MINNESOTA COMMUNITY ASSOCIATION COLLECTIONS GUIDE

Although Minnesota is a Homestead State (up to $39,000.00), debts owed to HOAs and Condos are considered as consumer debts. HOAs can foreclose on a property.

To understand the laws better for Minnesota HOAs and condos, please refer to Minnesota Common Interest Ownership Act, Minn. Stat. §§ 515B.1-101 through 515B.4-118.

The Act governs the formation, management, powers, and operation of all common interest communities created within this state on and after June 1, 1994.

Also, you may be guided by your own governing documents.

Yes, aside from the Federal Fair Debt Collection statutes Minnesota has its own laws regarding collections. The law §§ 332.37 provides a list of prohibited practices in consumer protection statutes .

The Minnesota law provides for the right of consumers to sue an offending party or parties for the greater of actual damages or $1,000, plus costs and attorneys fees.

No, but that does not mean that a management company cannot be in violation of the collection statutes. Collections are heavily regulated and anybody who attempts to collect debts should know what they are doing. More and more community association management firms are being cited for violations of consumer protection statutes.

Management companies are best advised to restrict their “collections” to standard accounts receivable and courtesy letters. Language is important, and it is wise to use such terms as “demand.”

An HOA can collect as much as is legally owed to them in fees, violations, special assessments, administrative costs, and legal fees.

As long as money spent is in the budget and/or approved by the board of directors it can be spent on any improvements or maintenance that is required by the association.

An association should always try their very best to to contact a delinquent owner to advise them regarding what is owed. Every owner is entitled to see their ledger and know how much they are owed. An owner may request their ledger at any time and a HOA should be very willing to provide it to them.

Once a property has gone through probate and the court has decided who is the owner, all the past due fees are due and payable to the HOA unless the governing documents have a provision that says the debt rolls over to the association. Going forward, after probate has been settled, the new owner must pay their fair share.

First let us distinguish between a bank foreclosure and an association lien foreclosure. 

A Bank Foreclosure requires the lender (and it does not have to be a bank) to pay the association 6 months of delinquent assessments. This gives the association a higher priority than bank liens but only up to six months. This is called a “Super Lien” but it seldom covers the entire debt owed to the community. 

Also in the case of Bank foreclosure if the bank brings the property to an auction and there is a surplus, the association has a right to petition the court for the amount that is owed to them from the surplus funds.

Finally, a bank foreclosure does not extinguish the debt that is owed to the association and the association has the right to pursue the old owner in court for a monetary judgment to recover this debt. It may not be a secured debt but it is surely collectible unless the governing documents say that the debt owed to the association rolls over to the membership. 

Foreclosure should be the last desperate attempt to recover the association’s money. An HOA should consider a merit based collection agency to recover it’s delinquent money before moving to put people out of their homes. Notices should be given to a delinquent before any action is taken.

The old fashion way is to have the management company send a few courtesy letters to a delinquent owner and then send the file to the attorney for collections. Some boards of directors and managers will tell you that “it has always been done this way” but “the times they are a changing.”  HOAs can add a new link to the “value chain” in its operations by sending delinquent owners to merit based collection agencies who specialize in collections for HOAs and Condos.

The best way to handle collections for HOAs is to engage the owners and be armed with all the information you can acquire. Know the equity in the unit, read and understand the governing documents, find out where the owner is and then begin to engage in the collection efforts.

Once again, this is a very heavily regulated industry so this should be done by professional and licensed companies. Once you engage with an owner and work with them you would be surprised to see that most of them will cooperate and come to the table.

It’s not 2008 where nobody had equity in their properties and were willing to lose them because they had no value. People will pay and for the most part people want to pay. You just have to ask them and work with them.

By post petition assessments we are talking about a bankruptcy and the answer is absolutely yes. The board of directors has a fiduciary duty to collect these assessments and if the individual is not in bankruptcy there is nothing legally stopping them from the collection of delinquent assessments.

The statute of limitations for contracts: Written and oral are six years §541.05(1). However, some attorneys believe that each missed assessment constitutes a new cause of action on the entire balance thereby tolling the debt.

No. An owner is an owner no matter what state they come from. There is no difference between an out of state owner from a collections perspective.

A HOA and Condo must be a properly registered corporation and up to date on all of their state and federal filings.  If a HOA or condo has not had legally noticed budget meetings that could make collections more difficult so it is important that a community association be properly governed.

There is nothing in the statutes that limit the amount of late fees and one must look to the governing documents to see if the association can charge late fees.

Regarding late interest, if the governing documents are silent the association can charge the maximum allowed by law which is 8% (for written contracts)  as of the writing of this document. If the governing documents prescribe a late interest rate then that is the maximum a HOA or Condo can charge, provided it does not exceed 8% per annum.

If the file has not gone to the attorney it is advisable to contact the manager or treasurer of the association to get a copy of the delinquent ledger. Then review the ledger and if you can prove that you made payments that were not applied advise the management company.

If the file has been sent to a collection agency the law requires that the collection agency give the debtor 30 days to dispute the debt and just as mentioned above.