Find A Service Provider

By Gabriel Stefu, WesternLaw Group LLC

Covenant enforcement and foreclosures have become harder in the last few years due to legislative and economic changes. As such, certain covenant enforcement and foreclosure cases can become extremely difficult to resolve due to Owners who may attempt to delay the process or due to not following the proper processes and procedures both in the Association’s policies or in legal proceedings.

The following are recommendations to ensure that these cases can be successfully brought to a resolution:

COVENANT ENFORCEMENT

Associations need to follow the steps below to ensure that covenant enforcement matters are resolved and funds are collected from the Owners:

1. Adopt a Covenant Enforcement Policy pursuant to CCIOA that is clear and concise, that can be enforced evenly, and that is fair to all Owners.
2. Ensure that all communications with the Owner regarding the covenant enforcement matter provides as much information as possible: include pictures, clear processes for hearings, disclosure of the fine amounts, consequences of not curing the covenant violation, etc.
3. Ensure that all deadlines are adhered to and that the next steps in the compliance process are followed timely. If needed, enlist the Board of Directors, the Architectural Committee or another committee created for this purpose to perform inspections of the property to determine the state of the violation, document the violation with pictures, etc. 
4. Offer hearings in every communication with the Owner even though only one opportunity for a hearing is required. This way, the Owner cannot claim that they had no knowledge of a hearing opportunity.
5. Apply the fines as soon as legally allowed. Many Boards of Directors are hesitant to apply fines but considering that fines are now limited or capped, applying the fines when allowed may help the Association resolve the matter with the Owner who may not be willing to pay fines and may be open to negotiation and resolution of the matter.
6. If the compliance is not cured, transfer the matter to legal counsel for a Covenant Enforcement legal matter. The actions taken by legal counsel could include filing a covenant lien and filing an injunction with the appropriate Court. If the injunction is obtained, the Owner will be ordered by the Court to address the covenant violation, or the Association would have the right to cure the violation and recover the expenses based on the Court Order. While this step may seem aggressive, again, considering how the current legislation has made the covenant enforcement process arduous and difficult, this may be the only option available to the Association to ensure that the covenant issue is resolved and fines and legal fees are awarded to the Association.

JUDICIAL FORECLOSURES

Foreclosures by Homeowner Associations are a last resort in collecting assessments when an Owner refuses to pay delinquent assessments.  This is never an easy process and as Owners are becoming savvier, the Association must ensure to follow all steps necessary for successful foreclosures.  PLEASE NOTE THAT A FORECLOSURE IS ONLY POSSIBLE IF ASSESSMENTS ARE DELINQUENT AND CANNOT BE PERFORMED IF ONLY FINES, INTEREST AND LATE FEES MAKE UP THE DELINQUENT BALANCE. The steps involved are as follows:

1. Adopt a Collections Policy that complies with current statutes.
2. Ensure that the Collections Policy is followed religiously. One incorrect notice or process can derail the entire foreclosure process later.
3. Transfer the file to the Association’s attorney as soon as the law allows. Delays and failure in transferring the file will result in hardship in trying to foreclose, especially provided the cumbersome processes required by law.
4. Pursue a County Court judgment to obtain a money judgment prior to the foreclosure action. A money judgment against the Owner on the balance owed is helpful in proving the delinquency in a foreclosure action. 
5. Properly identify and serve the first mortgage holder with the foreclosure action so that the statutory six (6) month superlien is collected from that entity timely. 
6. If the Association’s attorney is asking for information, corrections to ledgers, Board decisions, signing documents, etc., ensure that these are provided to the attorney timely. Again, the process is cumbersome as is, and delays will only make it harder for the Association’s attorney to complete the foreclosure process. 
7. Beware of any potential challenges that an Owner may bring.  These may include, but are not limited to, pointing out procedural errors in the delinquency process, challenging the Association’s right to foreclose and citing violations of state and federal laws. 
8. Be prepared for a possible bankruptcy by the Owner.  This is often filed to Stay the foreclosure and to provide the Owner more time with which to deal with the situation.  If this occurs, ensure to file the proper Entries of Appearance, as well as the Proof of Claim to provide the Bankruptcy Court with notice of the Owner’s debt to the Association. 
9. If a bankruptcy is filed, check the Owner’s account monthly to see if post-bankruptcy payments are being made as required under the bankruptcy filing. If they are not, the Association’s attorney may possibly take steps to dismiss the Owner’s bankruptcy and immediately continue the foreclosure process.

In the end, covenant violations and foreclosure actions require a great deal of attention. The Board of Directors, manager, management company and Association’s attorney must work closely together to resolve these types of issues successfully, following the proper steps and procedures outlined in policies and the law.

  

Gabriel Stefu is the managing partner of WesternLaw Group LLC, a law firm dedicated exclusively to Homeowner Associations in Colorado and Wyoming. WesternLaw Group has been in existence for over 16 years and proudly serves many Colorado HOAs.