UPDATE FROM GREENSTEIN SELLERS ON “HOMEOWNERS ASSOCIATION BILL OF RIGHTS” LEGISLATION

Minnesota S.F. 1750 / H.F. 1268

Major legislation impacting common interest communities in Minnesota passed the Minnesota House and Senate this session and will likely be signed by Governor Walz and become law.  These updates to the Minnesota Common Interest Ownership Act (the “Act”) come at a time that financing rules for property within common interest communities care also tightening[1], and homeowner associations should plan to bring their community into compliance over the upcoming year. The changes, some of which simply formalize existing best practices, are summarized here and span issues of governance, collections, and contract management.

The bill’s supporters have described this as a “bill of rights” for homeowners in associations. Stories of perceived overreach by homeowners’ associations, and a desire by legislators to expand protections for homeowners, led to the bill’s passage. Industry groups raised concerns with the impact of how some of the proposed legislation would affect communities’ ability to self-govern, and due to significant feedback from stakeholders, the version that passed out of the House is less impactful than earlier versions were. Associations will nevertheless have to adjust to the new rules, and quickly.

If approved by Governor Walz, Most of the new law will take effect January 1, 2027, and the team at Greenstein Sellers has prepared this summary for boards and managers with what we see as the key changes. We recommend planning now for updates to the many policies and procedures that are impacted and we will provide firm clients with forms and templates to facilitate these new requirements.

1.    Board meetings and governance

• Board meetings are going to require more documentation and opportunities for owners to speak. The agenda and any contracts or other documents the board intends to approve at an open board meeting must be published and made available to members, by email or website, in advance. Unit owners will have to be given an opportunity to speak on agenda items before any action is taken. This opportunity to speak should be built into the agenda. The association has some powers to limit the amount of time owners can speak for and does have the right to expel disruptive owners.
• Changes or updates to the Association’s Rules and Regulations will require the board to notify owners at least 21 days in advance of any changes being adopted, and owners will have the opportunity to review and comment on the proposed rules during that time. Notice will be required to go out to the owners “in any reasonable manner” (so e-mail is an option). There is a limited, but otherwise undefined “exigent circumstances” exception allowing boards to occasionally adopt emergency rules, and then notify owners after.
• There is a new ‘anti-retaliation’ provision that prohibits retaliation against an owner for asserting their rights under the statute. The new law does not provide much guidance or clarity on how this provision interacts with the association’s right to assess back attorney’s fees for enforcement of the governing documents, and this can be expected to be argued by aggrieved homeowners as a potential cause of action against associations that have ruled against them.
• The statute clarifies that board-only discussions of basic maintenance and daily operations that do not result in a vote or formal action do not require notice or minutes.
• Annual reports will have to include the association’s deductible and a new loss-assessment warning notice.
• Proposed budgets will have to be circulated to owners prior to the meeting at which the budget will be discussed and approved.
• Associations will have to provide unit owners with a procedure for requesting alterations to their unit. The procedure must allow unit owners to present their request, and for a written decision from the association to be made within 90 days.
• A new written “grievance” procedure must be adopted permitting oral or written presentations by unit owners to the board. No fees can be charged for the presentation, and if a resolution is not achieved, the unit owner must be directed to the CIC ombudsperson.
• Director board terms must be limited to three-year terms, and those terms generally must be staggered.
• Parking rules must be updated to eliminate certain restrictions for public rights-of-way and any blanket prohibitions on personal or work vehicles parked in driveways or designated areas (there are exceptions that can be built in).

