We’re tracking major legislation in the MN House and Senate, and as you’ve likely heard by now, not all is well in HOA Land. The state elected officials have turned their sites on HOAs for “reform,” and they’re using some of the rare bad actors (and oft-repeated phony stories, like the one about the foreclosure that occurred due to a $56 late payment, which is totally false) to go after an industry that already has strong rules, well educated leaders and basically smooth running operations.

The legislation seeks to reform HOAs (HF1268 and SF1750) is ostensibly flying through the Minnesota House and Senate. Public hearings have been held in the House and Senate, and HOALN representatives and some network members have provided public testimony. There is a large amendment under consideration, but as of yet no hearing has been set. Another related bill, SF 1063, establishes a common interest community ombudsperson for CICs/HOAs, with a hearing held on Friday, March 21 in the Minnesota Senate, with another scheduled for Thursday at 1 p.m.

To become a law, both the Minnesota House and the Minnesota Senate have to vote to pass the Bills and a final, consolidated bill must then be signed by Governor Walz. In both the House and the Senate, the Bills will be heard by various committees, likely amended in those committees, and then eventually sent to the floors of both the House and Senate for an up or down vote.

The House version of the bill was heard by the Housing Finance and Policy Committee in early March and then referred to the Commerce and Finance Policy Committee. That committee has not yet scheduled a hearing on the bill, but it will likely happen soon.

The Senate version of the bill was heard by the Housing & Homelessness Prevention Committee in mid-March and was referred to the Judiciary and Public Safety Committee. That committee has not yet scheduled a hearing on the bill, but it will likely happen soon.

The Minnesota legislature has a number of deadlines it is required to meet with respect to passing legislation. This year, the House and Senate leadership have agreed that by 5PM on April 4, 2025, Bills must be passed favorably in their committee of origin. The last day that the legislature can meet in 2025 is May 19, 2025.

SJJ Law (one of our sponsors) recently provided us with a good summary of the impacts of these bills. We are sharing it below.

PLAN TO ATTEND THE HOA DAY AT THE CAPITOL

Wednesday, April 2, Capitol Steps, 10:30 a.m.

Watch this space and member should watch their e-blasts from the network for more info.

While these Bills will likely be amended, its current form contains the following provisions:

Duties of Associations

• HOA must compile and provide every unit owner with a schedule of the fees and charges that the HOA may impose. Fines are capped at $100.00 (single)/$2,500 (total).

• Capping late fees at $15.00 (with special rules for “special assessments”).

• Rules & Regulations must be “reasonable” and require 60 days advanced notice to unit owners. Rules can only be approved at a Board meeting with an opportunity for homeowner comment. Rules may be revoked by a majority vote of owners at a Board meeting.

• Associations must adopt procedures for dispute resolution and “meet and confer” processes (see below).

• Prior to an association taking any “enforcement action” (attempt to collect a disputed assessment/charge or sue/foreclose), the association and the unit owner must engage in a meet and confer process to resolve the dispute. The association’s Board must designate a member of the Board to meet and confer with the unit owner. If the meet and confer process results in the resolution of the dispute, the resolution must be in writing and signed by both a Board member and the unit owner. The signed agreement binds the parties and is judicially enforceable. A unit owner must not be charged any fees, including any attorneys’ fees, to participate in the meet and confer process.

• Associations cannot sell or assign a debt owed by a unit owner.

• Prior to referring a unit owner’s inquiry to an attorney, the Board must provide a notice to the unit owner with a certain specific information (including, eventually, an itemized invoice).

Boards

• HOA must provide a publication to each director explaining their job.

• Meetings must be (more) open and owners (and their representatives) must be allowed to speak about whatever is on the agenda (or, more or less, whatever else they feel like).

• Boards must prepare, and personally sign, an annual report sent to all owners that contains very specific information about each contract entered by the association that year.

Member Meetings

• Notices must include copies of any documents relevant to the meeting (i.e., budget). HOA must allow “member input” on the budget prior to or at the meeting.

Voting

• No more than 20% of votes cast on a single vote can be by proxy. Directors cannot act as proxies for unit owners.

Assessments

• Attorneys’ fees & costs for enforcement of the governing documents can only be assessed up to $1,500.  Attorneys’ fees & costs for foreclosure can only be assessed up to $1,000. No fees are allowed if the association uses a contingent collection agency.

• Associations must offer unit owners a “reasonable payment arrangement and take into consideration the financial circumstances of the unit owner.”

• HOAs can no longer assess interest.

• Fines are no longer part of the association’s lien.

