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MCL Nov/Dec 2013 - Ask the Attorney
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Ask the Attorney

By Nigel H. Mendez, Esq., Carlson & Associates, Ltd.

Nigel Mendez

This column is comprised of questions that have been posed to me by homeowners, property managers and related professionals regarding legal issues that they have encountered with respect to their associations. Discussion of these questions, as well as prior questions, can be found on the CAI-MN LinkedIn page:

www.linkedin.com/groups?gid=1769135

We have an owner in our association who is very delinquent with his assessments, but claims that he does not owe the association anything because he filed for bankruptcy. Is that correct?

Bankruptcy law is complicated and has many nuances that could alter a general answer such as this. That being said, normally, when an individual files for bankruptcy protection and is granted a discharge by the bankruptcy court, any debt that existed at the time of filing is extinguished. This means that the personal obligation of the debtor to pay the creditor is excused. However, there are two issues that associations need to keep in mind when they encounter an owner who has filed bankruptcy.

Personal Obligation
An individual who is granted a discharge, either through a Chapter 13 or Chapter 7 bankruptcy case, no longer can be sued personally for any debt that was incurred prior to the date of filing for bankruptcy protection. However, all assessments that came due after the date of filing remain a personal liability of the owner. In pursuing the collection of post-filing debt, the association should only claim debt that was incurred after the date of filing for bankruptcy protection. Depending on whether the person filed a Chapter 7 or a Chapter 13 bankruptcy, the bankruptcy process may take many months or even years to complete. Until the matter is concluded with the bankruptcy court, the association must not take any collection action — even for the debt that came due after filing. Once the bankruptcy case is concluded, collections efforts can be initiated.

Property Lien
Associations have a lien upon each unit in the association for assessments that are levied against that unit. While a discharge of debt in bankruptcy removes the personal liability of the owner, it does not always extinquish the association’s lien. Therefore, once the bankruptcy proceeding is completed the association may be able to foreclose its lien on the property.

In summary, a bankruptcy filing by an owner will typically result in the association not being able to sue the owner for the assessments owed, but it does not always affect the association’s eventual right to foreclose its lien or to collect future assessments. There are exceptions to this rule, but boards should not automatically assume that because a member filed bankruptcy the association has lost all options to collect its assessments. It is recommended that you contact your association attorney when the issue of bankruptcy arises as there are penalties that can be imposed by the bankruptcy court for taking improper actions.

Our board of directors has been running the association for almost thirty years. We are ready to retire from the board but nobody else seems to want to take over. Should we hire a professional management company to take over for the board?

Your question highlights a misconception that I occasionally hear about hiring a management company. Associations that are self-managed are responsible for collecting assessments, creating budgets, hiring contractors, pursuing delinquencies, organizing meetings, keeping minutes at meetings, etc. In short, if your association is self-managed the owners (mostly the board) does everything. Hiring a manager helps a great deal with the day-to-day operations of the association. However, it does not replace the board.

Managed associations still have annual meetings, budgets, board meetings, etc. The difference is that they have an experienced professional to assist them along the way. Many managers will prepare budgets, oversee the collection of assessments, work with contractors to obtain bids, take minutes at meetings and perform many other tasks. The manager will report to the board and make suggestions on how to handle different situations that arise, and may make recommendations to the board. Ultimately, all decisions made in the association still fall back to the board. The manager is an assistant to the board, and has no power except what is given by the board. The board remains in charge and responsible for the actions of the manager. Managers are very helpful, but don’t believe that you can disband the board once you hire one for your association.

Our board wants to install security cameras at the entrance door to the condominium. Is this OK?

Yes. In Minnesota you are allowed to install security cameras on your property. A camera over the entrance door to a condominium would be on association property. I would recommend that you let the members know that you will be installing the cameras and how they will be used. In addition, there should be a clear policy in place regarding the viewing of the footage and if they will be actively monitored, or if they will just record the past X number of hours and continually overwrite the recording (I recommend the latter option).

To have a question answered in a future article, please email it to me at nmendez@carlsonassoc.com with the subject line of "Ask the Attorney.” While I can’t promise that all questions will be answered, I will do my best to include questions that have a broad appeal. Questions will also be answered by other attorneys practicing in this area of law. The answers are intended to give the reader a good understanding of the issue raised by the question but are not a substitute for acquiring an opinion from your legal counsel.

Published by Community Associations Institute — Minnesota Chapter, copyright 2013. All articles and paid advertising represent the opinions of authors and advertisers and not necessarily the opinion of either Minnesota Community Living or CAI–Minnesota Chapter. The information contained within should not be construed as a recommendation for any course of action regarding financial, legal, accounting, or other professional services by the CAI–Minnesota Chapter, or by Minnesota Community Living, or its authors. Articles, letters to the editor, and advertising may be sent to Chapter Staff Editor Joanne Penn at joannep@cai-mn.com, or at CAI–Minnesota Chapter, 1000 Westgate Dr., Suite 252, St. Paul, MN 55114.

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