, I have posted numerous articles on IAC about owners dealing with other failures of HOAs to address damages to homes and condo units, from severe stormwater erosion to infestation of mold to structural damage severe enough to cause balconies and buildings to collapse.

Likewise, a homeowner cannot fine the HOA board for its refusal to provide access to HOA records. Nor can the owner impose a fine or place a lien on an HOA board member’s property, even if their property is in violation of the very same architectural and landscape standards for which the homeowner is being fined.

The homeowner’s only recourse is to file a lawsuit against their HOA, and pay the legal costs out of their own pocket.

In short, the HOA board’s rights and powers far outweigh the rights and powers of its homeowners at large.

A homeowners association is a one-sided, top-down organization. Members at large have no equivalent rights or remedies to either force the HOA board to fulfill its obligations, or to deter board from disrespecting owner and resident rights. Incredibly, homeowners have nowhere to turn — besides the Civil Courts — even when their HOA is blatantly breaking local, state, or federal laws.

Justice for Homeowners requires Constitutional due process

By right, all citizens and legal residents of the U.S. are entitled to due process in court. These rights are spelled out in the U.S. Constitution.

Of course, HOA industry lawyers will tell you that HOAs are private organizations, and that most of them are non-profit corporations. They’ll tell you that the governing documents (Covenants) create a contractual relationship between the HOA and its member homeowners.

But that doesn’t mean HOA members should have to give up their rights to have a neutral third party to consider their side of the story, free from bias, in HOA disputes over Covenants or collection of HOA fees.

Due to the fact that state laws across the country are written such that HOAs have virtually indisputable rights to fine and foreclose, and the homeowner has no corresponding statutory rights to counterbalance these inappropriate HOA powers, the cards are stacked against homeowners. It’s up to state Legislators to correct that imbalance.


HOAs have evolved into corporate-government hybrids

Green Valley HOA is correct: state laws enable HOAs to levy fines and foreclose on HOA liens. Thus, state laws, as currently written, are at the root of much HOA abuse of power.

The law in Colorado and every U.S. state and territory has granted HOAs an onerous hybrid legal stature. Most of today’s HOAs are corporations, yet they have been granted powers and authorities previously held only by public officials of an elected government — including the power to levy fines, and the power to foreclose on HOA liens.

Except for HOAs, I can’t think of any other corporation in America that has the legal right and unilateral power to fine its customers, shareholders, employees, or clients. Generally, corporate disputes in the U.S. must be settled either in Civil Court or by Arbitration. Your employer, your local business owner, and even your landlord cannot simply levy a fine against you. They must first obtain a ruling from a neutral third party (Judge, Magistrate, or Arbitrator) within the constraints of the U.S. judicial system, to collect alleged damages.

Admittedly, while the U.S. judicial system can be slow, cumbersome, and expensive, it exists to ensure a more fair, just, and equitable outcome. An HOA’s internal ”hearings” held prior to the levy of fines lack neutrality, and more closely resemble Kangaroo Court.

What about HOA foreclosure? It’s one thing to place an lien on a property for the value of the HOA’s services rendered (HOA ’dues’ or fees). It’s quite another thing for an HOA to foreclose to collect that lien, especially when the lien amounts to a tiny fraction of the market value of the home being sold at auction.

Should the HOA corporation have that much power? Most homeowners, other than a few HOA board members, say ”No.”

Yes, it’s true that lenders are corporations that have the right to foreclose on a home if the borrower doesn’t make payments. But that’s because a lender provides the money to buy a home, and, in turn, it holds a mortgaged property as collateral.

Obviously, an HOA is not a lender. It makes no significant financial contribution to the purchase of a member’s home, and it doesn’t refinance mortgages or issue home equity loans. Why, then, does state law allow an HOA corporation have a legitimate right to foreclose on a member’s home?

The only logical explanation is that previous state Legislatures have yielded to heavy lobbying efforts of HOA-industry trade groups, because no consumer (home buyer or homeowner) would ever ask their elected representatives to allow HOAs to foreclose on their home for relatively small liens in relation to market values.

In doing so, lawmakers of decades past have erred by transforming HOAs into de facto mini-governments. HOAs have an automatic lien to collect local property taxes (maintenance fees or ’dues’) and have the legal right to foreclose, selling properties at tax sales (foreclosure auctions).The misguided decisions of past lawmakers have caused a great deal harm.