• HOAs can only foreclose when the total amount owed is $5,000 or more and that amount has been outstanding for 180 days or more.

Bylaws

• Cannot amend Bylaws without opportunities for unit owners to comment. Bylaws may be revoked by a majority vote of unit owners at a Board meeting.

Architectural Authority

• HOAs must set out a fair, reasonable, and expeditious procedure for making ARC decisions and set them forth in the HOA’s governing documents. Generally, adds limitations/hoops for the ARC process.

Miscellaneous

• Makes it easier to dissolve HOAs.

• Cracks down on HOAs ability to restrict parking on units and public streets.

• Municipalities cannot force builders to create HOAs to manage their new developments.

Property Management

• Management companies are prohibited from requiring an association to work with a particular vendor.

• Prohibit management companies and their owners from having an interest in any business that their association clients hire or contract with for more than $2,000 worth of goods or services in a calendar year.

• Prohibit associations from entering into contracts with management companies that would allow the management companies to make more than $2,000 in a calendar year.

• Makes automatic renewals of management contract more difficult to impose.

WHAT ARE THE PRACTICAL IMPLICATIONS OF THIS BILL?

While there are many positive provisions in the Bills, the real-world implications of the current Bills will create an immediate, and sizeable, increase in fees paid by the nearly 1.5- million unit owners and there will be an immediate increase and difficulty governing HOAs.

a. Increased Costs.

The only source of funding for an HOA is the money collected from its members. Many of the provisions of the current Bills will inevitably result in homeowners needing to pay their associations more money so the association can operate effectively and legally.

i. Inability to pass along costs.

Currently, MCIOA governed associations can assess back any costs they incur in dealing with enforcement of the governing documents and collection of past due assessments. These Bills, however, limits the costs that can be passed along to the rule breaking/delinquent homeowners. The current Bills will not prevent HOAs from needing to take action to enforce its rules and collect delinquent assessments. Rather, the Bills in their current form will unfairly pass the costs onto the compliant homeowners. By limiting the costs that can be passed on to those delinquent and rule-violating owners, Boards will inevitably need to increase assessments to balance the costs of enforcement, inevitable delinquencies, and the need to have funds on hand to pay ongoing operating expenses. Bottom line: homeowners’ dues will go up.

ii. Increased litigation/legal fees.

The proposed Bills open many new avenues for homeowners to sue their associations and – arguably – forbids an association from assessing back fees relating to its defense. In addition, associations will be suing their homeowners much more if (1) they cannot foreclose on their lien until the balance climbs over $5,000, and (2) they are only permitted to assess back $1,500 in costs. There will be incentive for associations to sue as soon as possible once an account is referred to collections. Bottom line: homeowners’ dues will go up.

iii. Increased management fees.

In its present form, the Bills would prohibit management companies from subsidizing lower management fees by selling additional ancillary services (maintenance and construction, project management, resale disclosures, fees for violations and covenant enforcement action, etc.).

Many management companies would see a reduction in revenues which would be offset by increasing management fees, resulting in increased assessments. Bottom line: homeowners’ dues will go up.

b. Increased Governance Difficulty.

Increased cost aside, Boards at HOAs are made up of unit owners within the community who are democratically elected by their neighbors and volunteer their time to do the hard work of governing. One of the biggest hurdles HOAs face is unengaged members, including the common issue of being unable to fill positions on Boards. By limiting Boards’ abilities to govern and enforce the associations governing documents, Board members will become frustrated and less willing to serve. What was once a thankless volunteer position, will turn into an unpleasant and difficult one that may go unfilled.

i. Limit ability to stop bad behavior.

While the majority of unit owners in HOAs comply with the rules, most associations will eventually run into a unit owner who simply refuses to comply with the governing documents. Currently, associations can fine rule-violating owners to force compliance. However, under the proposed legislation, an association’s ability to fine is hampered and capped. For example, if a unit owner wanted to rent their unit as an AirBnb, despite the Declaration prohibiting such behavior, the unit owner could pay the maximum lifetime fine of $2,500, and simply continue to rent out the unit with impunity. The lifetime cap on fines for a repeated violation creates a perverse incentive, allowing a willful unit owner to treat the cap as a predictable “cost of doing business.” Once the cap is reached, the HOA is left with no recourse but costly legal action.

ii. Limit Board participation.

It is difficult enough to find volunteers to serve on Boards as-is; the position will not be more attractive once (1) Boards are legally required to allow all homeowners speak at all meetings of the Board (and, inevitably, regularly derail them), and (2) directors are now forced to personally “meet and confer” with each and every unit owner that has a dispute with the association or falls behind on dues.