2.    Changes to fines, fees, and collection practices

• There are new limits on fines for violations of the governing documents. The statute imposes a general $100 cap for a violation. There are some exceptions for (i) repeat violations; (ii) those related to health and safety, physical damage to unit or common element; and (iii) related to violations of business use or leasing requirements.
• Accounting for payments is being mandated to change. This will require changes in the accounting system used so owner payments are applied “first to common expenses and special assessments” before any other charges such as late fees, attorney fees, or other collection charges, unless:
  • the owner has agreed otherwise in writing;
  • the assessments are for fines that remain unpaid for more than 120 days and are related to health and safety, physical damage to unit or common element, or related to violations of business use or leasing requirements.
• Foreclosure proceedings can no longer commence until an account is delinquent for at least three months on assessments for common expenses, special assessments, and certain fines. Additionally, payments can no longer be blocked unless the association has commenced a foreclosure.
• Interest and late-fee policies will be required to change to reflect a new 8% interest cap on delinquent assessments, and a late fee cap at the greater of $20 or 5% of the amount owed.
• Associations will have to develop a payment plan offering for delinquencies. The board should adopt a collection policy that sets forth payment plan options for delinquent owners.
• Associations will need to create or update a standard notice of fine to include new requirements: steps to schedule a hearing with the association; reference to the CIC ombudsperson; the lien/foreclosure warning limited to qualifying fines and assessments; and attorney-fee notice language.
• Associations will need to provide notice for legal-counsel-referrals if fees will be charged to an owner; (new § 515B.3-125): when an issue will be referred to association counsel, the owner will have to be sent a (at no-cost to them) advance notice that legal fees may be incurred and assessed back, unless the matter is being referred to the association’s counsel (i) due to pending or threatened litigation; (ii) to respond to the unit’s owner’s attorney; or (iii) when immediate legal action is necessary to preserve the legal rights of the association or to prevent immediate harm to people or property.
• Associations will need to create or update a “fine schedule”, a list of common fines for unit owners and purchasers. The list should also include a description of the remedies the association has to impose and collect on those fines.
• Associations will need to create or update a written collection policy with the new statutory minimums (three notices before referral to a law firm or collection agency, including at least one by certified mail; § 580.021 pre-foreclosure notice by both regular and certified mail). Distribute to all owners and include with resale certificates.

3.    Contracting and vendor management

• There is a new requirement for written competitive bidding for any maintenance, construction, repair, or reconstruction contract estimated to exceed $50,000. The association will have to solicit and maintain records of at least three written bids. There are also disclosure rules for meeting minutes requiring the association to disclose any bids from director-, manager-, or family-affiliated bidders before consideration. The board will then be required to review all bids and document selection criteria in the minutes (referencing cost, qualifications, warranties, responsiveness, timeline, etc.).
  • There are limited exceptions to the new competitive-bidding rules if multiple bids cannot be obtained; emergency repairs are needed to protect the health or safety of owners; there has been significant damage to the property that must be addressed to prevent further damage; the work is covered by warranty; the vendor is the only available vendor capable of providing the goods or services; or the cost of materials does not exceed $50,000 and the work will be performed by volunteers.
  • Records on bidding and contract management will need to be retained for six years, and must be available for inspection by homeowners.
• There are new conflict-of-interest rules covering directors and property managers which will require recusal where a director or family member has a material financial interest, along with a specific rule against kickbacks.
• There are new provisions around the termination of property-manager contracts: contracts entered by a declarant will have to end no later than 12 months after declarant control terminates; other contracts must allow association termination on three months’ written notice (with or without cause for non-renewing contracts; pre-renewal for auto-renewing contracts).

4.    New HOA termination option for certain detached single-family communities

• Detached single-family HOAs without common elements or building-maintenance obligations can now be terminated with only 67% owner approval (as opposed to 80%). Non-responding owners are “deemed to consent” 60 days after being sent certified-mail notice. No first-mortgagee approval is required for this track.

5.    Updates to resale certificates

• New requirements for disclosure and resale certificates are being added (the exact language will be in the statutes §§ 515B.4-1021, 515B.4-107) to add an insurance deductible and loss-assessment warning, recommended owner insurance coverage language, the collection policy, a copy of any reserve study, the fine schedule, and some other disclosures.

6.    Safe at Home compliance

• The statute expands Minnesota’s “Safe at Home” program to apply to associations’ records. The program is designed to protect survivors of abuse and human trafficking. If someone in the program notifies the association of their participation, this will trigger a requirement that the association take steps to ensure their name, home address, work address, or school address is not inadvertently disclosed. This will require associations and managers to develop procedures to ensure they can comply when this comes up.

 

As we all navigate these new rules together, please reach out to our office with any questions or concerns.

[1] Fannie Mae and Freddie Mac recently issued new rules that will increase the scrutiny lenders bring to transactions involving HOAs and condominiums, for a summary of the changes see https://advocacy.caionline.org/fannie-freddie-update031826/.