To get a sense for how the HOA foreclosure process exploits homeowners, read a few articles written for real estate investors and house flippers, recommending that they target foreclosure auctions to buy cheap homes and condos. Here’s one prime example:

Since the HOA cannot make a profit and are only able to collect the money that is owed to them, there is no incentive for the HOA to try and maximize the price at auction. This means HOA foreclosure auctions are often less competitive than bank foreclosure auctions because the HOA has no incentive to postpone the auction or hold out for a high minimum bid. 

If such a case led to the HOA selling at auction for simply the amount that they were owed, that could mean that the money the homeowner had paid towards the house is gone. The homeowner would still owe any remaining amount left to pay off the lender for a house he or she does not own anymore.

Source: https://reflipper.net/what-is-a-hoa-foreclosure-auction/

Bottom line, Legislators cannot prevent abuse and exploitation when the laws they make enable any private HOA corporation with police powers of government.

The law in Colorado and every U.S. state and territory has granted HOAs an onerous hybrid legal stature. Most of today’s HOAs are corporations, yet they have been granted powers and authorities previously held only by public officials of an elected government — including the power to levy fines, and the power to foreclose on HOA liens.

Judicial due process & Small Claims Court for HOA disputes

At a minimum, HOAs ought to be required to obtain judicial decisions on if, when, and how much they can recover financial damages, including fines. 

Even more importantly, a judge should always decide if and when an HOA foreclosure is appropriate. Many homeowners are unaware that currently, more than half of U.S. states allow nonjudicial foreclosure, including Colorado. 

As proposed by HB22-1137, the use of Small Claims Court could help settle homeowner disputes with HOAs. For example, homeowner complaints involving HOA deferred maintenance or the HOA’s refusal to provide access to records would no doubt result in appropriate injunctions against the HOA, and real help for homeowners.

One goal, according to HB22-1137 supporters, is to prevent enormous HOA liens and HOA foreclosure. By resolving relatively small collections problems, as they arise, Small Claims Court could help prevent bitter, drawn out, legal battles between homeowners and HOAs.

But, let’s face reality, court decisions are based upon state laws. If HOA law remains one-sided, homeowners will not necessarily find justice in Small Claims Court. Therefore, Colorado (and other) state Legislators must take further steps to prevent HOA abuse of homeowner rights. 

Create a new litmus test for enforcement of HOA Covenants

For the judicial system, including Small Claims Court, to work for property owners fighting against over-zealous HOAs, state lawmakers must set new, fair, and equitable legal standards with regard to HOA rights and powers. 

This is especially urgent when HOAs are influenced by aggressive HOA industry management companies and attorneys (such as in Green Valley), stakeholders that profit from creating misery for homeowners

HOA punishments must be aligned to fit an owner’s “crime” in the form of Covenant violations. Legislators need to establish a new litmus test: HOAs should only recover monetary damages — or have the last resort right to foreclose on homes and condos — when the owner’s Covenant violation justifiably warrants such harsh penalties. 

Consider that nearly all HOA Covenants, Restrictions, rules and regulations concern aesthetic matters of taste and appearance. The governing documents and deed restrictions rarely address matters of public health and safety, or prevention of public nuisances that disturb the quiet enjoyment of other residents in the neighborhood.

Let me illustrate by example, based upon real-life situations observed or litigated over many years of my research for IAC.

Let’s say an owner decides to paint his front door, and the HOA deems it an unapproved color. Maybe it’s the wrong shade of beige. Maybe it’s a bright color that the owner loves, but others find a bit too bold. No matter. The owner disagrees with the HOA, doesn’t repaint the door, and the HOA imposes a fine. 

Another owner seeks HOA approval to install a fence, supposedly gets approval (or proceeds without formal approval, because the HOA has failed to respond within the time limit specified in the CC&Rs). But, soon after the installation is started or completed, the HOA cites the owner with violating aesthetic restrictions or procedural rules, and demands the owner remove or modify the fence. The owner, having spent a small fortune on local permits and a new fence, understandably chooses not to comply, and the HOA fines the owner. 

