On March 22, 2023, the Poudre Overlook HOA Board met at the City of Fort Collins Senior Center to consider 5 new policies, including a new Collection Policy. Director Clay Jones decided to say the quiet part out loud and admit that a $100 per month late fee (on ~$56/mo assessments) was designed to create fear in homeowners who had not paid their fees on time. This is clear evidence of intent to, by policy, create emotional distress which is problematic for several reason. But, most importantly, it crosses a bright red line in Colorado’s Usury Laws.
Watch the exchange at the meeting beginning at 50:37 in the video below:
I was commenting on the fact that if POHOA should consider amending the policy to have late fees be a fraction of the assessment, perhaps in the $5-10 range. Director Tunna offered a proposal that the policy be reworded so that the maximum late fees be annualized at $100. His comments were ignored and/or rejected by Directors Flanary and Jones based upon both the concept that the policy was written or reviewed or endorsed by Moeller Graf, and therefore should not be amended at all whatsoever. Director Flanary also suggested that good faith judgement and common sense would ensure that this power to levy such charges and fees would not be abusive or challenged by the law.
In fact, every single amendment offered by Director Tunna was voted down in a 2-1 vote led by Directors Flanary and Jones, with Director Ballweber abstaining because of her interpretation that she only votes if there is a tie. One homeowner called out the fact that if she were to participate, it would cause a tie, but the comment did not influence Director Ballweber for the remainder of the meeting.
The problem with this policy being approved is that it runs afoul of Colorado’s Usury statutes. And, it’s not like anyone had to spend a dime to learn this. A simple google search of “Colorado HOA Late Fee” turns up a quote at the top of the page from Altitude Law:
A Director who was actually acting in good faith and displaying impartial judgement in consideration of new Collection Policies should ensure that such policies are not creating actual legal liability and potential costs for the association. This information dates back to 2012 (on Altitude’s site), and is rooted in issues documented as far back as 1965! If they clicked on that link, they would have learned from Altitude Law (which POHOA has courted and used several times in the past 5 years) that:
“Compounding interest, late fees, and processing fees can sometimes lead to claims that the association has violated state and federal usury laws. Usury laws apply only to loans, and homeowners association assessments are not considered loans. Generally, usury laws should not apply to homeowners association late fees. However, some courts have disagreed with this position and applied usury statutes against homeowner associations. Homeowners and their attorneys have occasionally attempted to argue that an association’s interest and late fees are usurious. In order to fully protect an association, in the event a homeowner becomes delinquent with assessments, penalties charged to the account should not exceed the usury limits.
Under usury laws, penalties for non-payment must not exceed 45% of the principal balance due. Penalties included in the 45% calculation are interest, late fees, processing fees, and tracking fees. Attorneys’ fees are not included in the calculation. For example, consider an association with monthly assessments of $200.00. Assume the homeowner has not made any payments since January 1. The association has monthly late fees of $40.00, monthly interest charged at ten percent per annum of the principle amount, and a monthly processing fee of $40.00. By June 30, 2012, the homeowner owes $1,200.00 in principal (assessments), plus $240.00 in late fees, $34.78 in interest, and $240.00 in processing fees. The total “penalties” on the account by June 30, are $514.78. $514.78 is 43% of $1,200.00. Any attorneys fees spent in attempting to collect this balance due are not considered in this calculation. Therefore, in this scenario, the penalties are not usurious.
However, if the assessments in this scenario were quarterly assessments, the total principle owed by June 30 would be $400.00. The penalties would still be $514.78. In this modified scenario, the penalties would be 128.7% of the principal balance due and could expose the association to liability under the usury laws.
Although usury laws should not generally apply to assessment payments, given the trends described above, associations should verify that any late fees, interest, processing fees, and tracking fees applied to a delinquent homeowner’s account would not exceed the 45% threshold. “
Source: Usury and your HOA
It’s not the sole source from Colorado HOA Attorneys. There’s these others too:
“The association should also verify that the interest and late fees charged are authorized by the governing documents. Courts can scrutinize the account ledger and look at fees charged to determine whether they are appropriate. Boards often want the late charge to act as a penalty to owners. However, this not what late fees are intended for and a court can find the fees to be usurious, unreasonable or even illegal.If the late charge and interest exceed 45% of the principal amount due, a court may eliminate all late fees and interest due to the usurious nature of the fees – regardless if the fees are authorized by the association’s governing policies! An association may, however, be able to show that the fee relates to an administrative expense (such as sending a collection notice or filing a lien), making the late charge less likely to be classified as interest.”
Source: Collections: Are you following the rules?
