By Hal Kyles, Orten Cavanagh Holmes & Hunt, LLC
Based on recent legislative changes, Colorado homeowner associations have had to rethink the way they manage delinquencies. House Bill 22-1137 was signed into law in August of 2022 and imposes greater obligations and burdens on associations in the collection of delinquencies. Like any business, associations must be able to predictably budget for expenses. As assessments are the lifeblood of any HOA, when unit owners fail to pay assessments, the association can be in jeopardy of meeting its obligations. There are, however, steps an association can take to enhance its confidence that money will be available when members do not make timely payments.
Step One: Adopt an Updated Collection Policy
Colorado requires most associations to adopt and follow a written policy for the collection of unpaid assessments. The new law requires associations to update their collection policies to comply with the new obligations and restrictions on collecting delinquencies. Any association that has not already done so, should check with their community manager or HOA attorney to verify that it has a collection policy that is compliant with current laws. An association that does not have a current collection policy is prevented from referring a delinquent account to an attorney or collection agency.
Step Two: Familiarize and Adhere to Collection Policy
It isn’t good enough to simply have a collection policy. The purpose of the policy is to provide a suitable and fair process for managing the collection of delinquencies. Failure to follow the prescribed procedures can provide unit owners with a defense in the event legal action is taken against them. For this reason, associations and their managers should be familiar with the policy and adhere to the procedures specified. Additionally, the policy is intended to provide an efficient process to manage collection of delinquencies. This purpose can only be achieved by close adherence to the process outlined in the policy.
Step Three: Payment Plans Can Benefit HOA
The use of payment plans can be an effective means for the recovery of delinquencies. House Bill 22-1137 extended the minimum payment term from six to eighteen months. Experience has shown that the liberal use of payment plans can benefit both the association and delinquent unit owner. The Colorado Common Interest Ownership Act (CCIOA) requires associations to make a good-faith effort to coordinate with a unit owner to set up a payment plan before referring a matter to its attorney or collection agency. Entertaining requests from owners for a payment plan can create goodwill and avoid the need to seek legal action to collect the delinquency. Payment plans are intended to reduce additional collection expenses for both the association and unit owner. For these reasons, HOA boards are encouraged to utilize payment plans. All payment plans should be put in writing and acknowledged by both the unit owner and the association. In the event the owner fails to complete the payment plan, the documentation can later be used as evidence of the owner’s admission of the debt. Therefore, a signed payment plan can be a valuable document for the association’s attorney.
Step Four: "Manage” the Process
As discussed, adopting and following a written collection policy is a must, but equally important is the need to manage the entire process. Here, the key issues are record-keeping and communication. One of the greatest benefits to utilizing professional management are the accounting records and ledgers that can be generated with the use of industry leading software. Few things can cause a bigger problem than the failure to maintain accurate unit ledgers. This is especially true if the situation ends up in front of a judge. Having a professional community manager is likely to enhance the association’s success in collecting delinquencies. Of course, not all associations require professional management, depending on the association’s size and location. In most cases, however, having a dedicated individual (or individuals) whose primary responsibility is to maintain and enforce policies will greatly enhance the recovery of unpaid assessments.
The other key aspect to managing the process is effective communication. Associations have a variety of means to communicate with unit owners – mail, email, telephone, and even text, are a few examples. Modern life and technology dictate that associations utilize those modes of communication available. CCIOA requires associations to deliver notice of a delinquency by three different means. In some cases, an association may not possess a unit owner’s phone number, email address or current mailing address. Efforts should be made to obtain and periodically update an owner’s contact information. The county assessor can provide the legal owner’s mailing address. In the event the association receives returned mail, the envelope may provide a forwarding address or other useful information. A few minutes spent conducting a Google search may save time and unnecessary expense if the owner can be located. Indeed, the most frequent complaint I hear from owners is, “the association never talked to me.” Today, associations are required by state law to exercise more than diligent effort to communicate with a delinquent unit owner.
If it does become necessary to refer an owner’s account to the association’s attorney, it is just as important that the association maintain open and frequent contact with the attorney. Often the association (community manager or board member) is in possession of helpful information that can benefit the attorney in collecting the debt. Occasionally, unit owners will attempt to circumvent the attorney by communicating with the board or manager. The association’s collection policy typically specifies that once a matter is referred to legal counsel all communications from the association will come from the association’s attorney. Policing this part of the process can sometimes become necessary.
HOA delinquencies typically go hand in hand with the health of the local economy. When circumstances make collections challenging, successful collections can be enhanced if the association has already taken the appropriate steps – has a current written collection policy that is compliant with state law; identifies the individuals responsible for implementing the policy and managing the process; makes diligent efforts to communicate with the unit owner; periodically verifies that the association has up-to-date contact information; and finally, communicates with the association’s attorney to achieve an optimum resolution.
Hal Kyles is the managing attorney for collections at Orten Cavanagh Holmes & Hunt, LLC. He has practiced law in Colorado for thirty years, the last fifteen in support of owner associations. He is a former Marine officer and life-long runner.