A third owner parks her vehicle in the driveway of her townhouse, but the HOA insists it’s too big, has advertising painted on the outside, or that the CC&Rs (or board enacted rules and regs) require ALL vehicles to be parked ONLY in the garage. Although they may be documented in the Declarations of Covenants, these ridiculous restrictions and rules are are unreasonable. Therefore, 100% compliance is impractical for the vast majority of owners and residents. The HOA imposes a fine against the owner, and many of her noncompliant neighbors. 

A fourth owner of a condo unit hangs room darkening curtains or blinds in her bedroom. The owner works a night shift, and needs the room darkening window coverings so she can sleep during the day. Condo rules require that all window coverings conform to the same standards — must be white or off-white blinds viewable from the outside. The condo association fines the owner. 

Do any of these HOA Covenant violations justify $50 per day fines? If the fines remain unpaid, do these HOA “crimes” deserve punishment by HOA foreclosure?

I have a hunch that the vast majority of U.S. homeowners would answer both questions with a resounding “NO!”

HOA punishments must be aligned to fit an owner’s “crime” in the form of Covenant violations. Legislators need to establish a new litmus test: HOAs should only recover monetary damages — or have the last resort right to foreclose on homes and condos — when the owner’s Covenant violation justifiably warrants such harsh penalties.

HOAs aren’t necessary to enforce Covenants, and HOAs shouldn’t be enforcing local laws

In most cases, zoning laws and local ordinances already exist to deal with truly blighted properties and irresponsible or illegal behavior by owners or residents. It’s also true that an HOA isn’t necessary to enforce local laws. Homeowner advocates — those not aligned with HOA-industry trade groups — also undestand that an HOA shouldn’t be expected to enforce redundant covenants and restrictions, when local government already taxes the public, in part, to fulfill these essential public duties.  

For example, let’s consider some serious violations that actually do threaten the health and safety of the community, or owner behaviors that create real nuisances. These might include:

  • allowing a landscape to become overgrown with knee- or hip-high grass that harbors ticks, rodents, and snakes; trees and shrubs that block walkways or vehicle intersections; tree limbs that threaten neighboring properties
  • allowing a home or condo unit to deteriorate, inviting pests and vermin, or creating a mold problem or a fire hazard
  • failure to secure and/or maintain a swimming pool or spa, creating a drowning hazard for children
  • creating frequent noise disturbances: barking dogs, playing loud music, late night partying, loud or violent domestic disputes, etc. 
  • conducting criminal activity out of one’s home

Note that all of these serious HOA violations would also be violations of local or state law. Wouldn’t it be best if qualified, trained, and paid local authorities intervened to enforce local and state laws? A volunteer-led HOA board should not have that burden!

By now, the crux of the HOA abuse problem should be obvious to readers. Worst case scenario, the biggest injury involved in 99% of HOA violations is an eyesore. Put simply, someone in the neighborhood might not like the way a property looks. 

Certain HOA-industry trade groups will continue to claim that imperfect appearances and nonconformity will cause property values to plummet. They will try to justify the existence of HOAs, and the need to maintain their vast powers. But there’s no convincing economic data to back up their claims. On the contrary, HOAs come with extra fees and onerous restrictions that tend to reduce property values.

(Side note: I know I’ll get an email or two from the very small minority of homeowners who happen to be True Believers in strict enforcement of HOA aesthetic standards. So be it.)

By now, the crux of the HOA abuse problem should be obvious to readers. Worst case scenario, the biggest injury involved in 99% of HOA violations is an eyesore. Put simply, someone in the neighborhood might not like the way a property looks. 

HOA’s were never necessary for enforcement of neighborhood standards. 

In fact, Covenants and Restrictions have existed for more than a century, long before HOAs were dreamed up by some neighborhood busy bodies and real estate developers as a way to enforce rules and standards designed to keep out the ”wrong” kind of people.

Legislators need to consider this sordid history behind HOA law.

Before HOAs, disputes over deed restrictions and Covenant violations occurred rarely, between quarreling neighbors, and (surprise!) those disputes were settled in court, not by the HOA or its committee members. In those days, neighbor disputes were fought and resolved without dragging the entire neighborhood into the fray, without anyone compelling them to pay for a legal battle that did not involve them.

