Committee approves homeowner-protection changes to HOA foreclosure process, adopts negotiated amendments

The Senate Local Government and Housing Committee on Thursday passed House Bill 25-1043, a measure that revises association foreclosure procedures to give homeowners additional notice and a potential period to sell before an HOA foreclosure sale. The committee recorded a 4-3 vote in favor following negotiated amendments.

Sponsor testimony said the bill responds to cases where homeowners lost entire equity because HOA foreclosure sales yielded little net value to the homeowner. The bill would require clearer notices to owners about outstanding balances, expand information on free resources regarding HOA collections, allow homeowners to request a sale period (nine months in the bill language), and give courts authority to set listing prices where parties dispute fair market value and, in some circumstances, to establish a lien in favor of a former homeowner if the foreclosure sale price is substantially below market value.

Senator Axon (bill sponsor in committee) framed the bill as an equity protection: "The bill before you today strengthens protections for homeowners facing foreclosure by requiring HOAs to provide clear and timely notices about outstanding balances as well as information on free resources regarding HOA collector actions," he told the committee. The sponsor said the bill also includes an option for homeowners to request a nine-month period to sell and preserve equity.

Stakeholders representing homeowners and HOAs testified in a mix of positions. The Colorado Legislative Action Committee and the Colorado Coalition for Responsible Associations sought amendments to narrow the bill's strict-compliance requirement so boards and volunteer directors would be required to strictly comply with lien and foreclosure laws and the related provisions of governing documents, while recognizing the practical limits for volunteer boards in complying with every conceivable legal provision.

The committee adopted amendment L012 (sponsored by Senator Exum) to retain a form of strict-compliance language focused on lien and foreclosure laws and to give judges discretion to issue stays that allow associations to come into compliance where appropriate. Amendment L014 revised notice mechanics so that, where owners have not provided an email or cell number, associations may send notice by regular U.S. mail in addition to certified mail to ensure the owner receives statutory notice.

Speakers representing large homeowner associations cautioned that foreclosure activity affects every owner in an association because associations are non-profit corporations that rely on assessments for maintenance and insurance. "Foreclosure has serious impact in the community," said Lee Friedman, who represents community association interests. "The higher the debt in a community, the more difficult it is for owners to obtain loans or for prospective purchasers to get FHA and VA financing."

Homeowner advocates said the industry historically has not strictly followed foreclosure procedures and that court review of strict compliance in foreclosure cases would protect homeowner rights without upending association governance. "The industry admitted in the first committee hearing that this is a widespread problem requiring changing the standard to strict compliance," testified Andrew Mowery, a homeowner advocate.

After debate and the amendment votes, the committee recorded final passage of the bill on a 4-3 vote; Senators Snyder, Sullivan, Exum and the chair voted aye, while Senators Bazely, Liston and Rich voted no (Liston said he wanted more time to study the measure). The committee indicated the amendments represented negotiated compromises and encouraged continued stakeholder work during the bill's next steps.