8.04 Homeowners' Associations

8.04.1

In General

A homeowners' association is a private, nonprofit, legally established organization, whose membership consists of the homeowners or dwelling unit owners residing in a particular development, subdivision, condominium, or PUD. Generally, it operates pursuant to the provisions of a recorded declaration of restrictions or protective covenants.

The primary purpose of a homeowners' association is to maintain facilities and provide services for the common enjoyment of the owners-residents of the development.

A homeowners' association may be of an automatic or a nonautomatic type. In an automatic homeowners' association, each purchaser of a lot in the development automatically becomes a member of the association upon purchase, and is automatically subject to a charge for a proportionate share of the expenses of the association. Each owner, as a member of the association, is entitled to vote at the association meetings, has the right to use and enjoy the common areas and facilities in the development, and has the obligation to share in the cost of the operations. Assessments made by the association against its members, for the purposes of defraying operational costs, are legally collectible property assessments and failure to pay any association assessment due is recordable as a lien against the individual owner. Nonautomatic associations are quite rare in Texas but allow the lot owner to opt in or out of membership.

8.04.2

Title Insurance Considerations

Finding a homeowners' association declaration of record makes it necessary:

  • To show all the pertinent recorded documents as exceptions.

  • To except specifically to the right of the association to assess liens or charges (if the right exists).

  • To except any recorded certificate of nonpayment of assessments.

  • To require proof that, as of the date of the policy, there are no due and unpaid assessments.

  • Sec. 209.004  of the Texas Property Code provides that the Homeowners Association must provide upon request a statement as to the payment of fees and assessments. It must also record a management certificate which states how to reach the association and its management.

    Sec. 209.010 of the Texas Prop. Code provides that the Homeowners Association has 30 days after a foreclosure sale to notify the homeowner of his right to redeem the property and the steps necessary to exercise such right.

8.04.3

Insuring the Title Out of a Foreclosure of an Assessment Lien

Although the Texas Supreme Court has upheld the validity of a foreclosure by a homeowner's association because of unpaid assessments, Company policy requires that you obtain approval prior to insuring a title when the search and examination reveal a foreclosure of an assessment lien.  Sec. 209.009 of the Texas Property Code, provides that a property owner's association may not foreclose a lien solely for fines or attorney fees relating to fines.

8.04.4

2011 Legislation Changes

The 2011 Texas legislature considered a number of bills dealing with Home Owner Association/ Property Owner Association (POAs) governance and management.. Bold print has been added to bill language to point out important language. This section also contains notes about certain provisions of the bills styled what you should know. Our underwriting standards are set out in sections styled what you should do.HB 1821 deals primarily with notices and resale certificates. Effective date: January 1, 2012Section 5.012, Property Code, is amended by amending Subsection (a) and adding Subsections (a-1), (f), and (g)Subsection (a) dealing with the notice that a seller is required to give a buyer was amended to provide:NOTICE OF MEMBERSHIP IN PROPERTY OWNERS' ASSOCIATION CONCERNING THE PROPERTY AT (street address) (name of residential community)As a purchaser of property in the residential community in which this property is located, you are obligated to be a member of a property owners' association. Restrictive covenants governing the use and occupancy of the property and all dedicatory instruments governing the establishment, maintenance, or operation of this residential community have been or will be recorded in the Real Property Records of the county in which the property is located. Copies of the restrictive covenants and dedicatory instruments may be obtained from the county clerk.You are obligated to pay assessments to the property owners' association. The amount of the assessments is subject to change. Your failure to pay the assessments could result in enforcement of the association's lien on and the foreclosure of your property.Section 207.003, Property Code, entitles an owner to receive copies of any document that governs the establishment, maintenance, or operation of a subdivision, including, but not limited to, restrictions, bylaws, rules and regulations, and a resale certificate from a property owners' association. A resale certificate contains information including, but not limited to, statements specifying the amount and frequency of regular assessments and the style and cause number of lawsuits to which the property owners' association is a party, other than lawsuits relating to unpaid ad valorem taxes of an individual member of the association. These documents must be made available to you by the property owners' association or the association's agent on your request.Date:___________________________________________
Signature of Purchaser(a-1) The second paragraph of the notice prescribed by Subsection (a) must be in bold print and underlined.What you should doNothing other than determine that the seller gave the buyer the appropriate notice.(f) On the purchaser's request for a resale certificate from the property owners' association or the association's agent, the association or its agent shall promptly deliver a copy of the most recent resale certificate issued for the property under Chapter 207 so long as the resale certificate was prepared not earlier than the 60th day before the date the resale certificate is delivered to the purchaser and reflects any special assessments approved before and due after the resale certificate is delivered. If a resale certificate that meets the requirements of this subsection has not been issued for the property, the seller shall request the association or its agent to issue a resale certificate under Chapter 207, and the association or its agent shall promptly prepare and deliver a copy of the resale certificate to the purchaser.What you should know: Note that the purchaser is allowed to request a resale certificate. If a resale certificate has been prepared within the prior 60 days, the POA must provide a copy to the buyer. If a resale certificate has not been prepared in the past 60 days, the seller must request the certificate.(g) The purchaser shall pay the fee to the property owners' association or its agent for issuing the resale certificate unless otherwise agreed by the purchaser and seller of the property. The property owners' association may require payment before beginning the process of providing a resale certificate requested under Chapter 207 but may not process a payment for a resale certificate until the certificate is available for delivery. The association may not charge a fee if the certificate is not provided in the time prescribed by Section 207.003(a).What you should know: The buyer is the party that must pay for the resale certificate unless the contract provides otherwise. The POA can require payment in advance but cannot deposit the check until the certificate is ready. Note: This section does not require a POA to honor a request for a certificate from a title company.Section 207.003, Property Code, is amended by amending Subsections (a), (b), and (f) and adding Subsections (a-1) and (c-1).(a) Not later than the 10th business day after the date a written request for subdivision information is received from an owner or the owner's agent, a purchaser of property in a subdivision or the purchaser's agent, or a title insurance company or its agent acting on behalf of the owner or purchaser and the evidence of the requestor's authority to order a resale certificate under Subsection (a-1) is received and verified, the property owners' association shall deliver to the owner or the owner's agent, the purchaser or the purchaser's agent, or the title insurance company or its agent:(1) a current copy of the restrictions applying to the subdivision;

