Colorado homeowners associations will have a tougher time foreclosing on their residents for unpaid debt starting in August.
House Bill 1337, signed by Gov. Jared Polis in early June, creates new hurdles for HOAs before they can file for foreclosure and limits how much associations can charge in attorney fees when they are trying to collect what they’re owed. It also gives homeowners and renters a second chance at keeping their properties in the event a house is foreclosed on by an HOA and sold at auction.
“(This bill) really gets at the pieces of this process and how it works that we were really seeing lead to the most devastating foreclosures,” said Melissa Mejia, director of state and local policy at the Community Economic Defense Project, which was one of the main groups behind the bill.
The measure, passed by the legislature in April, is aimed in part at making good on a promise from the governor and lawmakers to change the state’s HOA laws following a Colorado Sun investigation published last year. The investigation revealed Colorado HOAs had filed roughly 3,000 foreclosure cases between 2018 and June 2023, more than 250 of which — or roughly 8% — resulted in properties being auctioned off, most for well below market value.
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HOA-foreclosed homes in Colorado are auctioned off for a fraction of their market value, erasing years of equity
A Colorado Sun investigation found that more than 250 HOA-foreclosed properties have been auctioned off in the state since 2018. At least 100 of them were sold for $60,000 or less.
Read moreAt least 100 of the auctioned properties sold for $60,000 or less, according to court records analyzed by The Sun, costing homeowners much — if not all — of the equity they had accrued.
There were an estimated 2.7 million Coloradans living in an HOA-governed community at the end of last year, or roughly half of the state’s population.
House Bill 1337 also builds on other measures passed by Colorado lawmakers aimed at making HOA foreclosures more rare.
The new law says an HOA can’t file for foreclosure against a resident unless it has first filed a lawsuit to collect its debt or filed an involuntary bankruptcy petition against the homeowner.
Additionally, the law limits the amount in attorneys fees an HOA can charge a homeowner to $5,000, or 50% of their debt — whichever is less. There would be an exception for people who are able to pay higher amounts but wilfully did not pay their debts to the HOA and the cap would increase annually based on inflation.
The Sun investigation found that attorneys fees can be much higher than $5,000 and frequently make up a quarter or more of what a homeowner eventually owes their HOA.
Finally, the measure imposes a “first right of redemption” on HOA-foreclosed homes sold at auction, giving homeowners, tenants, affordable housing nonprofits, a community land trust, a cooperative housing corporation and the state or local government — in that order — 30 days to file an affidavit stating their intent to purchase the property. They would then have 180 days after the sale to come up with the money and complete the deal.
HOA groups expressed concerns about the bill and how it may affect associations’ ability to collect unpaid debt, forcing them to ask homeowners who do keep up with their payments to fork over more money. The attorneys fee cap was also a point of contention because of how it could lead to higher bills for compliant homeowners.
House Bill 1337 was sponsored by four Democrats: Reps. Iman Jodeh of Aurora and Jennifer Bacon of Denver, as well as Sens. James Coleman of Denver and Tony Exum of Colorado Springs.
A separate measure aimed at addressing HOA foreclosures failed at the Capitol this year by a single vote in the state House.
House Bill 1158 would have required that the minimum bid for HOA-foreclosed homes being sold at auction be set at roughly 60% of the property’s market value. Right now, the minimum bid is set at whatever the homeowner owes their HOA, which may only be a few thousand dollars.
The Sun found one HOA-foreclosed home in Aurora that was auctioned off in 2021 for $5,000. The owner owed the HOA $4,889.31, which became the starting bid. About six months later, the condominium was resold on the open market for $420,000.
Another HOA measure that was rejected by the legislature was House Bill 1078, which would have required that property managers operating HOAs be licensed with the state starting in July 2025. The governor vetoed a similar measure in 2019.
Three other HOA measures were passed by the legislature this year and signed into law:
- House Bill 1233, which rolls back a requirement in a bill passed by the legislature in 2022 that homeowners associations must physically post a notice on a home when an owner owes them money. However, it adds that the HOA must mail a notice and contact the owner by two of the following: telephone, email or text message.
- House Bill 1091, which prohibits a homeowners association from restricting the installation, use or maintenance of fire-hardened building materials in residential property.
- Senate Bill 134, which prohibits an HOA from restricting a member from operating a business out of their home.