Understanding HOA Liens
Assessments in general
The Colorado Common Interest Ownership Act (CCIOA and found at Colorado Revised Statutes 38-33.3-301 through 38-33.3-319) provides for the Home Owner’s Association to make assessments for the expenses incurred by the Association.
These expenses include expenses incurred in maintaining, repairing or replacement of common areas, transfer fees, insurance policy deductibles, charges for the use rental or operation of the common areas, fines imposed against the owner, fees, charges, late charges, attorney fees, fines and interest, unless the recorded declaration provides otherwise.
Assessments must be based on a budget adopted by the Association and made no less frequently than annually. The assessment is based on the allocations set forth in the recorded declaration, and bear interest at the rate set by the Association, not to exceed 21% per year.
Liability of a unit owner
Each unit owner is liable for the payment of the assessments levied against the unit, during the period of ownership of the unit. No unit owner is exempt from the payment of the assessment by reason of not using any of the common areas or by abandoning the unit.
Lien for the assessment
To ensure that the Association can collect on the assessments, the Association has a statutory lien (HOA lien) for the assessments levied against each unit.
The Association must be incorporated, or organized as a limited liability company, to have the benefit of this lien. If the assessment is payable by installments, each installment is a lien from the time that it becomes due.
Priority of the lien
An HOA lien has priority over all other liens and encumbrances on a unit. Recording of the declaration constitutes record notice and perfection of the lien and no further recordation of any claim for lien for the assessments is required.
Mechanics’ and materialmen’s liens and homestead rights are not affected by the priority of the lien and will continue to enjoy their own statutory priorities.
Exceptions to the priority of the lien
An HOA lien does not have priority over the following matters:
- Liens and encumbrances recorded before the recording of the declaration;
- Liens for real estate taxes and other governmental assessments or charges;
- A security interest which has priority over other security interests ((for example a deed of trust in first lien position) and which was recorded prior to the date on which the assessment became delinquent.
However, in the case of a security interest (such as a deed of trust in first lien position), the HOA lien has a priority over this security interest for an amount equal to the assessments which would be due for the period of six months prior to the commencement of any foreclosure proceedings by the holder of the security instrument.
Some expenses which may be included in the assessment such as transfer fees are excluded from the calculation of the amount owing under the super lien.
This results in the Association having a split lien position, or essentially two lien positions, a lien position senior to a recorded security interest (equal to the amount of six months of assessments, calculated above), and a lien position junior to the recorded security interest for the balance of the assessments but senior to all other liens and encumbrances.
Limitations on the lien
An HOA lien is extinguished if the Association does not commence proceedings to enforce the lien within six years after the full amount of the assessment becomes due.
The Association is required to provide a written statement of the amount of the assessment owing and currently levied against the unit. This statement must be provided within fourteen days. If the Association fails to provide the statement, the Association cannot assert a lien for the unpaid assessments due as at the date of the statement.
The statement is binding on the Association, the executive board and every unit owner.
Collection of unpaid assessments
Unpaid assessments can be collected by the Association through foreclosure of the lien. This will require commencement of a court action in the district court for the county where the unit is situated.
If the Association forecloses its lien, a deed of trust in first lien position can redeem from the foreclosure sale by paying the amount due under the super priority. If the first deed of trust fails to redeem, the Association will obtain title to the unit free and clear of all liens, including the first deed of trust.
As a result of legislation passed by the Colorado General Assembly in 2013, the collection procedures have been tightened. Effective January 1,2014, the following procedures must be followed if the Association wants to collect on unpaid assessments:
The Association must adopt and follow a written policy which governs the collection of unpaid assessments
The Association may only foreclose on the lien if (i) the balance of the assessments and charges equals or exceeds six months of common expenses based on a periodic budget adopted by the Association and (ii) the executive board has resolved to authorize the filing of a legal action against the specific unit on an individual basis. The executive board may not delegate its authority to act to any attorney, insurer, manager or other person.
The Association must (i) adopt and comply with a collection policy that meets prescribed requirements and (ii) set up a payment plan which permits the owner to pay off the deficiency in equal installments over at least six months. This section does not apply to owners who do not occupy the unit and acquired the unit as a result of a default of the security interest encumbering the unit, foreclosure of the Association’s lien.
Assignment of liens
The lien can be freely assigned by the Association to any third person or entity, which will then be subject to the same rights and obligations as the Association has under CCIOA.