Co-Author: Jesse Howard Witt
The 2022 legislative session brought sweeping changes to the Colorado Common Interest Ownership Act (“CCIOA”), the act that governs most homeowners associations in Colorado. In response to reports of a handful of associations aggressively enforcing fines against homeowners—particularly against lower income owners and families of color—the state’s general assembly added new procedures to CCIOA that may limit the ability of all associations to enforce their covenants and change how communities operate. The most significant amendments take effect August 9, 2022.
Associations will have limited ability to impose fines for covenant violations or foreclosure on delinquent owners
House Bill 1137, under the subject of “Homeowners’ Association Board Accountability And Transparency,” creates new procedures that restrict the ability of associations to impose fines for suspected covenant violations. Before taking any legal action, the association must first contact the owner with a notice of the suspected violation, by certified mail and by posting on the unit, and also either: (1) by first class mail, (2) by text message to a number the owner has previously provided, or (3) to an e-mail address the owner has previously provided. Owners are allowed to provide the association with their preferred language if other than English, and may also identify a person to be the owner’s “designated contact,” who would receive the notice of alleged violations on their behalf.
If after this initial notice the association “reasonably determines” that a violation of the governing documents exists, it must notify the owner that they have thirty days to cure the violation (unless it relates to public safety, in which case the time period is seventy-two hours). If the owner timely cures, they may send a notice to the association, with “visual evidence” that they have cured. Whether or not they provide such notice, however, the association has seven days after the expiration of the thirty-day cure period to inspect the unit. If the owner fails to cure, the association may impose a fine of not more than $500. The association is then required to provide one additional thirty-day period to cure, before it can take any legal action. Daily additions to fines or late fees are no longer allowed. And failure by the owner to cure within the 60-day period, if that is the sole alleged violation (as compared to failure to pay assessments), does not give rise to a foreclosure action by the association.
For lawsuits to collect fines and fees less than $7500, the jurisdiction of the small claims court has been expanded to allow such suits there, to reduce litigation costs for both sides. But if the association loses in litigation, it could be liable to the owner for up to $25,000 plus costs and attorneys fees, for up to five years.
A failure to pay past due assessments, in contrast to other covenant violations, allows the association to bring a foreclosure action—but only if the assessments are at least three months delinquent. Before foreclosing, the association should provide the same notices as above, and is also required to send each month, by first class mail and by e-mail (if the association has that e-mail address) an itemized list of all past-due assessments, fines, fees or other charges. The association is also required to offer a payment plan for a period of eighteen months (a much longer period than under current law), with payments as low as $25 per month to catch up the delinquency, which can be assessed interest at no more than 8%. There are strict rules specifying the language to be included in the written notice to the owner detailing the delinquency and offering the payment plan. Before the association can proceed with foreclosure, an owner must have declined the payment plan or defaulted on the payment plan at least three times, or failed to keep ongoing assessments current. A majority of the board must vote by a recorded vote at an “executive-session” board meeting (rather than in an open meeting, to preserve the owner’s privacy) in order to refer the matter to an attorney or collection agency.
Finally, associations are required to adopt or amend their written policies governing the imposition of fines, late fees and assessments, with the specific procedures to be followed as outlined in these new requirements. Failure to do so would result in the association being prevented from initiating collection actions to enforce the covenants. Given the impending effective date, associations should not delay in amending their documents now.
One unusual provision in the new act prohibits a member of the board, an employee of the management company, or an employee of the foreclosing law firm (and an immediate family member of any of the above) to purchase the foreclosed unit. The provision is presumably intended to protect owners from particular parties with a monetary interest in pursuing the foreclosure, or with an unfair advantage based on inside knowledge of the delinquency.
The bottom line is that the new law drastically limits the ability of associations to use fines and foreclosures as a means to enforce their covenants, and associations must be mindful of these changes going forward.
No more parking restrictions on public streets
In another new amendment to CCIOA, House Bill 1139 now prohibits associations from enforcing covenants on any public right-of-way. This means that, if an association has public streets, it can no longer enforce covenants that might restrict parking of boats, RVs, and other undesirable vehicles. For instance, if an owner parks a dilapidated Winnebago outside their house for a month in disregard of association policy, the community’s only legal recourse may now be to contact local law enforcement to determine if city or county ordinance applies.
One may note that, for existing communities, this amendment could be subject to constitutional challenge as a retrospective limit on contract rights. Owners seeking to enforce the covenants could argue, for example, that the covenants for a contract with their neighbors wherein everyone promised not to park certain vehicles on the street, and that the statutory amendment should only apply to new communities created in the future. On the other hand, neighbors seeking to take advantage of the new amendment could argue that this was already a heavily regulated area of law, and that the statutory change is a permissible modification. Who wins would depend on how a judge decides this issue, and there may not be a clear answer in the absence of an appellate court opinion, which would be years away.
Until there is clear legal authority, associations should be mindful of the amendment, especially if there is a question about whether its streets are public or private. If a community has public streets that fall within the amendment, association boards should be cautious and recognize that any attempts to enforce their existing covenants may trigger a legal challenge.
No closures of common areas
In a third change, House Bill 1040 now restricts the ability of associations to limit access to common areas (for example, a community pool or clubhouse). While an association board can regulate such facilities, it must now “preserve and protect” homeowners’ ability to use and enjoy all common areas, and it must avoid any regulation that would “unreasonably restrict or prohibit” homeowners’ right of access and enjoyment. In particular, the association may not close common areas for long periods of time, even if these areas are not being used or are prohibitively expensive to maintain. Common areas may be shuttered for repairs and maintenance, but only “to the extent and for the length of time necessary” to protect the safety of workers or preserve the structural integrity or condition of a repair, replacement, or modification. In addition, if an association must restrict common area access for more than seventy-two hours, it must provide electronic or written notice to every owner along with a telephone number or email address where the owner can inquire about the closure. Notice must also be posted on site.
In is unclear how this bill may affect association finances, but higher costs are likely, since the bill could require some associations to keep common areas open and available for all owners, even when upkeep may be prohibitively expensive. It also could lead to legal challenges over some standard practices, such as seasonal pool closures. For example, is it still permissible to keep a community pool open only from Memorial Day through Labor Day, as many associations do? Or must associations now pay to keep their pools open year round, just in case one owner wants to take a brisk dip in December? Lawsuits may be necessary to resolve such questions.
Expect higher assessments
An unintended consequence of all of these amendments will be a significant increase in the costs of doing association business, which is passed on to all homeowners through assessments. In the short term, associations will need to pay for new policies. In the long term, associations should expect higher costs arising from the need for more notices, the requirement of translation services, and the financial impact of lengthy collection delays.
What is the most important item on an association’s board’s to-do list for 2022 and beyond? Updating collection, enforcement, and other policies! If an association does not immediately bring itself into compliance with the new requirements, it may be unable to act to protect its members’ interests.