Covenants and Homeowners Associations (HOAs) are a mixed blessing. On the one hand, they contribute to the maintenance of good maintenance of residential properties, thus enhancing the value of the properties. On the other hand, they restrict individual choice and can be a catalyst for intimidation by an overly aggressive HOA.
In an effort to reduce the squabbles that covenants and HOAs tend to generate, the Colorado Legislature regularly amends the complex (some would say incomprehensible) law that governs these issues – the Colorado Common Interest Ownership Act (CCIOA). In 2013, the legislature made major changes to the CCIOA to limit the actions that HOAs can use to collect overdue accounts.
The 2013 legislation stated that HOAs could not use a collection agency or sue to collect a debt unless the HOA first adopted and followed a written debt collection policy. The policy, among other things, should outline when appraisals are due and when they become overdue, and how late fees, interest, NSF check fees and the like are determined and applied.
Under the 2013 amendments, the HOA debt collection policy must state that defaulting owners will receive written notice before collection activity begins, to include the amount owed and how it was calculated. The policy should outline how payments received from a defaulting owner will be applied to legal fees, interest, late fees, fines, pending appraisals, overdue appraisals, etc. The policy should also outline any legal remedies the HOA can use to collect an overdue account.
The 2013 legislation prohibits HOAs from seizing liens on property from a delinquent homeowner unless the amount in question equals at least six months of regular appraisals. And, before a lien foreclosure action is brought, a majority of the HOA’s Board of Directors must formally decide to bring the action, by a recorded vote. (It helps homeowners decide which council members to sue when the situation turns into a full-blown court shootout.)
Now, to update you, the 2022 Legislature (HB22-1137) has added additional complexity to the CCIOA, and other requirements an HOA must follow before taking action to collect amounts they believe are owed. by an owner. Under the 2022 legislation, owners can specify the language the HOA must use when sending notices; fines are capped at $500; late fees and fines may not be assessed daily; defaulting owners must receive monthly statements detailing overdue appraisals, fines, fees and other charges; interest on overdue amounts cannot exceed 8%; homeowners are entitled to two 30-day cure periods; and foreclosure is not allowed if the only amounts owed come from fines and attorney fees rather than appraisals. Additionally, before an HOA can begin a foreclosure, the homeowner must be offered a payment plan that provides monthly payments over an 18-month term. Foreclosure is not permitted until the homeowner has missed three monthly payments under the plan.
The 2022 amendments further state that a landlord may sue the HOA for damages if the HOA violates any of the CCIOA’s debt collection restrictions. Damages are capped at $25,000. However, the owner can also recover attorneys’ fees and other legal fees. A homeowner has five years to bring such a lawsuit.
Predictably, the officers and trustees who run HOAs (as unpaid volunteers) believe the legislature has gone too far and made enforcement of the covenants virtually impossible. It seems likely (to me at least) that future legislatures will be called upon to try again to balance the rights and obligations of landowners and HOAs in common property communities.
Jim Flynn is with the Colorado Springs company of Flynn & Wright LLC. You can contact him at [email protected]