As we can see in the last quote, not only could this policy result in the action being deemed illegal (and a potential Class 6 felony!), but it risks the collectability of ANY fees – which is backed by lots of case law, which Director Flanary is frequent as reasons to dismiss other people’s opinion on legal matters. The Board did not do it’s homework before proposing this policy, and in spite of blaming the attorney, it most likely arises because of a transfer of the amount ($100) into a template that had the words “per month” ignoring the fact that it used to be “per year” because we collected our fees annually before 2020. It’s possible Moeller Graf didn’t notice it, but is the JOB of the Board to catch these things in their due diligence.
Note that the last quote from Winzenburg, Leff, Purvis & Payne, LLP is clear that it doesn’t matter if you have a policy that justifies the amount – the liability to the Association (which is then drawn from the pockets of owners). And, given that Director Jones stated out loud the intent (to create fear), there is a serious problem with the indemnity of individual Directors who put such a policy in place to both violate Usury statutes AND intentionally inflict emotional distress with such excessive late fees.
In my comments, I also raised the issue of proportionality. I suggested that no late fee should ever exceed the base amount, and is usually a fraction. What fraction?
Well, another prominent Colorado HOA Law firm proposes that even 50% of the assessment may be ruled by a court to be excessive:
“The amount of any late fee should also bear some proportionality to the amount of the assessment. Some state laws (and courts) do not permit penalty fees/interest in excess of a set percentage. Thus, a $50 per month late fee for failure to pay an annual assessment of $100, may be considered excessive.”
Source: Orten Cavanaugh Holmes & Hunt Late Fees Q&A
So, we can then look to other states, and there are numerous examples across the US where there are statutes that specify both the highest late fee amount and what percentage of the amount due it may be. While it is true other state law doesn’t apply to Colorado, it is a clear evidentiary guide that it should never exceed the base amount (always Usury), and is never above 50% (or even close).
In Colorado, other housing providers are limited, including those that affect Mobile HOMEOWNERS. In 2021, a law was passed that pegged the maximum amounts for both renters and these other types of owners.
“A: Yes. As of October 1, 2021, late fees in residential Colorado leases are limited to the greater of: (i) $50, or (ii) 5% of the past due rent payment. The changes discussed in this article were enacted in Senate Bill SB21-173: Rights in Residential Lease Agreements.“
Source: https://frascona.com/late-fees-in-colorado-leases/
Therefore, with the potential Class 6 felony in CRS 18-15-104 for Usury combined with Colorado Restatement (Second) of Torts (1965) § 46. Outrageous Conduct Causing Severe Emotional Distress, the new POHOA Collection Policy is unenforceable without creating serious liability for not only the Directors who participate (including potential individual liability), but also the prospect that the Association cannot collect ANY of its legitimate costs and fees incurred in collecting on a delinquent account, the potential for statutory damages (I believe up to $1000), and a great potential for punitive damages considering the display of intent verbalized by Director Clay Jones.
The concept that Director Flanary repeated throughout the meeting was that no amendment to the policies should be considered because they were somehow legally “blessed” if not authored by Moeller Graf puts us, once again, in the position of having to consider whether Director Flanary learned any lessons after allegedly misrepresenting the HOA Attorney in October of 2018, which both led to that attorney terminating the agreement in May of 2019, and became the foundation for Board Removal in August of 2019, and the litigation that subsequently followed. I’ve been an advocate of the potential for Mr. Flanary having learned lessons on a path to redemption, but this echos and repeats many of the same steps, and his arrogant and dismissive attitude at the meeting was once again on display – which is an excellent argument for why meetings should continue to be recorded and not banned (which was also voted into policy last night).
The question is whether this blight on our community continues to retain political support (Director Flanary narrowly escaped removal in January of 2023 with over 60% voting to remove him) when we also have Director Jones openly courting Qanon and now advocating intentionally using policies violating usury laws to inflict intentional emotional distress. If they continue to enjoy political support, then all the costs that result from these ill-conceived policy elements should be no surprise when they will predictably manifest in the future. This community has had multiple opportunities to take a different path, and now owns their choices. The question is whether this new information will influence any minds – because the minority who sees this clearly is being defamed, dismissed, and derided in meeting after meeting when putting sunshine into these shadows.
Hopefully, Director Tunna, who advocated for amending the Collection Policy will be able to contact Moeller Graf and influence the Board into averting disaster here. We shall see if he remains the new hope of our community to steer us clear of liability and costs that are predictable. Or, if Directors Flanary and Jones will mock the effort with arrogance, while Director Ballweber passively lets it all go down as it did last night.