Changes Coming to HOA Living: Summary of 2023 Legislation Affecting Homeowners Associations

The 2023 Session of the Minnesota legislature was filled with partisanship and politics.  Several bills directly affecting homeowners associations were introduced in the last legislative session.  As is typical for any legislative session, only a few of those bills became law.

Restrictions on In-Home Daycare Facilities

Tucked into the massive, 1400+-page long Omnibus tax bill was a new addition to Minnesota Statutes Chapter 500 imposing restrictions on the prohibition of in-home daycare facilities.  Under the new Section 500.217,

Except as otherwise provided in this section and notwithstanding any covenant, restriction, or condition contained in a deed, security instrument, homeowners association document, or any other instrument affecting the transfer, sale of, or an interest in real property, a private entity must not prohibit, unreasonably restrict, or refuse to permit the owner of a dwelling from providing child care under a family and group family child care provider license under chapter 245A, and Minnesota Rules, chapter 9502. A private entity must not impose a fee, assessment, or other cost upon the owner of a dwelling in connection with providing child care.

(Emphasis added.)  The new statute goes on to say that, to the extent an association’s declaration includes a now-unenforceable prohibition on operation of in-home daycare facilities in the community, the association is not required to amend the declaration to remove the prohibition.

However, the prohibition does not apply to all associations.  Rather, it applies only to

  • A traditional single-family home, where the owner of the home is “the sole owner of the entire building and is solely responsible for the maintenance, repair, replacement and insurance of the entire building.”
  • A multifamily attached dwelling whose owner is the sole owner of the entire building in which the dwelling is located and who is solely responsible for the maintenance, repair, replacement, and insurance of the entire building.

Therefore, townhome and condominium associations, as well as cooperatives, are not subject to the new legislation, and may continue to restrict or prohibit the operation of in-home day care facilities.  Associations consisting exclusively of traditional single-family detached homes are subject to the new statute.

The new Section 500.217 takes effect August 1, 2024, rendering applicable prohibitions unenforceable as of that date.

Loss Assessment Insurance Coverage

With the frequent wind/hail storms blanketing Minnesota the last several years, the number of wind/hail insurance claims has increased significantly – as has the time it takes to process a claim and, ultimately, determine whether a loss assessment will be levied and, if so, the amount of such assessment.[i]  In some cases, determining the loss assessment can take two years or more.  In the time between the storm and the levying of loss assessmen

0ts, people move.  Buyers and sellers of homes with a pending wind/hail claim have encountered obstacles to coverage of the loss assessment based on when the storm occurred and when the loss assessment was levied.

Under Section 515B.3-116(e) of Minnesota Statutes Chapter 515B, the Minnesota Common Interest Ownership Act (MCIOA), the owner of the property at the time an assessment is due is responsible for payment of that assessment.   However, some insurance companies use the date of the storm as the date of loss in evaluating a loss assessment claim, and others use the date on which the loss assessment is levied as the date of loss for the loss assessment claim.  If a home is sold between those two dates, the seller’s insurer may say that, since the seller did not own the property at the time the loss assessment was levied, seller’s insurer will not cover the claim.  However, if the buyer’s insurer uses the storm date as the date of loss, that insurer will say that, because the buyer did not own the property at the time of the storm, buyer has no coverage.  Some insurers go so far as to say that if an owner did not own the unit at the time of the storm and the date on which the loss assessment is levied, there is no loss assessment coverage.

The recent amendment to Minnesota Statutes Chapter 65A attempts to clarify which party’s insurance provides coverage:

(a)        If a loss assessment is charged by an association to an individual unit owner, the insurance policy in force at the time of the assessable loss must pay the loss assessment, subject to the limits provided in the policy, notwithstanding any policy provisions regarding when loss assessment coverage accrues, and subject to any other terms, conditions, and exclusions in the policy, if the following conditions are met:

(1)        the unit owner at the time of the assessable loss is the owner of the property listed on the policy at the time the loss assessment is charged;

(2)        the insurance policy in force at the time of the assessable loss provides loss assessment coverage; and

(3)        a loss assessment and the event or occurrence which triggers a loss assessment shall be considered a single loss for underwriting and rating purposes.

(b)        If a loss assessment is charged by an association to an individual unit owner, the insurance policy in force at the time the loss assessment is charged must pay the assessment, subject to the limits provided in the policy, notwithstanding any policy provisions regarding when loss assessment coverage accrues, and subject to any other terms, conditions, and exclusions in the policy, if the following conditions are met:

(1)        the unit owner at the time of the loss assessment is charged is different than the unit owner at the time of the assessable loss; and

(2)        the insurance policy in force at the time the loss assessment is charged provides loss assessment coverage.

