By Kiki Dillie
When this article publishes, we will be about 18 months out from when HB22-1137 took effect on August 9, 2022 and made significant changes to portions of the Colorado Common Interest Ownership Act (CCIOA). The law requires associations, management companies, and attorneys to handle delinquencies and covenant enforcement in very specific ways. It required changes to already-mandated policies and resulted in additional expenses be incurred to comply with the new laws. HB22-1137 was meant to make delinquencies and covenant enforcement easier on homeowners, but now that we have a year a half or so to look back, what are some of the continuing issues with it? HB22-1137 mostly impacts delinquencies and covenant enforcement and the continuing issues with each are somewhat different.
In the delinquencies realm, the majority of the continuing issues with HB22-1137 have to do with several portions of the law that are unclear and can be interpreted in different ways. For example, it requires an 18-month payment plan be offered to homeowners before they are sent to collections. The prior laws required a 6-month payment plan, with equal payments. However, the new changes reference two different payment plan options – one for 18 months of equal payments and the other for 17 months of at least $25.00 then presumably a balloon payment of the remaining balance due in month 18. Some legislators involved with HB22-1137 have indicated that these were not meant to be two different options, but it is written as two different options in the law. So, this makes compliance complicated for associations and management companies.
The law also requires notice to the homeowner be posted to the unit (along with sending it to the homeowner two additional ways). Anecdotally, it appears that this requirement has resulted in more homeowners paying their balance due to the association before having to be sent to collections. However, it has also resulted in homeowners’ personal business being broadcast to their neighbors and their tenants, if the unit is rented. It is also unclear if the additional cost for posting should be charged back to the homeowner or paid by the association. On one hand, one of the stated purposes of HB22-1137 was to decrease costs to homeowners, so charging the cost to the delinquent homeowner appears to go against that, but otherwise, the paying homeowners are the ones paying the extra costs, through the Association’s main funds, which is only funded by assessments.
Finally, the 18-month payment plan requirement has the potential to cause associations financial difficulties. Most costs to an association are planned and predictable and so are budgeted for and paid through assessments. However, sometimes unpredictable events happen that require a special assessment or large increases in regular assessments. For example, if an association needs a special assessment to pay for emergency work, they may not be able to pay for the work if too high a percentage of the homeowners choose to pay the money over an 18-month payment plan. Similarly, many associations are currently experiencing huge increases in insurance premiums, resulting in large increases in regular assessments. Again, if too many homeowners don’t pay on time then elect to pay their arrears balance through a payment plan, an association that is statutorily required to have insurance may not be able to pay the insurance premium on time. This could destroy a community if a disaster occurs with no insurance coverage. Alternatively, paying homeowners may have to pay even more to make up for those not paying timely just so that the association is able to cover the cost of their insurance premium.
In the covenant enforcement realm, there are also continuing issues with HB22-1137. For non-health and safety violations, the law requires two 30-day cure periods before proceeding with covenant enforcement action through an attorney. While this change does give homeowners more time to cure any violations without being sent to an attorney for covenant enforcement, it has had the impact of essentially making it impossible for associations to enforce rules that are violated, then cured, then violated again. Some types of violations that are considered repetitious violations, and therefore very difficult if not impossible to enforce, are homeowners not picking up dog waste from common areas, frequent noise violations, and trash can violations. Short term rentals are also difficult to enforce under the new laws, as arguably each new short-term tenant is a new violation, so they never last long enough to take legal action against the homeowner.
Another issue with enforcing against short term rentals is the $500.00 fine limit imposed by HB22-1137. A total of $500.00 in fines is not high enough to discourage violations of short-term rental prohibitions because it is still financially beneficial to the owner to violate and rent. The $500.00 could be considered simply a cost of doing business when the homeowner can make several thousands of dollars renting out a unit as a short-term rental, even when it is in violation of the Association’s documents.
Finally, HB22-1137 does allow for expedited enforcement against health and safety violations, but it did not provide any definition of what health and safety means. So, associations, management companies and attorneys are left with trying to determine what sorts of issues are legitimate health and safety concerns such that the shorter time periods are justified. A lack of clarity makes compliance difficult.
HB22-1137 required many specific changes be made to how associations, management companies and attorneys handle association delinquencies and covenant enforcement. Although this article focuses on the issues that remain with the new laws, some portions of it were successful in providing some relief to homeowners before they are sent to an attorney for either collections or covenant enforcement. However, the remaining issues have and continue to cause hardships to many associations that are following the rules but are also trying to provide the best possible community to their owners and residents. Hopefully these lingering issues can be clarified through the legislature or the judicial system to the benefit of everyone involved with community associations.
