When you buy a single-family home, townhome, or condominium that's part of a planned community with covenants, you'll most likely pay fees and assessments, often collectively called "assessments," to a homeowners' association (HOA). If you fall behind in the assessments, the HOA will likely first try to collect the debt using traditional methods. For instance, the association will probably call you and send letters. But if those tactics don't get you to pay up, the association will probably try other ways to collect from you. The HOA might take away your privileges to use the common facilities or file a lawsuit to get a money judgment against you.
Most HOAs also have the power to get a lien on your property if you become delinquent in assessments. Not only will an assessments lien cloud the title to the property, which hinders your ability to sell or refinance the home, but the property can also be foreclosed to force a sale to a new owner—even if the property has a mortgage on it.
In Minnesota, if your home is part of an HOA and you fall behind in assessments:
If the HOA initiates a foreclosure, you might have a defense to the action, such as the association charged you too much, imposed unreasonable fees, or failed to follow state laws. Or you might be able to negotiate a way to get caught up on the overdue amounts and save your home. For example, you might be able to pay off the entire delinquency, negotiate a reduced payoff amount, or enter into a repayment plan.
The Minnesota Common Interest Ownership Act (Chapter 515B of the Minnesota statutes) governs HOAs in the state.
Based on the association's Declaration of Covenants, Conditions, and Restrictions (CC&Rs) and state law, an HOA can usually get a lien on a property if the homeowner is delinquent in paying the assessments. Once a homeowner becomes overdue on the assessments, a lien will usually automatically attach to the home. In some cases, the association will record its lien with the county recorder to provide public notice that the lien exists, regardless of whether state law requires recording.
Under Minnesota law, an association has a lien on a unit for any assessment levied against that unit from the time the assessment becomes due. If an assessment is payable in installments, the full amount of the assessment becomes a lien from the time the first installment became due. The recording of the CC&Rs constitutes record notice and perfection of the lien; recording a notice of or claim for the lien isn't required. (Minn. Stat. § 515B.3-116(a)).
Minnesota law sets out the types of charges that an HOA may include in its assessments lien. Unless the declaration provides otherwise, the association generally can include charges for:
Also, in a foreclosure, the HOA is entitled to recover foreclosure attorneys' fees and costs if authorized by the declaration or bylaws (in a nonjudicial foreclosure) or as determined by the court (in a judicial foreclosure). (Minn. Stat. § 515B.3-116(h)(4)).
If you make a written request to the HOA, the association must provide you with a statement of the overdue assessments within ten business days after receiving the request. (Minn. Stat. § 515B.3-116(g)).
In Minnesota, an HOA may foreclose its lien either judicially or nonjudicially. (Minn. Stat. § 515B.3-116(h)(1)).
The redemption period is generally six months from the date of sale, though it might be a lesser period if authorized by law. (Minn. Stat. § 515B.3-116(h)(4)).
For the HOA's lien to remain valid, the association must initiate an action to enforce the lien, like through a foreclosure, within three years after the last installment of the assessment becomes due. (Minn. Stat. § 515B.3-116(d)).
A common misconception is that the association can't foreclose if you're current with your mortgage payments. But an association's right to foreclose isn't dependent on whether you're up to date on your mortgage. Instead, lien priority determines what happens in a foreclosure.
The priority of liens establishes who gets paid first following a foreclosure sale and often determines whether a lienholder will get paid at all. Liens generally follow the "first in time, first in right" rule, which says that whichever lien is recorded first in the land records has higher priority than later recorded liens. A first-lien has a higher priority than other liens and gets the first crack at the foreclosure sale proceeds. If any proceeds are left after the first lien is paid in full, the excess proceeds go to the second lienholder until that lien is paid off, and so on. A lien with a low priority might get nothing from a foreclosure sale.
But state law or an association's governing documents can adjust lien priority.
While an HOA's lien is typically considered prior to other liens, some liens get priority over an HOA lien, including:
If you're thinking about buying a home in an HOA community in Minnesota—or you already live in one—take the time to familiarize yourself with state association laws, and the community's governing documents, like the CC&Rs. That way, you'll understand how the association operates and any legal restrictions on it. If you have any questions about the HOA's governing documents or your legal rights, consider talking to a real estate lawyer.
If you're facing a foreclosure by an HOA in Minnesota, consider consulting with a foreclosure attorney to learn more about state laws, how they apply to your situation, and to discuss all legal options available in your particular circumstances.