(Emphasis added.)  “Assessable loss” is defined as “a covered loss under the terms of a policy governed by subdivision 2, above—that is, the storm or other occurrence giving rise to the possibility (or probability) of an eventual loss assessment.  This clarification makes it clear that the owner of the unit at the time the loss assessment is levied is responsible for payment of the loss assessment, and, to the extent that owner has loss assessment coverage, that owner’s insurance company is responsible for payment of the loss assessment, regardless of what the insurance policy may say to the contrary.  Insurers will no longer be able to split the storm and the loss assessment into two separate losses.

This change also takes effect August 1, 2024. While the statute is not entirely clear, it would be logical for the change to apply to loss assessments levied on or after August 1, 2024.

Creation of CIC Working Group

Another addition to the Omnibus tax bill was a provision establishing a “working group” on common interest communities and homeowners associations.  The charge to the working group is “to study the prevalence and impact of common interest communities (CICs) and homeowners associations (HOAs) in Minnesota and how the existing laws regulating CICs and HOAs help homeowners and tenants access safe and affordable housing.”

The group is tasked with studying a host of issues, including

  • how many CICs and HOAs exist, how many people may reside in those properties in CICs and HOAs, and where the CICs and HOAs are located in the state
  • the fees and costs commonly associated with CICs and HOAs and how those fees have increased, including the cost of outside management, accounting, and attorney fees that are assessed to owners and residents
  • whether fees, fines and costs assessed to owners should be regulated by statute
  • the impact of CICs and HOAs on the housing market and housing costs
  • racial disparity in ownership of homes in CICs and HOAs
  • how other states regulate CICs and HOAs and best practices related to board transparency, dispute resolution, and foreclosures

The group will consist of approximately twenty (20) individuals representing the various stakeholders: members of the legislature, realtors, association board members, owners of homes in associations, insurance experts, representatives of greater Minnesota, property management experts, and attorneys familiar with assessment lien foreclosures and associations generally (including attorneys who represent individual owners and those who represent associations), as well as representatives of Legal Aid, the Minnesota Attorney General’s office, and metropolitan government.

The members of the working group are to be appointed by July 1, 2024, with the first meeting to be held by July 15, 2024.

No later than February 1, 2025, the group must submit a report to designated committee members that includes recommendations of legislative reforms or other methods to regulate CICs and HOAs, including the consolidation or recodification of existing laws regulating CICs and HOAs.  The report must also include draft legislation based on the recommendations of the group.

This working group will give industry experts an opportunity to educate legislators and others about how associations operate and how budgets are created and the importance of enforcement mechanisms for those who violate governing documents and/or fail to pay assessments (dues) in a timely manner.

Housing Cooperatives

Currently, housing cooperatives are governed by Minnesota Statutes Chapter 308A or 308B rather than Chapter 317A (the Minnesota Nonprofit Corporation Act).  These statutes govern all cooperatives, including agricultural and utility cooperatives.  Those cooperatives formed for housing purposes after June 1, 1994, are also governed by MCIOA.  During the recent legislative session, Chapter 308C was created.  Chapter 308C is specifically designed for housing cooperatives, and will also work in conjunction  with MCIOA. While many provisions of Chapter 308C mirror those of Chapter 308A or Chapter 308B, Chapter 308C better addresses matters specific to housing, and rounds the edges of the housing “square peg” that was often difficult to fit into the “round holes of Chapters 308A and 308B, which are primarily targeted for use by agricultural product providers and utility providers.

The new housing cooperative law takes effect August 1, 2025, to give affected parties time to iron out details and, as is often necessary, amend the law in the next legislative session to address kinks that come to light as those details are worked out.

Conclusion

Associations have clearly caught the attention of some legislators.  We expect to see new legislation introduced in the upcoming session (which starts January 14, 2025), as well as renewed interest in bills previously introduced that did not pass muster in prior sessions.

If you would like more information about how new laws may affect your particular association, contact Nancy Polomis at [email protected]

Please Note: The information in this article is provided solely as general information and not as legal advice. Neither receiving nor implementing this information establishes an attorney-client relationship. Readers are urged to speak with a qualified attorney focusing on community association law when making decisions regarding a specific legal issue.

[i] A “loss assessment” is an assessment levied by an association against units in an association to cover the deductible under the master insurance policy.  Since wind/hail deductibles are now almost uniformly set at a percentage of the value of each building in the association, the amount of loss assessments levied can differ from one home to the next, even if assessments are otherwise allocated equally among all homes.