Any attorney that represents homeowner associations will tell you that the Colorado legislature has unleashed a massive assault on associations over the last several years with respect to regulating the collection of delinquent assessments. However, no other area of collections has been affected to quite the same extent as the foreclosure of association liens. There have been wide-sweeping revisions and new impediments to foreclosure never before seen in Colorado.
In 2022, the legislature passed the Homeowners’ Association Board Accountability and Transparency bill that was introduced as HB22-1137. HB22-1137 curtailed actions by associations in the collection of debt. The term of the payment plan required to be offered to a delinquent owner increased from six (6) months to eighteen (18) months, while reducing the maximum interest rate to 8%. Owners were also permitted to pay as little as $25 per month for the first 17 months, with a balloon payment in month 18. The extended payment arrangements allowed owners to remain delinquent for a protracted amount of time while unreasonably delaying an association’s ability to take legal action, including foreclosure, to collect the past due balance.
In addition to requiring notices to owners be sent via certified mail, return receipt requested, HB22-1137 also instituted a questionable requirement to post the letter on the owner’s property. 2022 was also the year that associations became required to provide notices in any language requested by the owner, in addition to English, as well as to a third party if one was designated by the owner.
HB22-1137 also changed the ‘application of payments’ provision to require all payments to first be applied to assessments before applying any overage to other charges. Before this change, associations historically applied payments first to legal fees and other charges before applying monies to assessments. This change to the application of payments dove-tailed with HB22-1137’s provision that precluded an association from foreclosing on balances that consisted only of fines and/or attorney fees regardless of the balance owed, further tying the hands of an association to utilize foreclosure as an effective collection tool. Additionally, HB22-1137 limited the parties that could purchase a foreclosed property. Essentially, any person affiliated with or related to the Board, management company, and attorney representing the association was precluded. Lastly, HB22-1137 created a cause of action for an owner against the association with a five-year statute of limitations for the violation of any foreclosure laws. The determination of a violation permitted an award of up to twenty-five thousand dollars in damages, plus costs and reasonable attorney fees. Talk about a chilling effect on the foreclosure of association liens.
Over the next two years associations struggled to bring their processes into compliance with the requirements of HB22-1137, only to have the legislature turned the industry on its head with new collection and foreclosure procedures enacted into law in 2024. These new laws, effective August 2024, have drastically altered the landscape of HOA foreclosures.
The primary bills in 2024 that affected collections and foreclosure are HB24-1233 and HB24-1337. HB24-1233 required associations to amend their collection policies, once again, in order to proceed with any action to collect delinquent balances. HB24-1233 also changed the methods of notifying owners of past due balances to exclude posting of the notice, but adding a new requirement to contact owners by two of the following means: telephone, text, or email, in addition to the certified mail requirement. Interestingly, HB24-1233 recognized and excepted owners of time share units from the provisions of 1233, as well as removed the requirement to comply with HB22-1137, provided the owner does not occupy the unit on a full-time basis.
HB24-1337 implemented many changes to the Colorado Revised Statutes, specifically to Sections 123, 209.5, 316, and 316.3 of the Colorado Common Interest Ownership Act (“CCIOA”). HB24-1337 also made drastic revisions to Article 38, Section 302 related to redemption procedures, but only with respect to homeowner association judicial foreclosure sales. Additionally, HB24-1337 expanded on the group of persons prohibited from purchasing foreclosed property by adding community association management companies to the list.
Effective August 7, 2024, Associations were prohibited from commencing a judicial foreclosure to collect assessments unless specific criteria were met. The criteria include compliance with each of the requirements set forth in Section 209.5, including sending the required collection notices (at a minimum, a written offer to enter into a payment plan) with notification to the owner in the manner provided therein, as well as a board vote to refer the account to an attorney. Neither HB22-1137 or HB24-1337 made any revisions to the requirement that the balance must equal or exceed six months of assessments or that the Board must vote individually to foreclosure on each unit.
Section 316 of CCIOA now provides additional prerequisites to foreclosure actions. Before commencing a judicial foreclosure, a homeowner association must first obtain a personal judgment (i.e., a money judgment) against the owner. Exceptions to this requirement are the death or incapacity of the owner, an active bankruptcy case, or if the owner has successfully avoided service for six months. The aforementioned provision to obtain a money judgment does not apply if the unit to be foreclosed is not an owner’s principal residence or if the unit is corporate owned, unless the unit is used for workforce housing.
Section 316, as amended by HB24-1337, also mandates additional notices that must be provided at least thirty (30) days prior to initiating a foreclosure. One must notify an owner of the right to participate in mediation. If the owner fails to respond, the association may move forward with foreclosure. The other notice must be provided to all lienholders identified on the property record of the pending foreclosure. The notice to lienholders must include the amount owed to the association. Both notices must be provided in writing and electronically. Unfortunately, at this time, Colorado law does not require lienholders to provide email addresses for electronic notification.
Section 123 of CCIOA was amended by HB24-1337 to limit attorney fee awards to “…reasonable attorney fees incurred as a result of the failure to pay…” Section 123 further specified that attorney fees are limited to five thousand dollars or fifty percent of the assessments and money owed to the association, unless the court finds that the owner was “…financially, physically, and reasonably able to comply with the declaration, bylaws, articles, or rules and regulations but willfully failed to comply.” Section 123 provides that the court shall consider all relevant factors and enumerate specific criteria, such as the amount of the unpaid assessments, whether the case was contested, and other factors.
Finally, HB24-1337 overhauled the redemption procedure in judicial foreclosure sales when the lien being foreclosed is on a unit in a common interest community. HB24-1337 created six categories of “Alternate Lienors.” These are statutorily created categories of persons/entities that do not actually have a lien on the property that are permitted to effectively purchase the property following the sale. The time for redemption for these Alternate Lienholders has been so heavily extended that the end result may be to deter junior lienholders rightfully permitted to redeem from doing so. Due to the extended timelines, ownership of the property will now remain in limbo for six months or more, increasing the amount of the delinquency that the foreclosure sought to collect.
It is rumored that the 2025 legislative session will continue to curtail the ability of homeowner associations to collect assessments and further limit the foreclosure of association liens. If this trend endures, owners that do pay the assessments will continue to shoulder the burden for non-paying owners and may force associations to reduce services.
Kate began her career as a paralegal in a collection law firm and has more than ten years of experience in collection litigation as an attorney and a paralegal. After graduating from law school, she put her knack for teaching to use as a law librarian and adjunct professor. Being able to explain the legal process to clients and consumers has made her an effective advocate and negotiator. Kate now focuses solely on foreclosure litigation and has a high success rate of resolution.
