Colorado HOA Management: Insolvent HOAs
We had two interviews this weekend with HOAs that are effectively insolvent. We found out from an attorney who was a homeowner at a meeting that it is against that law to produce a budget with a deficit.
In speaking with each of these HOAs it appeared that there were a large number of homeowners who were not paying their dues. First things first – get everyone not paying into collections! After that look at options. If there is someone who is going into foreclosure, the HOA will get Colorado’s six month superlien as soon as foreclosure happens. That means 6 months of HOA dues in the form of a check to the HOA. The rest of what was owed is written off as a bad debt.
Once the bank owns the property you have alot more leverage to collect dues. Banks don’t pay dues thinking that they will get away with the 6 month superlien when they sell the property, even if they hold onto the property for 2 years. Where a HOA can act is to file a judicial foreclosure on the property for CURRENT dues not being paid. Then the bank is forced to pay up because they do not want to loose the property for what amounts to six months of HOA Dues.
This does not work with someone still in possession of the property before it goes into foreclosure. Why? Because then the HOA will have to pay off the first mortgage holder in order to get the property. After forclosure, the debt is wiped clean, the bank owns the property free and clear, and the HOA can foreclose for HOA Dues.
Chris Crigler, President CAP Management