HOAs Face New Regulations
By: Thomas Long and Scott Goebel, edited by Annie Murphy
Colorado recently passed new laws regulating Homeowners Associations (“HOAs”) under HB 22-1137, the “Homeowners’ Association Board Accountability and Transparency Act” (the “Act”). For HOA members (referred to as “unit owners” under CCIOA), the Act provides a blanket of protection against foreclosure actions and certain methods of collection. For HOAs, the Act creates a headache that will almost certainly require a revision of governing policies to enforce covenant compliance and pursue collections. Regardless of your camp, you’ll want to know the many new requirements for HOAs.
C.R.S. § 38-33.3-209.5, now a five-page subsection of CCIOA, addresses responsible governance policies, due process for the imposition of fines, the procedure for collection of delinquent accounts, and enforcement through small claims court. This section received a major overhaul regarding collections efforts. The change went into effect on August 10th of this year.
Notice Requirements for Delinquent Accounts
HOAs must provide monthly written notice to delinquent accounts for any outstanding balanced owed to the association, including an itemized list of unpaid fines, fees, and charges. While subsequent notices can be sent via first-class mail and email, the initial notice and itemized list must be served via certified mail, return receipt requested, email or text message if on file, and by physically posting the notice on the delinquent member’s unit. Notices of delinquency must:
· Be written in English or the preferred language of the unit owner;
· Describe the nature of the delinquency;
· Warn that unpaid assessments can lead to foreclosure;
· Describe the steps the HOA must take before legal action can be taken;
· Describe the HOA’s cure process; and
· Describe what legal actions the HOA may take, including a description of the types of matters the HOA or unit owner can take to small claims court, including injunctive matters.
Fines & Fees for Delinquent Assessments or Covenant Violations
Under the Act, HOAs are prohibited from imposing daily fines or fees against a unit owner. And, interest rates for unpaid assessments, fines, or fees are capped at 8% per year. Further, HOAs are prohibited from fining a unit owner unless the HOA adopts and follows a written policy for the imposition of fines that:
· Includes notice of the alleged violation;
· Offers the unit owner an impartial fact-finding process and the opportunity to be heard;
· Describes the actions required to cure the violation; and
· Defines the timeline for the fact-finding process.
Finally, an HOA is no longer permitted to recover the administrative costs associated with providing a unit owner with a statement of the amount owed.
If the HOA has followed the Act’s new notice requirements, any referral of the delinquent member to a collection agency or attorney requires a majority vote of the board in a recorded vote. Further, to use a collection agency or take legal action, HOAs must adopt and follow written policies governing the collection of unpaid assessments that specify, at a minimum:
· The date on which assessments must be paid and when assessments are considered late and delinquent;
· Any late fees and interest the HOA is entitled to impose on delinquent accounts;
· Any returned-check charges the HOA is entitled to impose;
· The circumstances under which a unit owner is entitled to enter into a payment plan with the HOA and the minimum terms of the payment plan according to C.R.S. § 38-33.3-316.3;
· That, before a delinquent account is turned over to a collection agency or an attorney, the HOA must send the unit owner a notice of delinquency containing the following information:
o Total amount due with an accounting of how the total was determined;
o Whether the opportunity to enter into a payment plan exists and how to contact the HOA to enter into a payment plan;
o The contact information for the individual the unit owner may contact to request a copy of their ledger to verify the debt; and
o That action is required to cure the delinquency and “that failure to do so within thirty days may result in the unit owner’s delinquent account being turned over to a collection agency, a lawsuit being filed against the owner, the filing and foreclosure of a lien against the unit owner’s property, or other remedies available under Colorado law.”
· The method by which payments are applied to the delinquent account; and
· The legal remedies available to the HOA pursuant to the HOA’s governing documents and Colorado law.
HOAs are further prohibited from initiating a foreclosure action if the lien against the unit owner solely is based on unpaid fines or attorney fees associated with the collection of fees.
To initiate a foreclosure against a delinquent account, HOAs must meet certain requirements, including:
· Adopt and comply with the Act’s requirements;
· Adopt a policy that applies payments first to assessments owed and then to fines, fees, or other charges; and
· Make good faith efforts to coordinate a payment plan as described below.
A repayment plan must be offered in writing by the HOA to the unit owner. The proposed plan must allow the unit owner to pay the deficiency over a period of at least 18 months in equal installments and must allow the delinquent account to choose the amount to be paid each month, so long as each payment is at least $25 until the balance of the amount owed is less than $25 over the 18-month period. Thirty days after the HOA has provided a written offer of a repayment plan, the delinquent owner must have declined the plan, or accept the plan but fail to pay at least three monthly installments within 15 days after they were due.
Thus, to initiate a foreclosure, HOAs must ensure they are in compliance with the Act and have offered members an opportunity to cure. HOAs will have to exercise more patience in exercising the nuclear option of foreclosure, as members are afforded a three-month grace period on repayment plans.
Failure to comply with the Act’s new requirements can have serious repercussions for HOAs. A delinquent owner merely has to show, by a preponderance of the evidence, that the HOA violated the Act’s foreclosure laws, and is entitled to an award up to $25,000, plus costs and attorney fees.
Alternatively, an HOA may wish to monitor delinquent accounts and nip them in the bud. Rather than waiting for the accumulation of unpaid assessments to justify foreclosure, a safer remedy may be pursuing delinquent accounts through small claims court. The Act does not prohibit HOAs from exercising this right, namely pursuing claims that do not exceed $7,500.
HOAs aware of the Act’s requirements can still successfully collect against delinquent accounts but should be prepared for a longer, more arduous process. The first proactive step is reviewing written policies and revising and adopting policies to meet the new requirements. For members, being aware of the new requirements will help prevent unlawful collections efforts.
If you would like to speak with an attorney about revising your governing policies, please give our office a call at 970-241-5500.
 CCIOA refers to the Colorado Common Interest Ownership Act, Article 33.3 of Title 38 in Colorado Revised Statutes.  C.R.S. § 38-33.3-209.5(1.7)(a)(I)  C.R.S. § 38-33.3-209.5(6)  C.R.S. § 38-33.3-209.5(1.7)(b)(I); C.R.S. § 38-33.3.-209.5(8)(a)  C.R.S. § 38-33.3-209.5(2)(c)  C.R.S. § 38-33.3-209.5(1.7)(a)(II)  C.R.S. § 38-33.3-209.5(5)(a)(I-VII)  C.R.S. § 38-33.3-209.5(8)(c)(I-II); C.R.S. § 38-33.3-209.5(b)(II)(B)  C.R.S. § 38-33.3-209.5(7)(a)(I-III); C.R.S. § 38-33.3-316.3  C.R.S. § 38-33.3-316.3(5)  C.R.S. § 38-33.3-209.5(9)