Protecting Home Owners

Becky Cole

I bought a home after a series of unfortunate encounters with landlords. The place I bought is connected to a homeowners association (HOA). I have been learning that when I was a renter, I had more rights and protections than I do with my HOA.

Most Minnesota statutes related to housing involving the financing of a home purchase or are protecting renters.

There are very few protections for homeowners who are part of Common Interest Communities (CIC). There are few substantial means of accountability for the boards who run associations.

For example, the nonprofit association I am part of is run by a for-profit management company. They established an organization, wrote the governing documents, then hired themselves out to be the management company. Our association does not have a way to communicate with the board of this management company. The board and management company share the same attorney. If we want to communicate with the board, we have to email the company manager who decides what, if any, information gets passed along to the board. The board president was not elected by members of the association, but was appointed by the management company.

One recent example of management: one of my neighbors asked for money from the association funds to repair an outlet on the outside of her unit. The “board” accused her of breaking it herself and denied her request, even though the bylaws indicate that outside repairs are the responsibility of the association. The management company gets an additional $1,500 each month for “discretionary funds.”

In the past two years, we have been forced to pay out additional association dues five times.

Current Minnesota law says it is okay to run a nonprofit business this way.

Here is a summary of where Minnesota laws fall short:

Even if a homeowners association board is found guilty of inappropriate behavior, the homeowners can be assessed to pay their legal fees. Our previous board chair admitted to fraudulently vote on behalf of members who did not vote or did not authorize a vote through a proxy to increase our dues. The Minnesota Attorney General’s office said that while they could get a declaration of fraud, I would have to pay for their attorney to show up. Additionally, there is nothing to prevent the board from issuing an assessment of any amount of their choosing if they are required to pay restitution.

Minnesota statute allows an HOA board to initiate a foreclosure action on a unit for not paying a fine, special assessment, or late fee. It does not require the board to justify that the expense is appropriate. It does not set limits on what can initiate a foreclosure action. This foreclosure action can happen even though the board does not own the mortgage.

Associations are generally responsible for maintaining, repairing, and replacing common elements and are required to maintain property and liability insurance “to the extent reasonably available” (Minn. Stat. §§ 515B.3-107, -113). However, “reasonably available” creates a financial risk for home owners, and lets the association off the hook if they are not fiscally responsible enough to have that insurance. It does not make sense to not make property and liability insurance mandatory for associations when homeowners bear the financial risk without it.

Reading the Documents. Minnesota law tells homeowners to read governing documents before signing a purchase agreement. Yet it does not require the documents provided at the time of sale to be complete or current. It does not prohibit the board from enacting changes at any time without notifying or including the members.

Competency of the Board. Minnesota law doesn’t require the board of directors to have competency in running a business, even if they are in charge of managing contracts and large sums of money.

Minnesota statute indicates management companies should be a “neutral party,” but does not provide a definition of what that means and offers no means of accountability or remediation when that doesn’t happen. There is nothing “neutral” about the control our management company has with our association board, since they benefit financially from the organization they created.

Term limits. Nothing in Minnesota statutes discusses term limits for board members. Term limits are determined by the bylaws, which are allowed to be changed by the board without notice. This can set the association up for failure when board members are not required to leave.

Home owners in associations need to have protections. Some management companies and boards operate with ethics and solid business practices, but that should not be based on luck.

I am working with a Minnesota senator and representative in my district to get legislation introduced in the upcoming session. Please join me to make it happen.