New state law reins in metro districts

Some HOA reforms facing roadblocks as session nears end

Colorado lawmakers have passed new legislation in a yearslong effort to curb foreclosures by homeowners associations and metropolitan districts that are based on unpaid fines and fees.

The reform bills — including one for metro districts that has been signed into law — have aimed to create new regulations for HOAS and metro districts by restricting foreclosure filings of the kind that hit thousands of homeowners in recent years. They also would enhance notifications to homeowners about violations and regulate how much homeowners would have to pay in fines and fees.

But lawmakers haven’t always agreed on the right approach. One bill that would curtail when HOAS can initiate foreclosures and for how much they can sell the homes at auction narrowly lost a House floor vote last week.

And another bill related to the licensing of HOA managers appears to have stalled.

In Colorado, HOAS and metro districts legally can place liens on residents’ homes that supersede those of even the banks that hold their mortgages. They can then sell a property to collect the money a resident owes — and the owners still may be left with mortgage debt and none of the equity they had built.

On Friday, Gov. Jared Polis signed House Bill 1267, which takes effect in 2025.

The new law will prevent metro districts that are charged with enforcing covenants from foreclosing on any property lien, or auctioning off that property, because of unpaid fees or charges related to covenant violations — although they still may set fines and place liens.

It also requires metro districts to establish written policies on fines and fees.

They must comply with laws related to covenants that HOAS are subject to, such as a provision

that prevents them from limiting the content of flags or sign displays put up by homeowners.

The legislation balances communities’ desire to maintain covenants while also safeguarding homeowners’ financial security, said Kristi Pollard, the executive director of the Metro District Education Coalition, which advocates for transparency and accountability in the quasi-governmental entities.

In a statement, she called the law a “significant victory” for Coloradans living in more than 2,200 metro districts across the state.

Two other bills related to HOA regulations are still under consideration in the statehouse.

House Bill 1337 is on its way to the Senate floor for a final vote before heading to the governor’s desk.

The bill would not take away an HOA’S power to foreclose on someone’s home, but it would require it to bring a civil action against a homeowner and obtain a personal judgment, unless the homeowner is in bankruptcy proceedings.

The bill also would require that a foreclosure filing be retracted if a homeowner establishes a payment plan. It would limit reimbursements of an HOA’S attorneys fees by a homeowner, and it would set a priority list of who could purchase the home if it went to auction.

That’s aimed at trying to keep it affordable — giving first preference to the homeowner.

While that bill is making progress, a controversial bill to reestablish licensing requirements for HOA community managers, which expired in 2018, has not moved forward since early March. House Bill 1078 passed two House committees and last month was referred to a third, where it still awaits action.

That bill would need to get through the Appropriations Committee, two votes on the House floor, at least one Senate committee and then votes on the Senate floor for passage — all by the end of the legislative session May 8.

A similar bill passed both chambers in 2019, but the governor vetoed it, and another attempt in 2022 failed.

Last week, a bill that would have set new rules on the initiation of foreclosures by HOAS, House Bill 1158, failed on the House floor by a vote of 32-28, just one vote shy of the 33 needed to move it to the Senate.

The bill also would have limited attorneys fees that homeowners would have to cover for an HOA. It would have established an initial bid amount at auctions for foreclosed homes, including factoring in 60% of an owner’s home equity. And it would have restricted who could purchase the homes at auction.

Although some lawmakers felt the bill included provisions that were too similar to those in other HOA bills — or may have conflicted with them — Rep. Naquetta Ricks, an Aurora Democrat and bill sponsor, dismissed that critique.

Ricks said she thought the bill would have passed if five representatives weren’t absent the day of the vote, four of them Democrats. A majority from that side of the aisle had voted in favor of the bill.

She plans to reintroduce the bill next year.

“Equity theft should not be legal in Colorado, and that’s what we have done. … It’s legal for people to steal someone’s property and sell it just at the debt that’s owed to the HOA and to the attorneys,” Ricks said. That allows investors to buy it and then sell at fair market value.

“In every instance,” she added, “that is wrong, and it’s unjust. And so it should not be tolerated at all.”