Homeowner and Condominium HOA Collection Policies: Will Your Governing Documents Allow Collection of Past Due Assessments?

by Sherman & Howard L.L.C.

Once again the Colorado Legislature has adopted new legislation governing owners' associations, including four bills in the so-called HOA Reform Package that have either gone into effect, or will go into effect January 1, 2014.  This Client Advisory addresses one of the four bills, which requires the adoption of a Collection Policy by common interest communities subject to the Colorado Common Interest Ownership Act ("CIOA").

Mandatory Debt Collection Policy
House Bill 13-1276 amends C.R.S. §38-33.3-209.5 regarding responsible governance policies, and requires most HOAs[1] to adopt a Collection Policy including the following minimum requirements:   

  • The date on which assessments must be paid to the HOA and when an assessment is considered past due and delinquent.
  • Any late fees and interest the HOA is entitled to charge on a delinquent owner's account.
  • Any returned-check charges the HOA is entitled to charge.
  • The circumstances under which a delinquent owner is entitled to enter into a payment plan and the minimum terms of the payment plan.   

Before the HOA turns over a delinquent account to an attorney or collections agency, the HOA must send the delinquent owner a written notice specifying:  (i) the total amount of the arrearage, with an accounting of how the total arrearage is determined; (ii) whether the opportunity to enter into a payment plan exists and instructions for contacting the HOA to enter into the payment plan; (iii) the name and contact information for the individual the owner may contact to request a copy of the owner's ledger to verify the amount of the debt; and (iv) that action is required to cure the delinquency and failure to do so within 30 days may result in the account being turned over to a collection agency, a lawsuit being filed against the owner, the filing and foreclosure of a lien against the owner's property and other remedies available under Colorado law. 

Third-party holders or assignees of a HOA's debt are also subject to the adopted HOA Collection Policy and must comply prior to taking action to foreclose on any assessment lien or collect on the debt.

An HOA, or the assignee of the HOA's assessment lien, may only foreclose if the total amount secured by the lien would equal or exceed six (6) months of common expense assessments.  Also, the Board must vote to proceed with foreclosure on any given delinquent account, and may not delegate Board responsibility to authorize a foreclosure action to an attorney, insurer, manager or any other person. 

This provision, while not in direct conflict with the ­super-priority provisions of Section 316 of CIOA, will certainly create some practical difficulties.  The ­super-priority provisions grant  priority to the HOA's lien in an amount equal to six months of regular assessments, meaning that upon foreclosure, only an amount equal to six months of regular assessments has priority over any recorded mortgage or deed of trust encumbering the property.  If the HOA cannot foreclose until the delinquency exceeds an amount equal to at least six months of regular assessments, it is likely that the process to obtain Board approval for legal action, and proceed with foreclosure, potentially means that several months of regular assessments will continue to accrue that will not be entitled to ­super-priority.      

Payment Plan 
The HOA must make a good-faith effort to coordinate with a delinquent owner to set up a payment plan that must, at a minimum, permit the delinquent owner to pay off the deficiency in equal installments over a period of at least six months.  If the delinquent owner fails to comply with a payment plan or to remain current on regular assessments, the HOA may then pursue legal action.  The payment plan provisions do not protect an owner which does not occupy the unit, if that owner acquired the unit as a result of a defaulted security interest, such as a mortgage or deed of trust. 

This 2013 legislation follows a series of other HOA responsible governance policy requirements  from prior years, including policies governing director conflicts of interest, the conduct of meetings, notice and hearing procedures for enforcement of covenants and rules, a schedule of fines, inspection of HOA records, investment of reserve funds, disputes between owners and the HOA, and reserve studies.

Filing a lawsuit for past due assessments after December 31, 2013 without adopting and following appropriate policies may result in the HOA being unable to collect attorney's fees and the like, or even paying the legal fees of the unit owner, as CIOA mandates the award of legal fees to a prevailing party in any civil action to enforce or defend the provisions of CIOA or to enforce the HOA declaration, bylaws, articles, or rules and regulations.  Accordingly, all owners and HOAs should review their governing documents and consult with counsel regarding compliance with the many mandatory provisions of CIOA for responsible governance policies.  

[1] There is a limited exception for small pre-existing cooperatives and planned communities (not condominiums) created prior to July 1, 1992 that contain no more than 10 units and are not subject to any development rights, and have not previously elected to be governed by the provisions of the Colorado Common Interest Ownership Act. C.R.S. §38-33.3-119 (2013).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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