This article is the second in a series about changes in the MCIOA.
In this series of articles, we are analyzing the different provisions of SF 1750, which made numerous changes to the Minnesota Common Interest Ownership Act (“MCIOA”). With the exception of a few changes in definitions, which were effective immediately, the remaining changes in the Act go into effect on January 1, 2027. Associations governed under MCIOA will need to implement changes to their policies and procedures, and possibly their governing documents, to comply with these new requirements and restrictions.
In the first article in this series, we looked at the changes to the statutory requirements regarding fines and enforcement procedures. Another major provision in the bill will impact an association’s ability to collect assessments by placing limitations on the amount of late fees and interest that can be charged, as well as potentially impeding the ability of an association to collect delinquent assessments. Late fees will now be capped at the greater of $20 or 5% of the delinquent assessment. Many association documents provide that the late fee is the greater of $25 or 15% of the delinquent assessment, but these provisions will be trumped by the new statutory limits. The bill also makes clear that interest on late assessments is capped at 8%, which is the maximum that can be charged on consumer debt under current usury laws anyway.
In addition to the above caps on charging interest and late fees, SF 1750 provides that, unless owners agree otherwise, payments must always be applied to assessments for common expenses and special assessments first before being applied to fines, fees, or other assessments. Whereas now most associations apply payments to the oldest outstanding balance in accordance with generally accepted accounting practices, boards and management companies will presumably have to manually apply payments and track late fees and other charges that would otherwise be automatically added to an account. Not only will this create an accounting headache for associations, but this may make it virtually impossible for associations to collect those other charges without legal action if an owner chooses to continue paying just the regular assessments. When late fees and fines become impossible to collect, this creates an even bigger disincentive for owners to pay on time and to follow the rules. The legislature did provide an exception to this rule whereby associations may apply payments to just those fines that are exempted from the $100 limit if said fines remain unpaid for more than 120 days. Otherwise, unless the owners agree to have their payments applied to older balances, associations may see an increase in legal action to collect those other charges.
Additionally, the statute now creates an impossible requirement that an association “must consider offering a reasonable payment plan for a delinquency.” We generally recommend that boards ask the owner to propose a different payment plan if they are unable to pay their balance in full, since the owner knows best what he or she can afford to pay. If the payment plan proposed by the owner is reasonable, the board should accept it. If the association is now required to make the first move and to decide what a reasonable plan is, that plan will likely not be tailored to the particular owner and what they are able to commit to, and thus may be setting that owner up for failure. But this new language does not require associations to actually offer a payment plan – just that they think about offering one. Presumably, this means that boards will now have to document in some fashion whether they thought about offering any sort of reasonable payment plan to an owner who is delinquent. Further, an association will no longer be able to reject any partial payments from a delinquent owner unless the association has commenced foreclosure of its lien. However, the statute makes it clear that acceptance of a partial payment does not constitute a waiver of any claims or defenses against an owner. But it may create statute of limitations issues for associations if those payments cannot be applied to the oldest outstanding balance.
Associations will also now be required to adopt a collection policy and provide a copy of it to all current owners as well as to prospective buyers. The collection policy must require, at a minimum, for 3 separate notices to be sent to an owner about their delinquent account before the account can be referred to a law firm or collection agency for collection. At least one of those notices must be sent via certified mail to the owner’s address on file. Additionally, there will be some changes to the lien foreclosure process. The association’s attorney will be required to send the pre-foreclosure notice to the owner by both regular and certified mail. The association also cannot commence foreclosure of its lien unless the balance owed just for assessments for common expenses, special assessments, and those fines that are exempt from the $100 cap are delinquent for more than 3 months. Realistically, associations are not foreclosing on assessments that are less than 3 months past due, but this provision makes it clear that if the balance is comprised of other fines, late fees, and charges, those cannot be counted when determining whether the account is more than 3 months past due for purposes of commencing foreclosure.
Finally, there is some interesting language in the bill that appears to indicate that interest charges can no longer be included as part of the association’s lien unless the declaration provides otherwise. Many associations don’t even bother with charging interest anyway, so this change is not likely to have a large impact. However, for those associations that do regularly charge interest on delinquent balances, they will need to make sure that they consult with their attorney before including those amounts in any lien statement or foreclosure notice.
If you have any questions about the legislation, compliance with the new statutory requirements, amending governing documents, or any other matter affecting your association, please feel free to contact the author.
