Veto HB22-1137 Before It’s Too Late

Collection of delinquent assessments and enforcement of governing document violations are two of the most difficult actions tasked to an association. If HB22-1137 becomes law, they are about to become infinitely more difficult and certainly costlier in both time and expense. As of this posting, the bill has not yet made it to Governor Polis’s desk for signature; therefore, we urge you to ask Governor Polis to VETO HB22-1137 at this link before it is too late.

HB22-1137, a behemoth of a bill, is disheartening in both substance and impact. It will force associations to incur significantly increased fees and costs to comply, which may not even be collectable from the Owners who are failing to pay assessments and/or violating the governing documents. It will also add new notice, record-keeping, translation, and voting requirements, and will strip the Association of rights and remedies which might have allowed the Association to effectively and efficiently resolve the matter. It may also seriously impact association cash flow, causing assessment increases to make up for budgetary shortfalls.

This article attempts to translate all the new requirements and limitations that will become reality, should HB22-1137 become law. As the bill was extremely difficult to read and interpret, this is our best attempt at deciphering it. The article is divided into the following four sections, which will hopefully make it easier to follow the requirements for each:

COLLECTIONS
FORECLOSURES
ENFORCEMENT
MISCELLANEOUS

I. COLLECTIONS

HB22-1137 adds a number of “pre-turnover” steps that the Association must satisfy before turning over a collection file to an attorney or collection agency for legal action. Buried within each of these steps are many new requirements, each of which are discussed below.

STEP ONE: The Association must first contact the Owner to alert the Owner of the delinquency. Most associations provide for an initial courtesy notice prior to the payment plan offer letter and, if so, then this courtesy notice can serve as the first contact. This is in addition to the Notice of Delinquency discussed in Step Two below.

Who must you contact? This is the Owner’s choice. An Owner may identify another person to serve as a designated contact to be contacted on the Owner’s behalf for purposes of this first contact. However, the Association may determine the manner in which an Owner may identify a designated contact. If an Owner fails to identify a designated contact in the manner in which the Association prescribes, then the Association’s contact is with the Owner. If an Owner designates an additional contact, then the bill requires all such notices/communications to go to both the Owner and the designated contact.
In what language must you contact the Owner (and their designated contact, if applicable)? This is the Owner’s choice. An Owner may notify the Association if the Owner prefers that correspondence and notices be made in a language other than English. If a preference is not indicated, the Association shall send the correspondences/notices in English.
- HB22-1137 does not state that you must require the Owner to make such preference known, so until and unless the Owner notifies the Association of a preferred language of choice, you should send all contacts, notices, and communications to the Owner in English.
- If the Owner does notify the Association of a different language of preference, then you must have the correspondence translated to such language. And keep in mind that any such translation must be sufficient for court purposes and allow the Association to verify that the correspondence states what it is required to state under Colorado law (i.e., google translator will not work!). If you are sending the letter in a preferred language, we recommend also sending the English version.
In what manner must you contact the Owner (and their designated contact, if applicable)? The first contact must be made by certified mail, return receipt requested, posted on the Unit (which is problematic as it raises claims of trespass and may even cause a dangerous encounter with an angry Owner), AND at least one of the following means, which is at the Board’s discretion:
- First Class Mail;
- Text Message to a cell number that the Association has on file because the Owner has provided the cell number to the Association; or
- Email to an email address that the Association has on file because the Owner has provided the email address to the Association.
What records must you keep of any such contact(s)? The Association must maintain records of any contact(s) made to the Owner (or their designated contact), including the type of communication used and the date and time the contact was made. We recommend keeping copies of any letters sent, copies of the returned receipt received back from certified mail, emails sent, and photos of the posting on the unit.

