Chapter 9 - § 9.4 • DELINQUENT ASSESSMENTS
| Jurisdiction | Colorado |
§ 9.4.1—Authority to Collect Assessments
Without funds, an association cannot carry out its responsibility to manage and maintain the property. In almost all common interest communities, the primary source of funds — and often the only source — is the assessments levied on unit owners. Therefore, if the association is unable to collect assessments, its ability to maintain the property will be hampered. The CCIOA grants associations the power, without specific authorization in the declaration, to collect assessments for common expenses from the unit owners,126 but requires them to adopt policies, procedures, and rules and regulations concerning collection of unpaid assessments.127 The CCIOA also provides several mechanisms to enforce and collect assessments. It allows associations to establish an interest rate — not to exceed 21 percent per year — and dictates that any past-due common expense assessment or installment of an assessment will bear interest at the rate set.128 The association may impose charges for late payment of assessments.129 When an association attempts to collect overdue assessments, it will likely have collection costs. Those costs may be as little as the expense of mailing late notices or as great as attorney fees. The CCIOA provides that if a unit owner fails to make timely payment of assessments, the association may require reimbursement for collection costs and reasonable attorney fees and costs incurred as a result of that failure without the necessity of commencing a legal proceeding.130 Another statute says that an association may "recover reasonable attorney fees and other legal costs for collection of assessments and other actions to enforce the power of the association, regardless of whether or not suit was initiated."131
While the CCIOA provides associations with a number of tools to collect assessments, it also imposes some restrictions. Neither an association nor a holder or assignee of an association's debt may use a collection agency or take legal action to collect unpaid assessments unless the association or a holder or assignee has adopted, and follows, a written policy governing the collection of unpaid assessments as prescribed by statute.132
Colorado also adopted a provision not found in the Uniform Act that allows an association to enter into an escrow agreement with the holder of a unit owner's mortgage so that assessments can be combined with the mortgage payments and paid at the same time and in the same manner; however, any escrow agreement must comply with any applicable rules of the Federal Housing Administration, Department of Housing and Urban Development, Veterans Administration, or other government agency.133
Although, as discussed below, the association has a statutory lien against units for assessments, the CCIOA does not prohibit actions or suits to recover sums due to it, nor does it prohibit an association from taking a deed in lieu of foreclosure.134 One action an association might bring is for breach of contract based on language in the documents — probably the declaration — obligating owners to pay assessments for common expenses.135
Practice Pointer
There are advantages and disadvantages to both breach of contract and lien foreclosure actions, and the association attorney needs to discuss them with the governing board.136
In any action by an association to collect assessments, the court may appoint a receiver of the unit owner to collect all sums alleged to be due from the unit owner prior to or during the action and may order the receiver to pay any sums he or she holds to the association while the action is pending to the extent of the association's common expense assessments.137
In the case of a cooperative unit, a unit owner may be evicted on non-payment of an assessment on his or her unit in the same manner as provided by law for unlawful holdover by a commercial tenant.138
Practice Pointer
The association attorney should not wait for the first serious delinquency before advising the governing board how to handle delinquencies. The attorney should give the board a checklist of "dos" and "don'ts" when the attorney first begins representing the association. In most cases, the board will learn of the delinquency from the manager, and will leave it for the manager to handle. Generally, professional community association managers have considerable experience with delinquencies and handle them well and professionally. Nonetheless, the association attorney will want to know the procedures that the manager follows and make sure they are updated to reflect changes in law or practice. A more serious concern for the attorney is the board that either has no manager or chooses to address delinquencies itself before turning them over to the manager. In theory, an informal collection effort by a board member, diplomatically carried out, can be quite successful in gaining compliance. However, there is considerable danger that a board member will say or do something that will make collection more difficult in the long run. Remember that the members of the board and the delinquent owner are neighbors and, in most cases, know each other. The board may favor some owners, while an owner who has provided the board with other problems may be "read the riot act" or treated harshly.139 Unwise actions by the board may provide counterclaims for the delinquent owner with which the association attorney will later have to contend.
§ 9.4.2—Collections Policy
Neither an association nor a holder or assignee140 of an association's debt may use a collection agency or take legal action to collect unpaid assessments unless the association or a holder or assignee has adopted, and follows, a written policy governing collection of unpaid assessments.141
At a minimum, the policy has to include seven disclosures prescribed by statute. It must state the date on which assessments have to be paid and when an assessment is considered past due and delinquent. It has to specify any late fees and interest that may be imposed on a delinquent unit owner's account and any returned-check charges that may be imposed. Next, it must state the circumstances under which a unit owner is entitled to enter into a payment plan and the minimum terms of the payment plan.142 The policy must also address the method by which payments may be applied on the delinquent account and the legal remedies available to collect on a unit owner's delinquent account pursuant to the governing documents and Colorado law. Finally, the policy has to state that before a delinquent account of a unit owner is turned over to a collection agency or referred to an attorney for legal action, the unit owner must be sent a notice of delinquency specifying the total amount due, with an accounting of how the total was determined, whether the opportunity to enter into a payment plan exists and instructions for contacting the appropriate party to enter into a payment plan, the name and contact information for the individual the unit owner may contact to request a copy of his or her ledger to verify the amount of the debt, and a statement that action is required to cure the delinquency and that failure to do so within 30 days may result in the delinquent account being turned over to a collection agency, a lawsuit being filed against the owner, the filing and foreclosure of a lien against the unit owner's property, or other remedies available under Colorado law.
§ 9.4.3—Partial Payment of Assessments
The board needs to proceed with considerable caution when a unit owner makes, or offers to make, partial payment of a delinquent assessment, either as a temporary measure until he or she is able to pay the remainder or as final settlement.143 If any unit owner does not pay the full assessment levied against the unit as required, then in effect the other owners will make up the difference. Yet, all common expenses must be assessed against all the units in accordance with allocations set forth in the declaration.144 A unit owner is, therefore, only to be liable for his or her allocated share of the common expense liability, not any portion of the share owed by another owner who refuses to pay all or some of it. Thus, if an association accepts partial payment, either temporarily or permanently, it may present problems of compliance with the CCIOA.
When, in a collection action, a settlement for less than the full amount owed is offered, associations are presented with a potential dilemma: if they accept less than is owed, the common expense of other owners will increase. Because common expenses must be contributed pro rata in the percentages set by the declaration,145 an association may not be able to accept a lesser amount than owed. In an Idaho case, the association avoided the problem even though the documents imposed a uniform assessment requirement.146 A bank owned several lots in the community for which assessments were delinquent. The association settled with the bank for an amount less than the association alleged was owed. When one owner subsequently refused to pay his assessments, the association brought a collection action, but the owner contended the settlement agreement violated the uniformity requirement of the documents. He argued his assessment should be adjusted accordingly. The association countered that because it acted on advice of counsel, the business judgment rule protected it. The Idaho Supreme Court agreed and affirmed an order that required the delinquent owner to pay all assessments.
In a case from Florida,147 unit owners tendered what they believed to be the full amount that they owed to the association. Contending the account had already been turned over to the association attorneys for collection, the management company refused to accept payment. It was concerned that if it accepted payment, its actions could "jeopardize" the association's lien. The appellate court, however, said...
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