When you buy a single-family home, townhome, or condominium that's part of a planned community with covenants, you'll most likely pay fees and assessments, often collectively called "assessments," to a homeowners' association (HOA). If you fall behind in the assessments, the association will likely first try to collect the debt using traditional methods. For instance, the HOA will probably call you and send letters. But if those tactics don't get you to pay up, the association will probably try other ways to collect from you. The HOA might take away your privileges to use the common facilities or file a lawsuit to get a money judgment against you. Most HOAs also have the power to get a lien on your property if you become delinquent in assessments. Not only will an assessments lien cloud the title to the property, which hinders your ability to sell or refinance the home, but the property can also be foreclosed to force a sale to a new owner—even if the property has a mortgage on it.
In Colorado, if your home is part of an HOA and you fall behind in assessments:
If the HOA initiates a foreclosure, you might have a defense to the action, or you might be able to negotiate a way to get caught up on the overdue amounts and save your home.
In Colorado, the Colorado Common Interest Ownership Act (CCIOA) (Colo. Rev. Stat. § 38-33.3-101 through § 38-33.3-319) covers condominiums, co-operatives, and planned communities, including condominiums created after July 1, 1992. (C.R.S. § 38-33.3-115, C.R.S. § 38-33.3-103). But § 38-33.3-316 of the CCIOA applies to all condominiums and an organization created before July 1, 1992, may elect to have the development subject to the CCIOA (C.R.S. § 38-33.3-117, C.R.S. § 38-33.3-118). The CCIOA modified the state's older Colorado Condominium Ownership Act (CCOA) (Colo. Rev. Stat. § 38-33-101 through § 38-33-113) and superseded most of the CCOA for communities created under the CCIOA. For new condominiums, only parts of the CCOA remain in effect, most of which relate to timeshares. This article focuses on the CCIOA.
Also, HOAs are often incorporated as nonprofit corporations and are subject to the Colorado Revised Nonprofit Corporation Act. (C.R.S. § 7-121-101 and following).
Based on the association's Declaration of Covenants, Conditions, and Restrictions (CC&Rs) and state law, an HOA can usually get a lien on a property if the homeowner is delinquent in paying the assessments. Once a homeowner becomes delinquent on the assessments, a lien will usually automatically attach to the home. In some cases, the association will record its lien with the county recorder to provide public notice that the lien exists, regardless of whether state law requires recording.
In Colorado, the recording of the Declaration of CC&Rs or the "declaration" constitutes record notice and perfection of the lien. No further recording of the claim of lien for assessments is required. (Colo. Rev. Stat. § 38-33.3-316(4)).
Colorado law sets out the types of charges that the HOA may include in an assessments lien. (Colo. Rev. Stat. § 38-33.3-316(1)). Unless the declaration provides otherwise, the association may include charges for:
Colorado law requires most HOAs to adopt a policy governing the collection of unpaid assessments. (Colo. Rev. Stat. § 38-33.3-209.5).
If you make a written request, the association must provide you with a statement of the assessments due. If the HOA fails to furnish a statement, it can't assert a lien for the unpaid assessments that were due as of the date of the request. (Colo. Rev. Stat. § 38-33.3-316(8)).
Before the HOA can turn a delinquent account over to an attorney for legal action or collections agency, the HOA must provide a notice to the homeowner specifying, among other things, the total amount due, including an accounting of how the total was determined and whether the opportunity to enter into a payment plan exists. (Colo. Rev. Stat. § 38-33.3-209.5).
The HOA or assignee of the association's debt, like a debt collector, must make a good-faith effort to coordinate with a delinquent homeowner to set up a payment plan to pay off past-due assessments and other delinquent payments. The homeowner may pay off the delinquency by making equal installments over a period of at least six months. But an HOA doesn't have to offer a payment plan to a unit owner who has previously entered into a plan. (Colo. Rev. Stat. § 38-33.3-316.3).
In Colorado, an HOA may foreclose its lien in the same manner as a lender can foreclose a mortgage. (Colo. Rev. Stat. § 38-33.3-316(11)). Because mortgages in Colorado must be foreclosed judicially, an HOA must file a lawsuit in court to foreclose. This process differs from most residential foreclosures in Colorado. Colorado home loans are usually secured by a deed of trust rather than a mortgage, and foreclosures of residential deeds of trust are typically nonjudicial.
Colorado law limits an HOA's ability to foreclosure in certain circumstances.
Limitation based on the amount of the delinquency. An HOA (or the assignee of the HOA's lien, again, like a third-party debt collector) may foreclose only if the total amount secured by the lien is equal to six months or more of common expense assessments based on a periodic budget adopted by the association. (Colo. Rev. Stat. § 38-33.3-316(11)).
Board approval is required before foreclosure. The HOA executive board must vote in favor of foreclosure before proceeding with such a foreclosure on any given delinquent account and may not delegate this authority to an attorney, insurer, manager, or any other person. The board must formally resolve, by a recorded vote, to authorize the filing of a legal action against the specific unit on an individual basis. (Colo. Rev. Stat. § 38-33.3-316(11)).
Statute of limitations. For the lien to remain valid, the HOA must initiate an action to enforce the lien within six years from the date the full amount of the assessments became due. (Colo. Rev. Stat. § 38-33.3-316(5)).
A common misconception is that the association can't foreclose if you're current with your mortgage payments. But an association's right to foreclose isn't dependent on whether you're up to date on your mortgage. Instead, lien priority determines what happens in a foreclosure.
The priority of liens establishes who gets paid first following a foreclosure sale and often determines whether a lienholder will get paid at all. Liens generally follow the "first in time, first in right" rule, which says that whichever lien is recorded first in the land records has higher priority than later recorded liens. A first-lien has a higher priority than other liens and gets the first crack at the foreclosure sale proceeds. If any proceeds are left after the first lien is paid in full, the excess proceeds go to the second lienholder until that lien is paid off, and so on. A lien with a low priority might get nothing from a foreclosure sale.
But state law or an association's governing documents can adjust lien priority.
Under Colorado law, an association lien is generally prior to all other liens, except for:
But an HOA gets a super lien in an amount equal to the common expense assessments that would have come due during a six-month period before the HOA or a lender with a senior lien starts a foreclosure action. (Colo. Rev. Stat. § 38-33.3-316(2)(b)).
If you're facing an HOA foreclosure in Colorado, consider consulting with a foreclosure attorney to learn more about state laws, how they apply to your situation, and to discuss all legal options available in your particular circumstances. You might also want to consider talking to a lawyer if you're having a disagreement with your HOA over your landscaping or another matter.