The Long-term Impact of HB22-1137 on HOA Property Management in Colorado
The passing of HB22-1137 harkened a new age in HOA community management in Colorado and was met with widespread concern. Managers, attorneys, and boards have learned to adapt to the restrictions that were created by this legislation, and we recognize that this legislation has limited management obligations, ultimately benefitting some individuals, but harming associations as a whole.
Changes to Covenant Enforcement Under HB22-1137
The changes to covenant enforcement now require documentation of a non-safety violation for a minimum of 30 days before further action can be taken. While this may limit an overzealous Board from issuing fines in an unreasonable manner, it limits the ability of the association to enforce the covenants in a timely manner. Neighbors are forced to suffer with an outstanding violation for several months before legal action can be taken. This can lead to a misperception that the association or its management company is not enforcing the HOA’s rules. Most HOA residents correct a violation immediately as they want to be a good neighbor. Some that are not interested in compliance have used the restrictions of this legislation as a means of ignoring their responsibility over a long period of time, which can mean an eyesore for the community that just lingers.
How HB22-1137 Affects HOA Collections and Cash Flow
A second provision of HB22-1137 that has caused difficulty for associations is regarding collections. Due to vague language in the law, the payment plan language has been interpreted to require an 18-month payment plan with as little as $25 to be paid each month, plus a balloon payment in the 18th month. This restriction has resulted in financial strains for numerous associations. The implications to regular HOA funding are grim, meaning that anticipated assessments are delayed for collection beyond the budgeted year, as well as a collection process that is kicked down the road, finding the association in the same situation 18 months later. Associations are not-for-profit entities, designed to collect the bare minimum needed to operate the community and fund long-term replacements. HOA budgets take care of vital expenses such as insurance on the units, utilities, and community amenities, and so any lack of funding can greatly hurt the HOA’s ability to pay bills. The impact of collection practices such as these outweighs the benefit to the owner.
Special Assessments and Project Delays Caused by HB22-1137
Another aspect that has become an issue for multiple associations is special assessments. For example, one community that planned a relatively modest special assessment for a needed capital improvement project found that once the special assessment was applied, nearly half of the community requested an 18-month payment plan, most opting into the minimal payment amount and a balloon payment at the end. This prolonged the start date for the project and put the community at risk of a catastrophic failure of a vital mechanical system. Some communities opt to take out a loan for projects, which results in interest charges which they otherwise wouldn’t have had to pay if special assessments were exempt from this bill. These examples are a few of many.
Workarounds HOA Management Companies Are Using to Adapt
For those of us in the community management industry that must work within the confines of these laws, have had to create workarounds to continue to manage effectively. Some communities have opted to add a Courtesy Letter step to their covenant enforcement policy. Because this is outside of the first notice, it allows the HOA to provide a shorter time frame before the first notice under HB22-1137 is sent with a 30-day time frame. This is sent in the hopes to avoid extra certified mail charges and resolve a majority of items before they go through the 30-day letter process. For collection issues, we suggest to boards to create a contingency line item in the budget for shortfalls in assessments. It does mean a larger assessment contribution for community members, but it also allows for peace of mind with finances. When special assessments are being planned, we poll community members in advance to determine who can pay and who will need a payment plan. One association determined to phase their project over 18 months to allow for funding to be available when invoicing was sent. While this is not ideal, the community surveys help lower the risk due to a lack of funding.
The Need for Better HOA Legislation in Colorado
These workarounds have been useful, but they are not a solution. We truly need legislation that serves the greater mission of communities. Fortunately, there are wonderful organizations like the Colorado Legislative Action Committee (CLAC) that diligently lobby against potential legislation that may be short-sighted and work with members of the Colorado Congress to “cleanup” legislation that has already been passed. Keep an eye out for periodic Calls to Action by CLAC that request the testimony of industry professionals and homeowners that will be impacted by legislation. This is a great way for your voice to be heard before a law is passed. If you can be involved, please do so.
Industry Insight from CAP Management
Aaron Monaco is the Vice President of Property Management with CAP Management and has been a part of the industry for 19 years.
