Understanding the New Colorado Laws for HOA Collections: What Homeowners Need to Know
As of August, new laws have come into effect in Colorado that significantly alter the landscape for homeowners associations (HOAs) and their ability to foreclose on properties for unpaid debts. These changes aim to provide greater protection for homeowners and create more equitable processes for debt collection.
Introduction to New HOA Laws in Colorado
Colorado has implemented new regulations aimed at making it more difficult for HOAs to foreclose on homes. House Bill 1337, signed into law by Governor Jared Polis, introduces several provisions designed to protect homeowners and ensure fairer debt collection practices.
Key Changes Introduced by House Bill 1337
Foreclosure Restrictions
Under the new law, HOAs are required to take additional steps before they can initiate foreclosure proceedings. Specifically, an HOA must first file a lawsuit to collect the debt or file an involuntary bankruptcy petition against the homeowner. This step is designed to give homeowners more opportunities to resolve their debts before facing foreclosure.
Attorney Fee Limits
The law also places a cap on the amount of attorney fees an HOA can charge a homeowner. This cap is set at $5,000 or 50% of the debt owed, whichever is less. This provision aims to prevent excessive legal fees from significantly increasing the total debt owed by homeowners. The cap will adjust annually based on inflation, ensuring it remains fair over time.
Right of Redemption
One of the most significant changes is the introduction of a "first right of redemption" for HOA-foreclosed homes sold at auction. This provision allows homeowners, tenants, affordable housing nonprofits, community land trusts, cooperative housing corporations, and government entities a chance to purchase the property. They must file an affidavit of intent within 30 days of the auction and then have 180 days to complete the purchase. This measure helps protect homeowners from losing their property and equity for significantly less than market value.
Impact of House Bill 1158 and Other Measures
Although House Bill 1158, which sought to set minimum bids for HOA-foreclosed homes at 60% of market value, failed to pass, its discussion highlights the ongoing concern about fair valuation in HOA foreclosures. The defeat of this bill indicates a need for continued advocacy and potential future legislation to address these issues.
Additional HOA Legislation Passed in 2023
Notification Requirements
House Bill 1233 modifies previous notification requirements for homeowners who owe money to an HOA. Instead of physically posting a notice, HOAs are now required to mail a notice and attempt to contact the homeowner via telephone, email, or text message.
Use of Fire-Hardened Materials
House Bill 1091 prohibits HOAs from restricting homeowners from installing, using, or maintaining fire-hardened building materials. This change is part of broader efforts to enhance fire safety and resilience in residential properties.
Home Business Operations
Senate Bill 134 ensures that HOAs cannot prevent homeowners from operating a business out of their homes. This law supports the growing trend of home-based businesses and ensures that homeowners can utilize their properties for entrepreneurial activities.
Recommendations for HOAs on Collection Policies
With the new laws in effect, HOAs must update their collection policies to comply with the new requirements. Key updates include:
Removal of Physical Posting Requirement: HOAs are no longer required to post notices on homeowners' doors.
Updated Notice Delivery Methods: Notices must be sent via certified mail (return receipt requested) to the owner's mailing address and through two of the following methods: phone call, text message, or email.
Cost Clarifications: HOAs can charge back the actual costs of certified mail to the homeowner.
HOAs should draft and adopt new collection policies that meet these requirements before taking any collection actions. Altitude Community Law offers to draft these policies for a fixed fee of $235, which includes a free Registration of Email/Phone Number policy to help associations comply with the new notice delivery requirements.
Implications for Homeowners and HOAs
These legislative changes reflect a shift towards greater homeowner protections and more balanced debt collection practices. HOAs will need to adjust their procedures and policies to comply with the new laws, potentially leading to changes in how they manage unpaid dues and foreclosures. Homeowners, on the other hand, should be aware of their rights and the new protections available to them.
Conclusion
The new laws in Colorado represent a significant step towards more equitable treatment of homeowners within HOA communities. By implementing these changes, the state aims to reduce the number of devastating foreclosures and ensure that debt collection practices are fair and transparent.