In other words, community living wasn’t always dominated by authoritarian HOAs.

State Legislators have enabled HOAs to fine homeowners and foreclose HOA liens. Now they can reverse course.

Lawmakers ought to read the Covenants of legacy communities with HOAs established 40-50 years ago. Back then, HOAs did not have the authority to levy fines or foreclose on HOA liens.

In the 1970s, after the real estate industry lobbied for federal support of mortgage financing for condominiums and homes in planned communities, HOAs started to increase in number. But, prior to around 1980, most HOAs (not condos) were voluntary membership organizations. 

In these early planned communities, homeowners were not required to pay dues. If they didn’t pay their fair share, they and their guests were simply not allowed to use recreational amenities or vote on HOA business matters. An HOA could place a lien on a property to cover its costs for mowing an overgrown lawn or fixing peeling paint on a neglected property, but it could not foreclose to collect that lien. 

Believe it or not, prior to the establishment of a national HOA-management trade group, an HOA had to provide real value, or people would stop paying dues. HOAs were not guaranteed a perpetual revenue. That’s why HOA-industry talking heads started crying about the need for mandatory assessment liens, to prevent “free riders” from enjoying community amenities, without paying for them. The truth is, most of the non-payers were not using the amenities, and did not think they should have to pay for other people to maintain their lifestyles.

Around the same time, though, local governments started making deals with real estate developers. Developers agreed to create common interest communities with HOAs that would require homeowners to make mandatory dues payments to cover the cost of private community services. 

Privately governed communities were soon expected to provide maintenance for their neighborhood roads, their stormwater management ponds and catch basins, street lighting, waste disposal services, community security, and other essential services that would have ordinarily been provided by local governments. 

But by the mid 1980s, HOA-management trade groups and developer attorneys began writing and amending HOA governing documents to required mandatory membership of all owners in the HOA. They also helped to amend state law to explicitly grant HOA and condo boards the power to foreclose on liens. Nowadays, most HOA members that do not pay dues or assessments in full and on time will face property liens and potential loss of their home to foreclosure by the HOA.

Yet the HOA-industry stakeholders lobbying against HOA regulation cannot show any evidence that increasing HOA powers has improved community maintenance standards. On the contrary, the majority of HOA-governed communities exhibit deferred maintenance and have insufficient financial resources to make repairs and fix their common infrastructure. Meanwhile, there’s plenty of evidence that HOAs abuse the powers to levy fines and foreclose on HOA liens.

Concluding thoughts:

I hope that most readers of this post will agree with the hoards of angry homeowners in Green Valley, Colorado. HOA corporations have way too much power, and board members and HOA-industry enforcers often abuse that power. 

The problem is that the vast majority of HOA fines are imposed for relatively minor offenses, under the guise that an owner’s personal taste or benign attempts to use the property for personal enjoyment, somehow reduces property values. In some cases, HOA fines are misused as an authoritarian measure to bully a disliked owner, or a covert or blatant attempt to force the owner (and perhaps owner’s tenants) out of the community. 

To make matters worse, state laws generally do not require minimum bids or reasonable sale prices of homes sold at HOA auctions. Many HOA foreclosure buyers have obtained homes for a few thousand dollars, or slightly above the HOA’s lien. That generally wipes out all of the owner’s accumulated equity in their former home, and creates a windfall for house flippers, investors, and HOA board members (or affiliates) engaging in de facto insider’s trading. 

As currently drafted, legislative proposals such as HB22-1137 in Colorado, do nothing to address these fundamental issues. 

Sources:

In Colorado, taking HOAs to court can be costly, time-consuming Jaclyn Allen (Denver 7) Posted at 6:31 PM, Mar 15, 2022  and last updated 8:56 AM, Mar 16, 2022

A Denver HOA in Green Valley Ranch is threatening to foreclose on homes over aesthetics by Kevin Beaty (Denverite) Mar. 09, 2022, 4:00 a.m.

What is a HOA Foreclosure Auction? by Nika Magradze REflipper.net

‘THAT’S TOO MUCH POWER’ Legislator calls for limits on HOA collection by Pam Zubeck Feb 23, 2022 Updated Feb 23, 2022

Read CO HB22-1137: https://leg.colorado.gov/bills/hb22-1137