Fines can be an effective tool for enforcement of covenants and rules. However, it is necessary for associations to follow specified procedures prior to imposing fines. If these procedures are not followed, it is possible that the fines may be held invalid by a court.
The Colorado Common Interest Ownership Act (CCIOA) allows associations to treat and collect fines in the same manner as assessments, provided the violator is first given notice of the alleged violation and the opportunity to have a hearing to determine whether the violation occurred. Thereafter, an association can lien the violator's property and ultimately foreclose its lien if payment is not received, or file suit against the violating owner to obtain a money judgment for the amount owed. In addition, the association can also collect its reasonable attorney fees and costs associated with any of these actions.
The first step for the Board is to determine an appropriate fine. CCIOA provides that the association may impose “reasonable” fines. There is no appellate case law in Colorado to guide associations in determining reasonable fines. Many communities use escalating fines for repeated violations. For example, the fining schedule may provide for a warning on the first violation, a $25.00 fine on the second violation, a $50.00 fine on the third violation and a $75.00 fine for each subsequent violation. Some associations also levy daily fines for continuing violations. Reasonableness of a daily fine may depend on the nature of the violation. A fine of $5.00 per day for each day of a violation for parking a recreational vehicle may be reasonable. On the other hand, a daily fine of $50.00 ($1500.00 per month) may be considered unreasonable.
Of course, in addition to considering the reasonableness of the fines, the Association should also consider whether the fines are providing the economic incentive to the owner to comply with the covenants, which should really be the association’s goal. Although, as we stated, a $5.00 fine per day for each day of an RV parking violation may be considered reasonable by the court, such a fine probably would not provide the incentive for the owner to relocate his RV to an offsite storage facility and pay the $200.00 or so per month for storage of the vehicle. The owner would probably rather pay the $150.00 fine per month.
As stated above, before any fine is imposed, certain due process procedures must be followed. CCIOA provides that the person must be given notice and an opportunity for hearing before the fine is imposed. Most associations will first send a warning or “cease and desist” letter advising the owner of the alleged violation, the action required to end the violation, and a specific time within which the violation must be corrected.
If the violation is not abated in the specified time period, the association must issue a notice giving the alleged violator a right to a hearing before imposing the fine. This notice may set a date for the hearing, such as the next Board meeting. Alternatively, the notice may advise the alleged violator that if he/she would like to schedule a hearing before the board, to make the request in writing, and if a hearing is requested, the board must schedule a hearing. If a hearing is not requested within the specified time frame the association may then impose the fine. In addition, if a hearing is scheduled and the alleged violator does not show up for the hearing, the Board may impose the fine. Remember, CCIOA requires only the opportunity for a hearing; it does not require the hearing itself.
When preparing to send violation notices, it is important to ensure that they are being sent in the manner required by the governing documents. Some governing documents require that except for routine notices to owners, all other notices must be sent by either registered or certified mail, postage prepaid, addressed in the name of the person or entity at their registered mailing address. If the association is required to mail letters by certified or registered mail, it may be prudent to also send the notice by first class mail. It is important to follow the mailing procedures in the governing documents; however, many people do not claim registered and/or certified mail. We recommend also sending the notices to owners by regular mail. Unless a letter sent by first class mail is returned it is deemed to have been received.
Before holding a hearing on a violation, the Board should establish reasonable procedures for hearings that allow each person to speak and present their evidence. After the hearing, the board or hearing panel, if not the board, should adjourn to deliberate in privacy. It is not advisable to issue a decision at the hearing, to avoid the claim that the hearing panel was predisposed to a particular point of view. This is so despite what the determination of the hearing panel ultimately is. A decision should be issued within a reasonable time after the hearing.
In summary, fines may be effective enforcement tools, but it is important for the association to ensure it follows the statutory requirements for notice and an opportunity for a hearing prior to imposition of the fine and to follow the procedures outlined in the association’s governing documents for imposing fines. Finally, the board should review violations to determine if action other than fines may be appropriate. If the board is imposing a daily fine for two months and the violation is not corrected, it may be appropriate to pursue a lawsuit for injunctive relief asking the court to issue an order for the owner to do something or refrain from doing something.
For additional information concerning covenant and rule enforcement
click here.