(2) a current copy of the bylaws and rules of the property owners' association; and

(3) a resale certificate prepared not earlier than the 60th day before the date the certificate is delivered that complies with Subsection (b).What you should know: This section allows a title company to request the resale certificate. The POA may request proof that there is an actual sales contract before providing the certificate.(a-1) For a request from a purchaser of property in a subdivision or the purchaser's agent, the property owners' association may require the purchaser or purchaser's agent to provide to the association, before the association begins the process of preparing or delivers the items listed in Subsection (a), reasonable evidence that the purchaser has a contractual or other right to acquire property in the subdivision.What you should know: POAs may require a copy of the sales contract. If the POA that you are contacting requires a copy of the sales contract, it is a good practice to obtain written approval from the seller and buyer for you to provide a copy of the contract.Chapter 209, Property Code, is amended by adding Section 209.0062:Sec.209.0062.ALTERNATIVE PAYMENT SCHEDULE FOR CERTAIN ASSESSMENTS.(a) A property owners' association shall file the association's alternative payment schedule guidelines adopted under this section in the real property records of each county in which the subdivision is located.(b) A property owners' association composed of more than 14 lots shall adopt reasonable guidelines to establish an alternative payment schedule by which an owner may make partial payments to the property owners' association for delinquent regular or special assessments or any other amount owed to the association without accruing additional monetary penalties.The POA payment plan must not be less than 3 months. There are other limitations and requirements in this section that are not quoted here.The effective date of the law is January 1, 2012.HB 1228 contains several of the sections mentioned above in HB 1821. It also contains some other provisions. Effective date January 1, 2012Sec.209.0063.PRIORITY OF PAYMENTS.(a) Except as provided by Subsection (b), a payment received by a property owners' association from the owner shall be applied to the owner's debt in the following order of priority:(1) any delinquent assessment;

(2) any current assessment;

(3) any attorney's fees or third party collection costs incurred by the association associated solely with assessments or any other charge that could provide the basis for foreclosure;

(4) any attorney's fees incurred by the association that are not subject to Subdivision (3);

(5) any fines assessed by the association; and

(6) any other amount owed to the association.(b) If, at the time the property owners' association receives a payment from a property owner, the owner is in default under a payment plan entered into with the association:(1) the association is not required to apply the payment in the order of priority specified by Subsection (a); and

