New Colorado law restricts HOA foreclosures and fines

A step in the right direction for protection of Homeowners’ property rights

By Deborah Goonan, Independent American Communities

Updated Jun 14, 2022 9:07 PM EDT

Last week, after months of contentious debates in the state Legislature, Colorado Governor Jared Polis signed a bill (HB22-1137), adding new regulation of the HOA foreclosure process.

The new Act amends the Colorado Common Interest Ownership Act (CCIOA) by adding several new consumer protections for owners of homes in condominium and homeowner association governed communities. In this post, I’ll summarize the key features of the new Act.

(Note: in this article, I will use the terms ”HOA” and ”HOA-governed communities” to include both condominiums and planned communities of detached or attached single family homes.)

HOAs can no longer foreclose liens for unpaid fines

The Act still empowers an HOA to impose fines for violations of its governing documents. However, as of August 10, 2022, an HOA can no longer foreclose to collect liens filed as a result of unpaid fines for violations of the governing documents of the community association.

Put another way, any HOA lien for fines OR fees and collection costs associated with those unpaid fines cannot be foreclosed.

In addition, the HOA must meet strict new notice requirements before it can fine and file a lien for unpaid fines.

Notice and opportunity to cure HOA violations, prior to fines or legal action

In the event an owner violates the covenants or rules and regulations in the governing documents, the HOA is required to provide written notice of the violation, with timestamped photographic evidence, whenever possible.

CCIOA now differentiates between two types of HOA violations: those that pose a threat to public health and safety, and those that do not.

If a violation poses a threat to public health and safety, the HOA need only provide 72-hours for the owner to respond and correct the violation. After that, if the matter has not been resolved, the HOA can fine the owner every other day, until the violation is cured.

If the violation poses no threat to public health or safety, the owner has two consecutive 30-day periods to correct it. However the HOA can begin to fine the owner after the first 30 days, and commence legal action if the issue is still not resolved at the end of the second 30-day period.

An owner can provide photographic evidence that the violation is cured, but, if the owner does not do so, the HOA is obliged to visit the property to determine whether or not the owner has addressed the problem or deficiency. The HOA must acknowledge, in writing, when a violation has been cured, informing the owner that fines will no longer be imposed.

Unfortunately, under certain conditions, CCIOA does not set a limit on the number of fines that can accumulate while the owner’s property remains in violation of HOA rules or covenants. The original draft of HB22-1137 had set a cap of $500 for all HOA fines, but CAI attorneys lobbied to remove any monetary limits on HOA fines for violations that threaten public health and safety, even though the HOA still retains its right to pursue legal action for actual damages in these more serious cases.

But new provisions of CCIOA require HOAs to send an itemized monthly invoice to any homeowners with unpaid assessments, fines, fees, and other charges. The written notices must be sent by postal mail, and email, if provided by the owner.

HOA must provide ample notice of assessment delinquency, liens, and intent to foreclose

CCIOA now requires notice to homeowners of any HOA assessment/maintenance fee delinquency. The HOA must document its efforts to contact the owner by at least three different methods, and must make any written notice in the preferred language of the homeowner. The required methods of contact include certified mail, return receipt requested, and posting a notice on the door of the home or unit in violation. The third notice to an owner can be sent by postal mail, text message, or email.

Again, the HOA is required to send an itemized monthly invoice to all homeowners with any unpaid assessments, fines, fees, and other charges, by postal mail and email, if email is provided by the owner.

HOA majority board vote required to refer an account to collections

For the first time ever, HOA boards will be required to take a formal vote on which delinquent accounts to refer to a collections agency or law firm. This is important, because it prohibits an HOA manager from automatically referring delinquent accounts to collections without the board’s knowledge or involvement. Therefore, HOA boards will no longer be legally or emotionally insulated from their decisions.

In addition to taking a formal vote, the HOA must comply with all delinquency, lien, and intent to foreclose notices, before a foreclosure can be initiated.

Restrictions on who can purchase a property at HOA foreclosure sale

In order to eliminate conflicts of interest and perverse incentives to foreclose, the new Act had added a key restriction on who can purchase a property at HOA foreclosure sales. CCIOA now states that the following parties may not purchase a home or condo at an HOA foreclosure auction: any member of the executive board of the HOA, any employee of a management company working for the HOA, any employee of a law firm providing services to the association, or any immediate family member of the HOA’s board, management company, or law firm.

HOAs must offer 18-month payment plan to homeowner

Another consumer protection measure, CCIOA now requires HOAs to offer a payment plan to the homeowner, allowing a full 18 months to become current on HOA assessments. Also, HOAs cannot charge more than 8% interest on accounts or payment plans. A homeowner can choose the amount of the monthly payment, as long as it’s at least $25. HOAs can no longer charge fees to the owner for providing an itemized account statement.