STEP TWO: The Association must send a Notice of Delinquency to the Owner (or their designated contact, if applicable), which includes the information required under CRS 38-33.3-209.5(5)(a)(V). This is the same Notice of Delinquency that you are already required to send under current law; however, some of the information in that Notice, as well as the manner, language, etc., has changed as follows:

In what language must you send the Notice of Delinquency? Again, if the Owner has notified the Association that the Owner prefers correspondence and notices be made in a language other than English, then you must send the Notice in said language. If a preference is not indicated, the Association shall send the Notice of Delinquency in English.
In what manner must you send the Notice of Delinquency? The Association must send the Notice by certified mail, return receipt requested.
What information must be included in the Notice of Delinquency? The Notice must include some of the same information already required under current law (with certain tweaks), and some new information as follows:
- (i) Same Info: Under current law, the Notice must include the information required under CRS 38-33.3-209.5(a)(V). You should already be sending out this Notice because it is required under existing Colorado law.
  - One piece of required information required in such Notice is whether the Owner has an opportunity to enter into a payment plan under CRS 38-33.3-316.3. However, note the following changes with respect to the payment plan:

1. 1. 1. Under current law the Association must permit the Owner to pay off the deficiency in equal installments over a period of at least six months.

- - - - Under the new law, the Association must permit the Owner to pay off the deficiency in equal installments over a period of at least 18 months.

1. 1. 1. Under current law, if the Owner defaults on the payment plan or fails to keep current with regular assessments as they come due during the 6-month payment plan term, the Association may proceed with legal action.

- - - - Under the new law, before the Association may proceed with legal action, the Owner must default on the payment plan at least three times, or fail to remain current with regular assessments as they come due during the 18-month payment plan. And, the Owner has 15 days after the monthly installments are due to remit payment before it is considered a default.
- (ii) New info: The Notice of Delinquency must also:

1. 1. 1. 1. Specify whether the delinquency concerns: (a) unpaid assessments; (b) unpaid fines, fees, or charges; or (c) both unpaid assessments and unpaid fines, fees, or charges. And, if the Notice concerns unpaid assessments, then the Notice must notify the Owner that unpaid assessments may lead to foreclosure.
      2. Include the following:

- - - - A description of the steps the Association must take before the Association may take legal action against the Owner, including a description of the Association’s cure process for curing violations (Explained below in the COVENANT ENFORCEMENT Section).
        
        A description of what legal action the Association may take against the Owner, including a description of the types of matters that the Association or Owner may take to Small Claims Court, including injunctive matters for which the Association seeks an order requiring the Owner to comply with the governing documents of the Association.

STEP THREE: A majority of the Board must formally vote to refer the matter to an attorney or collection agency, at a meeting conducted in executive session (i.e., closed session) pursuant to CRS 38-33.3-308(4)(e). Essentially, voting in open session would be considered an “unwarranted invasion of individual privacy” under the new law. See more clarification in the MISCELLANEOUS Section below under Executive Session. Boards are already required to authorize foreclosure on a specific property and this requirement is similar.

ADDITIONAL REQUIREMENTS AND LIMITATIONS ON RIGHTS AND REMEDIES: Not only does the Association have to take the above additional steps prior to turning over a collection file to an attorney or collection agency, but HB22-1137 also includes the following additional requirements and has the following new limitations on collections rights and remedies:

1. On a monthly basis, the Association must send to each Owner with an outstanding balance an itemized list of all assessments, fines, fees, and charges owed. This must be sent by first-class mail and, if the Association has the relevant e-mail address, by e-mail.

Again, this notice and any other required communications must be sent in English or the Owner’s specified language of preference.
Again, this notice and any other required communications must be sent to the designated contact for the Owner, if one has been designated

2. Interest on unpaid assessments, fines, and fees cannot exceed 8% per year.

3. An association may not charge a fee or other charge for providing the Owner a statement of the total amount that the Owner owes to the Association.

4. If the Association incurred attorney fees on a collection file prior to the Association complying with the first contact discussed in Step One above, then the Association is not entitled to recover such attorney fees in any action or suit filed by the Association for such collection.

5. Note that under current law, the Board may adopt the method by which payments may be applied on delinquent accounts. The delinquency can consist of any kind of unpaid amounts (i.e., assessments, fines, attorney fees, administrative charges, late fees, interest, etc.). Typically, you would apply any such payments first to all the fees/charges already incurred by the Association in pursuing collections (e.g. attorney fees, management company fees), then late fees, interest, fines, and other charges before applying it to the principal assessment balance.

Under the new law, if the Owner has both unpaid assessments and unpaid fines, fees, or other charges on the Owner’s account, any payment made by the Owner must be applied first to the Assessments owed and any remaining amount can then be applied to fines, fees, or other charges owed.

II. FORECLOSURES

HB22-1137 also revises the “pre-turnover” steps that the Association must satisfy before turning over a collection file to an attorney to institute a foreclosure action.

