Homeowners’ Association Board Accountability and Transparency Legislation and Its Implications

New HOA Board Legislation aims to use transparency and accountability [options] to prohibit homeowners from being foreclosed upon based solely on fines. Additionally, House Bill 22-1137 adds caps on those fines. This new legislation stems from the over 60 foreclosures in Green Valley Ranch in March 2022.

The Bill concerns practices of unit owners’ associations, and, in connection therewith, authorizing the enforcement of certain matters regarding unit owners’ associations in small claims court and limiting the conduct of unit owners’ associations in collecting unpaid assessments, fees, and fines.

The law will require HOAs to send written notice in the homeowner’s preferred language about any violations meaning homeowners will now be able to dictate how an HOA board communicates with them. The Notice will give an owner 30 days to fix violations before the HOA can levy a fine, which cannot exceed $500 (the timeframe is 72 hours if the violation threatens public safety or health).

The HOA will be required to send two consecutive 30-day notices to homeowners to fix any violations before the HOA can take any legal action. Interest will be limited to 8% per year on any unpaid fines or fees, and HOAs must provide notice of delinquencies.

It will also require HOAs to send homeowners monthly notifications of any outstanding balances, and it allows these issues to go to small claims courts as a less expensive option. And it provides homeowners the legal remedy of filing a civil suit against an HOA for up to $25,000 plus costs and attorneys’ fees if the owners prove the HOA violated foreclosure laws. This would be applicable for five years after a violation occurred.

Some potential issues with holding HOAs more accountable:

• Immunity from paying assessments.

1.Section 2 of the bill requires that before sending someone to collections, the Association (or management company) has tried to contact the owner in at least two of the following ways IN ADDITION TO THE ALREADY REQUIRED PAYMENT PLAN OFFER LETTER:

• First class or certified mail; it is not clear if this constitutes one or two possible ways. The Association is already required to do the first.
• Email, if the Association has an email.
• Telephone call or voicemail message (which are not always provided).
• In person contact, putting a Board member or Manager at risk of an angry owner.

Given the above, an owner simply need not provide an email or phone number, neither of which are required, and not open their door, and the owner could all but be immune from paying assessments.

• Privacy issues for the Homeowners.

The law requires a majority of the Board to vote on referring the owner to collections in a recorded vote at a public meeting. This cannot be delegated to management companies, similar to the current foreclosure rules. This, however, puts the Board in the unfortunate situation of needing to identify unit numbers and amounts delinquent to all owners attending a meeting. This has never been recommended and acts more as public shaming for not paying assessments to be aired to all owners. This could signal privacy issues, not only embarrassment.

• Limits late fees, fines, and interest to $50 a day or $500 total.

This means all an owner needs to do is avoid collections for a while and the Association may be robbed of money owed. Additionally, for associations with higher assessments, these limits may encourage the nonpayment of assessments.

• Limits interest to 8% a year which could rob an association of the anticipated cash flow necessary to operate the community. Long-term this could cause HOA fees to increase to close the gap.
• Prevents any fees for providing the owner a ledger. If additional administrative labor is utilized to produce delinquent ledgers, this could create issues with cash flow for a Board.
• Requires the Association to provide the names, addresses, and contact information for one or more foreclosure counseling services available in the county where the Association is located even if foreclosure is not being discussed. This may be more helpful than harmful, however, it may take some extra unpaid labor and time to assess and put together this information.
• The Association is required to inform delinquent owners about the available resources upon request of the owner, including:
  1. Contact info for any available financial counseling services,
  2. legal aid services,
  3. translation services,
  4. mental and behavioral health services,
  5. services for senior populations, and veterans’ services.

No assistance or guidance is provided to the Association for accomplishing the above, adding an additional burden to the Board, which for a self-managed community may be very problematic.

• HB 22-1137 also prevents foreclosure unless:
  1. The Association has made a written offer of a payment plan, but the monthly payments toward the arrears cannot exceed 10% of the current monthly assessment. In calculating this out, as an association may not foreclose unless the delinquency is at least the equivalent of 6 months of common expenses in arrears with the minimum payment plan term, which is 6 x 10 = 60 months. That’s five years minimum, and the actual balance is usually significantly larger than just the six months. This will have a material impact on association budgets and the performance of work in the community, meaning that additional burdens put on a community which again, could drive HOA dues to start to increase.
  2. Within 30 days after the payment plan offer has been made, the owner has either declined the payment plan or accepts it and failed to pay at least three-monthly installments within 15 days after they were due. It is unclear how one owner can miss three payments at least 15 days apart within 30 days?
     1. The bill does not address what happens if the owner ignores the offer. Does that mean we can assume they declined it? Do we have to wait for them to miss three payments before we can assume that? Courts may have to interrupt the intention of the Law to clarify this portion.

The bottom line is this bill could put the Board and the Association in a no-win situation.

The Bill will take effect on August 9, 2022 (90 days after assembly adjournment which was on May 11, 2022)