Notably, any HOA can still opt to foreclose if the home or condo owner either declines the payment plan, or after agreeing to a plan, then misses three payments.

Owners and HOAs can opt to use Small Claims Court to settle disputes

Colorado law now clarifies that both HOAs and homeowners can file complaints — and hopefully resolve disputes — to recover losses or damages up to $7,500 in Small Claims Court.

The law specifically allows HOAs to use Small Claims Court to pursue disputed fines or small assessment delinquencies.

But here’s a lesser know fact that HOA industry trade groups aren’t talking about. Homeowners can also use Small Claims Court to obtain injunctions (court orders) to force the HOA to live up to its contractual obligations under the Declarations or CC&Rs. For example, an owner might sue in small claims court, in search of a court order that their HOA to provide access to official records, or to perform common area or exterior maintenance as required by the governing documents.

Applications of payments: HOA assessments first

Colorado statute now clearly states that any payment an owner makes to the HOA must be applied first to the past due assessments, then to fines, fees, or other charges owed. This is important, because HOAs can only foreclose on assessment (maintenance fee) liens. If the HOA were to apply partial payments to fines or attorney fees first (a common practice prior to HB22-1137) it would be difficult, if not impossible, for a homeowner to eliminate their HOA assessment lien, which could then lead to foreclosure.

To the dismay of HOA attorneys, homeowners can now sue HOAs for violating CCIOA foreclosure laws!

The statute allows homeowners to assert their rights by suing their HOA in civil court. If an owner proves to the court, by a preponderance of evidence, that the HOA violated any CCIOA foreclosure laws, as per statute, then the court can award the owner $25,000 PLUS costs and reasonable attorney fees.

This provision, in particular, has stoked the ire of HOA-industry attorneys.

HOA industry attorneys hate accountability!

CAI and similar trade groups hate the fact that they will now have to adhere to the very same delinquency, lien, and foreclosure notice requirements that exist for lenders and local governments. They don’t want to allow owners to have time to cure violations or repay their debts on payment plans. All of these vital consumer protections delay the process of strong-arm collection of fines, and additional due process requirements for HOA foreclosures limit their potential to collect exorbitant attorney fees.

That explains why HOA attorneys literally flooded CAI members with a barrage of emails, begging their members to ask Governor Polis to veto HB22-1137.

For example, here’s a VETO plea from Lindsay Smith, partner at Winzenburg, Leff, Purvis and Payne, LLP and Chairman of the Community Associations Institute’s Colorado Legislative Action Committee. In her diatribe, Smith laments that the HOA foreclosure regulation bill will ”eliminate fines as a means of enforcement,” ”confuse owners by requiring notices regarding amounts owed,” and ”create accounting errors for management companies and communities by removing fees, charges, awarded attorney fees, and late charges from the foreclosable HOA lien, but leave them as part of the lien that must be paid at sale or refinance.”

Well, that’s the point of the new regulations. Notice that, apparently, Smith has little faith in the ability of her management colleagues to do the math necessary to produce accurate invoices.

In another anti-HOA-consumer essay, Melissa Garcia, Shareholder of Altitude Law, and a frequent teacher of HOA courses for CAI, makes it clear how she thinks HOA attorneys can get around the new law that prevents collection of HOA fines (my emphasis added):

… if the Owner has both unpaid assessments and unpaid fines, fees, or other charges on the Owner’s account, any payment made by the Owner must be applied first to the Assessments owed and the remaining amount can then be applied to fines, fees, or other charges owed. So, if an Owner pays down the Assessment balance so that the remaining balance is made up of only fines, attorney fees, or other costs, then the Association is unable to use foreclosure as a remedy since an Association can no longer foreclose on a lien that consists only of fines or collection costs/attorney fees (other than such costs/attorney fees that were associated with the initial unpaid Assessment balance). However, the Association is still free to proceed with the collections process on these balances, with the intention of getting a judgment against the homeowner and collecting through garnishments.

VETO HB22-1137 BEFORE IT’S TOO LATE (Melissa Garcia, Altitude Law)

Want another example of HOA attorney angst?

In his 90-minute YouTube video, CAI HOA attorney David Firmin of Altitude Law firm complains about the provision that now prevents family members of HOA boards, management companies and attorneys from buying HOA foreclosure properties. Firmin’s objection: this is going to put his brother, a real estate investor, out of business. (Well, cry me a river!) In the next breath, Firmin also calls the ability of an owner to sue the HOA for foreclosure law violations ‘ridiculous.’

Watch this clip, taken at the 52:30 minute mark, and listen with your own ears.

Screenshot of slide from Attorney Firmin’s Legislative Update posted on YouTube

Thankfully, Governor Polis recognized these urgent veto requests for what they are: self-interested tirades by HOA-industry attorneys, who stand to lose their ability to make rain by instigating HOA foreclosures.