(2) in applying the payment, a fine assessed by the association may not be given priority over any other amount owed to the association.What you should do: Nothing. When obtaining a release of a POA lien, the title company simply needs a recordable document. The application of payments leading to the release is not the title company’s issue.Sec.209.0064. Deals with 3rd party collections.What you should do: Nothing. When obtaining a release of a POA lien, the title company simply needs a recordable document. The application of payments leading to the release is not the title company’s issueSec.209.0091.PREREQUISITES TO FORECLOSURE: NOTICE AND OPPORTUNITY TO CURE FOR CERTAIN OTHER LIENHOLDERS.(a) A property owners' association may not foreclose a property owners' association assessment lien on real property by giving notice of sale under Section 51.002 or commencing a judicial foreclosure action unless the association has:(1) provided written notice of the total amount of the delinquency giving rise to the foreclosure to any other holder of a lien of record on the property whose lien is inferior or subordinate to the association's lien and is evidenced by a deed of trust; and

(2) provided the recipient of the notice an opportunity to cure the delinquency before the 61st day after the date the recipient receives the notice.(b) Notice under this section must be sent by certified mail, return receipt requested, to the address for the lienholder shown in the deed records relating to the property that is subject to the property owners' association assessment lien.Sec.209.0092.JUDICIAL FORECLOSURE REQUIRED. (a) Except as provided by Subsection (c) and subject to Section 209.009, a property owners' association may not foreclose a property owners' association assessment lien unless the association first obtains a court order in an application for expedited foreclosure under the rules adopted by the supreme court.(b) A property owners' association may use the procedure described by this subsection to foreclose any lien described by the association's dedicatory instruments. 209.0092(c) Expedited foreclosure is not required under this section if the owner of the property that is subject to foreclosure agrees in writing at the time the foreclosure is sought to waive expedited foreclosure under this section. A waiver under this subsection may not be required as a condition of the transfer of title to real property.What you should do: These sections deal with foreclosure of a POA lien. If asked to insure a sale emanating from the foreclosure of a POA lien to a subsequent owner, you must determine that the proper steps as outlined in 209.0091 and 2009.0092 have been complied with. If the POA asserts that the homeowner waived the right to a court order, obtain a copy of the written waiver. Make sure the waiver is dated at the time of foreclosure.Note:  from a title insurance perspective, this may be the most significant change in the law as it affects our requirements to insure after a foreclosure of the POA lien.Sec.209.0093.REMOVAL OR ADOPTION OF FORECLOSURE AUTHORITY.A provision granting a right to foreclose a lien on real property for unpaid amounts due to a property owners' association may be removed from a dedicatory instrument or adopted in a dedicatory instrument by a vote of at least 67 percent of the total votes allocated to property owners in the property owners' association. Owners holding at least 10 percent of all voting interests in the property owners' association may petition the association and require a special meeting to be called for the purposes of taking a vote for the purposes of this section.What you should know: If asked to remove an exception for rights to foreclose, it is not a good practice to single out provisions of a set of restrictions to specifically not except to. Better practice is that the restrictions and all amendments be described by title and volume and page.This bill has various effective dates but essentially would be fully effective on January 1, 2012. For specific dates see section 3 of the bill. Generally, the changes discussed above apply to actions arising after the effective date. For example, assessments that arise before the effective date are governed by the law in effective at the time they arise.HB 2761 deals with governance of POAs. Effective date: January 1, 2012Sec.209.005 makes POA records available to affected property owners, and makes the owner liable for the POAs cost of providing copies of the documents.Sec.209.009.FORECLOSURE SALE PROHIBITED IN CERTAIN CIRCUMSTANCES.A property owners' association may not foreclose a property owners' association's assessment lien if the debt securing the lien consists solely of:(1) fines assessed by the association;

(2) attorney's fees incurred by the association solely associated with fines assessed by the association; or

(3) amounts added to the owner's account as an assessment under Section 209.005(i).What you should know: This bill deals also with meetings, elections and the like. Sec. 209.009 prohibits foreclosure by the POA when the amounts owed are for fines and attorney fees solely associated with the fines and for expenses incurred for records. This section as amended provides not only protection for homeowners in a dispute with the POA over paint colors and other issues but also over obtaining records.What you should doDo not insure a sale out of a POA foreclosure when the foreclosure was done because of unpaid amounts prohibited by section 209.009. You should obtain a statement from the appropriate authority for the POA or its management company that any foreclosure was only for unpaid assessments.Generally the effective date is January 1, 2012.

See also Texas Bulletin TX2015004 – LEGISLATIVE UPDATE 2015 Deals with Management of Property Owner Association ("POA")