Association Collection Duty

The association and the Board of Directors have duties to collect assessments due the owner association.

then the owner association should consider a judicial foreclosure lawsuit on any delinquent owners.

Typical Collection Tools of Associations

Most owner associations use the following collection tools:

Additional Collection Tools

In addition to these remedies, the following are sometimes used:

HOA Foreclosure – An Additional Collection Remedy to be Considered

Judicial foreclosure of the assessment lien, by the HOA foreclosing, is an additional collection remedy that owner associations should consider.

The association foreclosure option should be evaluated regularly and used, when needed, aggressively.  To evaluate the association's foreclosure option, owner associations and their boards and managers should understand the judicial foreclosure process.  In addition to foreclosure, Associations should evaluate receiverships as a collection remedy, in the proper case.  For more on receivership as a collection remedy, see our separate article on this subject.

The Authority of the Association to Foreclose

Most declarations grant the owner association a lien against an owner's unit for unpaid assessments.  In addition, the Colorado Common Interest Ownership Act (CCIOA) also grants owner associations foreclosure rights on their statutory liens (on the association's super lien and on the remaining lien).  A judicial foreclosure process is required to be followed (versus the public trustee foreclosure process used by lenders to foreclose on deeds of trust).

When Should an Owner Association Foreclose?

An owner association should consider foreclosing its lien if any of the following factors apply:

When should an owner association judicially foreclose the "super lien"?

If first lien lenders are not foreclosing on their borrower (the owner), the association should consider a judicial foreclosure of its super lien.  The association can pursue judicial foreclosure of its super lien as frequently as once every 6 months, or until the first lien lender forecloses and becomes an owner due to a non-paying owner in a property with no equity.

What about the First Mortgage?

Usually, the property will remain subject to the first mortgage following the sale and issuance of a deed to the owner association.  If the property remains subject to a first mortgage, the owner association must communicate its intent to the lender and try to work with the lender to allow time to sell the property without the lender foreclosing.  Alternatively, the Association could refinance the property.
If at any time the owner is not making first mortgage payments, the lender may foreclose its lien and become the owner.  

What about a 2nd, 3rd or Other Junior Mortgage?

An association lien, by statute, has priority over any junior mortgage or judgment lien that may be recorded against the property.  If the owner association takes title to a property previously encumbered by such a lien, that interest will not survive the judicial foreclosure and will be extinguished from the property.

The Judicial Foreclosure Lawsuit of an HOA – Court Order Sought to Allow a Sheriff’s Sale of the Property

Common or Typical Result of HOA Foreclosure Lawsuit.  

An order for foreclosure can frequently be obtained by a summary judgment motion without having to go to trial, or the defendants default and do not answer.

Court Ordered Foreclosure Sale by the Sheriff.  

The key steps in the Sheriff sale process (similar to the Public Trustee process) are as follows:

What can an owner association do once it has a deed?

Once it is the owner, an owners association can then evict the former owner or occupants.  After eviction, the owner association can lease, sell the property or leave it vacant.  If the owner association sells the property, the owner association is entitled to keep the net proceeds following payment of the first mortgage and closing costs.

General Recommendations

If your owner association has a high delinquency ratio compared to owners that are paying, repeat delinquency owners or otherwise uncollectible delinquent accounts, then consider a judicial lien foreclosure by the association as another collection remedy.