Analysis and suggestions for future reform

In my opinion, the two most important CCIOA amendments are requiring board members to vote to proceed with collections, and the anti-conflict-of-interest restrictions with regard to purchasers at HOA foreclosure sales. I think these two provisions alone will help to reduce the number of HOA foreclosures, for two reasons.

First, reasonable board members are less likely to inflict a harsh outcome upon an owner for HOA liens that are a small fraction of the value of the home. CCIOA now forces HOA board members to discuss the merits of sending accounts to collections, which prevents one aggressive HOA board member or manager or attorney from acting as the Sole Enforcer of HOA collections. And second, the law now essentially prohibits HOA insiders from purchasing HOA foreclosure homes at bargain prices, hoping to flip them or rent them out for personal profit.

The third most beneficial consumer protection is the elimination of the HOA’s right to foreclose liens related to fines and associated collection costs. This makes it illegal for HOAs to take away an owner’s home for trivial reasons, such as not keeping their lawn short enough, not taking their trash cans in from the curb soon enough, or hanging ”unapproved” window coverings in one’s condo.

Other amendments to the CCIOA offer additional consumer protections. Increased notice requirements will help owners to avoid HOA liens and post-foreclsoure eviction notices. Payment plans may help some owners pay their debts, so they can remain in their homes. Small Claims Court offers a less intimidating, more cost-effective dispute resolution forum for homeowners. It offers the opportunity for early resolution of delinquent accounts and assessment disputes, before they escalate to civil court or end up with the owner losing their property to HOA foreclosure.

Applying partial payments to HOA assessments first, and requiring judicial approval of reasonable attorney fees offer some additional layers of consumer protection.

However, Colorado law still allows HOA foreclosures for collection of HOA assessment liens and substantial sums of associated attorney fees. The Act now states that a judge must determine reasonable attorney fees, which may somewhat limit the amount of billable hours HOA attorneys can collect on each delinquent account. But, it does not prohibit attorney fees that typically far exceed the amount of the actual HOA maintenance fee delinquency.

In my opinion, future housing consumer legislation should continue to seek strict limitations on attorney fees and collection costs in relation to the amount of past due HOA assessments.

As I have opined before, I think that, in general, state law in Colorado (and other U.S. states) should prohibit foreclosure of HOA liens that represent a tiny fraction of the HOA operating budget. Owners shouldn’t lose their homes over a few thousand dollars of past due assessments. Simply put, the punishment does not fit the crime.

To be fair, state law should guarantee the HOA’s right to collect assessment liens (and limited attorney fees) when the property is eventually sold or legally conveyed to a new owner. That would eliminate the HOA’s perceived need to foreclose as soon as possible.

Furthermore, any property that is sold at a foreclosure sale should have a starting bid of 80% of the home’s appraised value, as was proposed in the original draft of HB22-1137, but later stripped from the bill after CAI lobbied against the provision.

Bottom line, if an owner ultimately loses their home to foreclosure, they should still be entitled to accumulated equity the property has accumulated. The primary goal of the HOA board should be to find new homeowners who will take care of the property, not to severely punish the former owner, or to create goldmines for real estate investors.

Further reading: Get the back story on why HOA fine and foreclosure reform is so vital.

Read the new HOA Foreclosure regulations on Colorado Legislative Website

They faced foreclosure not from their mortgage lender, but from their HOA by Brittany Freeman, Rocky Mountain PBS, With Data Analysis By Sophie Chou And Research By Mariam Elba, ProPublica• Published on April 7, 2022 • Last modified on April 29, 2022

See the ProPublica website that followed amendments to Colorado reform legislation.

Colorado legislature passes HOA foreclosure reform bill, By Brittany Freeman• Published on May 3, 2022

“Tip of the iceberg”: Green Valley Ranch foreclosures spotlight Colorado’s lack of HOA regulation By NOELLE PHILLIPS | and SAJA HINDI | | The Denver Post PUBLISHED: April 3, 2022 at 6:00 a.m. | UPDATED: April 4, 2022 at 12:02 p.m.

The City of Denver also passes its own HOA foreclosure law

Colorado Court of Appeals affirms ruling in 2019 Loveland foreclosure case, vacates order to pay, By AUSTIN FLESKES | | April 18, 2022 at 8:07 p.m.

Krenning said the next step is to take the case back to court before McDonald to get the cure amount Hummel paid back for her.
“Martha Hummel shouldn’t have been forced to pay ransom to keep her house,” he said.

This article was edited to clarify that HOA fines for certain violations are limited to $500. HOA fines for violations of covenants, restrictions, and rules that do not threaten public health and safety are indeed capped at $500. Fines for violations of the governing documents that do pose threats to public health and safety are not limited to $500. The original version of this post mistakenly reported that the $500 cap on HOA fines had been completely removed from the original draft of HB22-1137.

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