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HB22-1137: Foreclosure Requirements

02/01/2023 2:41 PM | Anonymous member (Administrator)

By Amanda Ashley, Altitude Community Law

HB22-1137 revises the “pre-turnover” steps that the association must take before it may proceed with a foreclosure action.  Most importantly, and perhaps the biggest point of contention giving rise to this portion of the bill, is that an association may not foreclose on a unit if the lien consists only of one or both of the following: (i) fines; or (ii) collections costs or attorney fees that the Association has incurred and that are onlyassociated with assessed fines.


And of course, the association must follow all required steps of the statute, including the new requirements set forth by HB22-1137, before it can turn the matter over to an attorney to proceed with foreclosure including a board vote on whether to turn the matter over for foreclosure.


Prior to initiating foreclosure, the association must first contact the owner at least one time and send the required delinquency notice just as it would need to if it were turning the action over to an attorney for collection.  


However, one of the primary differences here is the information that must be in the delinquency notice if the Association intends to proceed with foreclosure. While the owner must be offered the repayment plan as s/he would have been for the collection action, the owner is allowed to choose the monthly repayment amount, as long as the monthly repayment amount is at least $25.00 per month. What does this mean for balances that will not be paid off over 18 months at $25.00 per month? HB22-1137 remains unclear, but theoretically, it means there will likely be a large balloon payment in month 18 to cover the remaining balance due at that time. 


Once the above Notice of Delinquency has been sent to the owner, the association must wait 30 days to see if the owner declines the repayment plan.  If declined, then the Association may proceed with turning over the file to an attorney to initiate foreclosure proceedings. HB22-1137 is silent as to what happens if the owner simply fails to respond to the payment plan notice rather than expressly declining the repayment plan.  At this time, the general school of thought seems to be that the failure to respond is, in effect, the same as declining the repayment plan. 


However, if the owner does accept the repayment plan, then the association may not proceed with a foreclosure proceeding unless and until the owner defaults on the repayment plan at least three times during the 18-month plan. The owner has up to 15 days after the due date to make each monthly installment, so the owner is not in default unless the monthly installments have not been remitted by the 15th day after the installment is due. 


Keep in mind that if an association has violated any foreclosure laws (whether discussed above or any other applicable foreclosure laws), the owner may file a lawsuit against the association to seek damages for the violation. The owner must file the lawsuit within 5 years after the violation occurred and, the association may face up to $25,000.00 in damages, plus costs and attorney fees, if the Court finds that the foreclosure violation occurred.  Lastly, if the association does foreclose, the law now prohibits board members, an employee of a management company that represents the association, or an immediate family of board member or employee, from purchasing the property at the foreclosure sale. 

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