STEP ONE: Follow Steps One and Two of the Collections Section above, which means contact the Owner at least once, and send the required Notice of Delinquency (in the same manner as required above).

However, the information that must be contained in the foreclosure Notice of Delinquency, with respect to the payment plan, is different, then the information in a typical collection action. With a typical collection action, the payment plan installments must be equal monthly installments over a minimum period of 18 months. With the foreclosure repayment plan the Owner is permitted to choose the amount to be paid each month, as long as each payment is $25.00 or greater. So, theoretically, the Owner may pay $25.00 for 17 months and then make a balloon payment of the remaining balance in month 18.

STEP TWO: Wait 30 days after the Association has provided the above repayment plan offer to see if the Owner declines the repayment plan. If declined, then the Association may proceed with turning over the file to an attorney to initiate foreclosure proceedings. Although the Bill does not state what happens if the Owner simply fails to respond vs. expressly declining the payment plan, it is our opinion that a failure to respond is the same as declining.

If, on the other hand, the Owner has accepted the repayment plan, then before the Association may initiate foreclosure proceedings, the Owner must default on the payment plan at least three times, or fail to remain current with regular assessments as they come due during the 18-month payment plan. And, the Owner has 15 days after the monthly installments are due to remit payment before it is considered a default.

ADDITIONAL REQUIREMENTS AND LIMITATIONS ON RIGHTS AND REMEDIES: In addition to the new requirements and limitations already set forth in the COLLECTIONS Section above, HB22-1137 has the following new limitation on the right to foreclose:

An Association cannot foreclose on an assessment lien if the lien consists only of one or both of the following: (i) fines, or (ii) collections costs or attorney fees that the Association has incurred and that are only associated with assessed fines.

As stated in the COLLECTIONS Section above, if the Owner has both unpaid assessments and unpaid fines, fees, or other charges on the Owner’s account, any payment made by the Owner must be applied first to the Assessments owed and the remaining amount can then be applied to fines, fees, or other charges owed. So, if an Owner pays down the Assessment balance so that the remaining balance is made up of only fines, attorney fees, or other costs, then the Association is unable to use foreclosure as a remedy since an Association can no longer foreclose on a lien that consists only of fines or collection costs/attorney fees (other than such costs/attorney fees that were associated with the initial unpaid Assessment balance). However, the Association is still free to proceed with the collections process on these balances, with the intention of getting a judgment against the homeowner and collecting through garnishments.

III. COVENANT ENFORCEMENT

Similar to Collections and Foreclosures, HB22-1137 provides new enforcement steps/requirements, and new limitations on the rights and remedies of the Association. However, the steps, rights, and remedies are different depending on whether the violation is one that threatens public safety or health, or does not threaten public safety or health.

VIOLATIONS THAT THREATEN PUBLIC SAFETY OR HEALTH

STEP ONE: If the Association reasonably determines that a violation of the governing documents threatens the public safety or health, the Association must provide the Owner:

Written notice of the violation, informing the Owner that the Owner has 72 hours to cure the violation or the Association may fine the Owner.
The written notice must be in English and in any language that the Owner has indicated a preference for communication.
The written notice does NOT need to be sent via certified mail, return receipt requested.
The total amount of fines MAY exceed $500.00.

STEP TWO: After the 72 hours has passed, the Association must inspect the Unit and determine that the Owner has failed to cure the violation. If not cured, then the Association may impose fines every other day or some other interval, but not on a daily basis, and may turn the file over to the attorney for legal action. However, the Association may not foreclose based on fines owed.

VIOLATIONS THAT DO NOT THREATEN PUBLIC SAFETY OR HEALTH

STEP ONE: If the Association reasonably determines that a violation of the governing documents does NOT threaten the public safety or health, the Association must provide the Owner:

Written notice of the violation, informing the Owner that the Owner has 30 days to cure the violation or the Association, after conducting an inspection and determining the violation has not been cured, may fine the Owner.
The written notice must be in English and in any language that the Owner has indicated a preference for communication.
The written notice must be sent via certified mail, return receipt requested.
The total amount of fines may NOT exceed $500.00.

