As discussed in Part I of this series, there were some significant changes adopted in the recent session of the Minnesota legislature affecting Minnesota Statutes Chapter 515B, commonly known as the Minnesota Common Interest Ownership Act (“MCIOA”). Part I focused on the ability to assess attorneys’ fees and costs incurred in conjunction with a homeowner’s violation of the governing documents. Part II focuses on an association’s requirement that accelerated assessments must be paid in order to cure the delinquency on an account and collection of attorneys’ fees and costs in foreclosure.
The Landscape Today
Under MCIOA, an association is permitted to assess a delinquent homeowner the reasonable attorneys’ fees and costs incurred by the association related to the collection of that homeowner’s delinquent assessments. Further, if assessments are collected in installments (e.g., monthly), the association has the authority to “accelerate” unpaid installments on a delinquent homeowner’s account. That is, if an association collects the annual assessment (“dues”) in monthly installments and a homeowner has a past due balance on her account, the association can, upon written notice to the owner, require that the owner pay the remaining installments for that year in order to bring the account current.
For example, if an association decides in March to pursue collection of a long past-due account, the association could require the homeowner to pay the remaining monthly installments for that year (April through December) in order to cure the delinquency.
The ability to accelerate installments can be an effective collection tool, particularly for those owners who are perennially in collections—reinstating the account and then failing to pay going forward until the account is again in collections.
Under the changes to MCIOA, if the association is foreclosing its lien against the delinquent homeowner’s home and has accelerated the remaining installments, then, if the homeowner wants to reinstate (bring current) their account prior to the sheriff’s sale in that foreclosure, the association cannot require the owner to pay the accelerated amounts that are not due in order to reinstate the owner’s account.
For example: It’s June, and the association is foreclosing its assessment lien against Taylor’s home. The association had accelerated the monthly payments through December. Taylor tells the association that he wants to bring the account current, and plans to pay July 5. In that scenario, the association could not include the monthly installments for August – December in the amount Taylor must pay to stop the foreclosure. If Taylor is successful in reinstating his account, he would then resume making regular monthly payments beginning August 1.
Perhaps more important, the revisions to MCIOA prevent an association from requiring payment of attorneys’ fees and costs in order to reinstate an account prior to foreclosure of the association’s assessment lien. The revision is included in the specific section of MCIOA regarding lien foreclosures, and makes specific reference to the foreclosure statutes.
How does the change affect how associations do business?
Indeed, many associations are already willing to “unaccelerate” future installments if the delinquent homeowner is able to pay the outstanding balance. For those associations, the changes will likely have little impact. However, there is currently no obligation to “unaccelerate” future installments. The changes to MCIOA would impose that obligation. The new language does change the landscape for collecting delinquencies, especially from chronically delinquent homeowners.
The change regarding collection of attorneys’ fees and costs is problematic on several bases:
- It is in direct conflict with other provisions of MCIOA that specifically allow associations to collect reasonable attorneys’ fees and costs related to collections.
- If attorneys’ fees and costs are not paid at the time a debtor reinstates his account to stop further foreclosure proceedings, the account may never be current. Those accounts would continue to be reported as delinquent, which could affect an association’s ability to get a loan for capital improvements, and may affect buyers from getting mortgages on homes in an association, which may affect the value of homes in that community.
- It appears that the provision applies only to those accounts on which foreclosure has begun (legally deemed to be when the Notice of Pendency is recorded), as opposed to accounts in collection, but where foreclosure has not yet been formally commenced. However, the statute is not crystal clear in that regard, and associations could face challenges from debtors who seek to cure any delinquency without paying attorneys’ fees or costs, regardless of whether formal foreclosure has begun.
When do these changes take effect?
The change to Section 515B.3-102 (acceleration of assessments) takes effect August 1, 2023. The change to Section 515B.3-116 (collection of attorneys’ fees prior to the foreclosure sale) also takes effect August 1, 2023, but applies to foreclosures initiated on or after that date.
Up Next: Mandated language for violation notices
If you have questions about the changes to MCIOA and how they impact your association, please contact attorney Nancy Polomis at 952-746-2105 or [email protected].