STEP TWO: After the 30 days to cure has passed, and if the Association has not received a notice from the Owner that the violation has been cured (see below), the Association must inspect the Unit within 7 days of the initial 30-day cure period.

If after inspection, the Association determines the violation has not been cured, the Assocation may start fining the Owner, but must provide a second 30-day period to cure the violation. If still not cured after the second 30-day period, the Association may turn the file over to the attorney for legal action. However, the Association may not foreclose based on fines owed.

If an Owner cures the violation within the required cure period, then the Owner may notify the Association of the cure, and may include visual evidence that the violation has been cured.

If the Owner provides visual evidence of the cure, then the violation is deemed cured on the date the Owner sends the notice.
If the Owner does not provide visual evidence of the cure, then the Association must inspect the Unit as soon as practicable to determine if the violation has been cured.

The remaining steps apply to both types of violations:

STEP THREE: Once an Owner cures a violation, the Association must:

Provide the Owner notice that the Owner will not be further fined with regard to the violation, and
Provide the Owner notice of any outstanding fine balance that the Owner still owes the Association.
The notice must be in English and in any language that the Owner has indicated a preference for communication.

ADDITIONAL ENFORCEMENT REQUIREMENTS: With respect to the enforcement and fine policy that the Association should already have adopted under existing law, the policy must now include the following information:

The policy must require notice to be sent to the Owner regarding the nature of the alleged violation, the action or actions required to cure the violation, and a timeline for the fair and impartial fact-finding process required under CRS 38-33.3-209.5(2)(b).
- The Association may send the above-notice in the same manner as the first contact required under Step One of the COLLECTIONS Section (i.e., by first class mail, or text, or email).
- The notice must be in English and in any language that the Owner has indicated a preference for communication. And again, the Owner may designate a contact to receive this notice.

The policy must also specify the interval upon which fines may be levied for violations that are continuing in nature. Again, however, no daily fines.

IV. MISCELLANEOUS

Executive Session: Disciplinary hearings regarding an Owner and any referral of delinquency to an attorney or collection agency may now be discussed in executive session, as HB22-1137 classifies them as matters “the disclosure of which would constitute an unwarranted invasion of individual privacy.” However, an Owner who is the subject of a disciplinary hearing or a referral of delinquency may request and receive the results of any vote taken at the relevant meeting.
Small Claims Court: HB22-1137 allows a party who wishes to enforce the rights and responsibilities under the governing documents in relation to disputes arising from assessments, fines, or fees owed to the Association to file a claim in Small Claims Court pursuant to CRS 13-6-403 (1)(b)(I). The amount at issue must not exceed $7500, exclusive of interest and costs. This is an option, not a requirement.
Right to Sue Association for Violating Foreclosure Laws: If an Association has violated any foreclosure laws (whether discussed above or any other applicable foreclosure laws), the Owner in relation to whom the violation occurred may file a civil suit against the Association to seek damages. This suit must be filed within 5 year after the violation occurred. If the Owner proves the violation by a preponderance of the evidence, the court may award the Owner up to $25,000.00 in damages, plus costs and reasonable attorney fees.
Prohibition Against Purchasing a Unit the Association has Foreclosed On: If the Association forecloses on a Unit, the following parties are prohibited from purchasing the foreclosed Unit: (i) a Board member, (ii) an employee of a community association management company representing the Association, (iii) an employee of a law firm representing the Association, or (iv) an immediate family member of any of the foregoing.
New Policy Updates: IF HB22-1137 becomes law, then the following policies will need to be updated to incorporate all the new requirements and limitations: (1) Collections, (2) Covenant Enforcement and Fine, (3) Conduct of Meetings.

CONCLUSION: If HB22-1137 becomes law, it will force associations to incur increased fees and costs to comply, which may not even be collectable from the Owners who are in violation. It will add new notice, record-keeping, translation, and voting requirements, and will strip the Association of rights and remedies which might have allowed the Association to effectively resolve the matter. We urge you to contact Governor Polis and ask for a VETO before it is too late. Click the link below to log in and send your message: https://www.votervoice.net/BroadcastLinks/QYlKZ41ZjFRKdT3Ha_5ebw

If you would like more information on any of the above, or if you have questions on this article, or if you’d like to know more about the cost and process for the policy updates above, please do not hesitate to contact an Altitude Community Law attorney today at 303-432-9999 or [email protected].

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