Proposed Legislation Would Give Texas HOAs Power to Foreclose Without Court Assistance

San Antonio HOA Lawsuit Attorney Trey Wilson wrote:

Earlier this month, Rep. Kenneth Sheets (Dallas) introduced HB 2928. If passed, this bill would give Texas Homeowners Associations legal authority to foreclose assessment liens (for HOA dues and similar charges) non-judicially (on the courthouse steps) much like a mortgage lender or other lien holder.  Under current law (Texas Property Code Section 209.0092), Texas homeowners associations can only foreclose liens judicially -- by filing a lawsuit and obtaining a judgment. Obviously, lawsuits give property owners more due process (and consequently take longer and are more costly) than do Sheriff's Sales or similar non-judicial foreclosure processes.

The most significant aspect of HB2928 is that it does not require that a Declaration/CCR contain a provision authorizing a private power of sale as a condition of authorizing non-judicial foreclosure in Texas.  Essentially, the law would grant to Texas HOAs a collection remedy that does not independently exist either as a contractual right (CC&Rs are considered contracts in Texas) or as a covenant running with land in an HOA-governed subdivision.

Another troubling aspect of this Bill is that it seems to directly contradict brand-new law (effective January 1, 2012) concerning HOA foreclosures.  As part of the HOA Reform package of laws passed during the 82nd Legislative Session (2011), property owners were expressly granted the right to democratically  determine whether to amend their Declarations (CC&Rs) to prohibit non-judicial foreclosure: Texas Property Code Section 209.0093  is entitled "REMOVAL OR ADOPTION OF FORECLOSURE AUTHORITY," and provides:

" 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."

If adopted, HB 2928 would obviate this right of property owners to determine whether or not to authorize foreclosures by their HOA. In my opinion, HB 2928 favors Texas HOAs, at the expense of rights recently granted to homeowners.

New TX Law For HOAs Give Homeowners More Time Before Foreclosure

San Antonio HOA Lawyer Trey Wilson wrote:

Here's a good story from Houston's NPR affiliate, KUHF

Listen to the story here:

Before January 1st, Homeowners Associations were able to foreclose on homes without going through the courts. Now, they have to ask a judge for an expedited order of foreclosure. Homeowners would get an extra 60 days to cover whatever they owe a homeowners association.

Kevin Cloves is a Houston attorney who represents both HOAs and homeowners. He says this will slow the process of taking away homes from people whose HOA debt is just a fraction of the home's value.

"The extra time that's given to the homeowner provides them with an added opportunity to save their property by virtue of maybe coming up with a loan from friends, working out a payment plan with the HOA."

And the new laws do require HOAs to offer payment plans of up to 18 months. Terry Sears is another Houston attorney who specializes in HOA matters. He says while the intent of the new laws is noble, the regulations will cost HOAs more to achieve the same result.

"We're eventually going to get the foreclosure. But now, we have to jump through additional hoops which requires a lawsuit and service fees and court costs. And it drove up the fees exponentially for the entire subdivision, and, in my opinion, unnecessarily so."

The new foreclosure rule is part of a batch of new laws governing HOAs. Some of the regulations took effect last September. They cover everything from flag displays, to where and how residents can collect rainwater for other uses.

Texas Supreme Court Posts New Rules Regarding Foreclosure of HOA Liens

San Antonio HOA Lawyer Trey Wilson wrote:

Today, the Texas Supreme Court posted the final version of its revisions to Texas Rules of Civil Procedure 735 and 736, governing the foreclosure of certain liens, including HOA assessment liens. The Court's full Order is posted here.

The Texas Legislature directed the Supreme Court to enact new rules relating to judicial foreclosures, when it adopted HB 1228 (82nd Leg., R.S.). That Legislation was one of numerous HOA reform bills adopted last session by Texas lawmakers.

The original analysis of the bill provided the following summary of its purpose.

Currently, a property owners' association may foreclose on real property for the property owner's failure to pay association assessments. In many instances, the foreclosed property is encumbered with a first lien that is not disposed of when the foreclosure sale occurs because there is no requirement to notify the lienholder of the foreclosure or the sale. H.B. 1228 sets out provisions relating to notice and providing the lienholder with an opportunity to cure a delinquency before a foreclosure sale.

Stay tuned to this blog for a future post summarizing the new rules and their practical effect.

Notably, the new Rules apply to foreclosures commenced on or after January 1, 2012.

Fourth Court Waters-Down Homeowner's Victory Against HOA

BOTH SIDES SWALLOW THE LION'S SHARE OF THEIR OWN ATTORNEYS' FEES

On December 7, 2011, the Fourth Court of Appeals in San Antonio released its opinion, on rehearing, in a case where a Bexar County jury punished a local HOA and its attorney for pushing too aggressively in its efforts to collect past due assessments. The case received extensive media coverage when the verdict was first rendered in June, 2010.

The suit, Hidden Forest Homeowners Association, Inc. vs. James Hern was originally tried to a jury before Judge Martha Tanner. Following trial, the jury returned a mixed verdict requiring Hern to pay around $946 in past due assessments, plus the HOA's attorneys' fees of $728.00. **Notably, the Association had asked the jury to award attorneys' fees in the amount of $25,000.00** The jury also found that the Hidden Forest HOA engaged in unreasonable collection practices, and violated its own restrictions by attempting to foreclose on Hern's home and take an individual judgment against him. The jury awarded Hern $11,000.00, denied Hidden Forest's request for judicial foreclosure, and ordered the HOA to remove its assessment lien placed on Hern's home.

The HOA filed an appeal seeking to set aside the award to Hern, and the measly award of attorneys' fees to the Association (which approximate less than 5% of the amount sought by the HOA). Upon analyzing the verdict, the appeals court found that the HOA did not breach its covenants, or engage in unreasonable collection practices. Accordingly, Hern's verdict for damages was reversed.

With regard to the collection efforts, the Court did add this proviso:

Although we do not condone Hidden Forest’s refusal to accept Hern’s prepayment and subsequent settlement offers, we cannot say that its collection efforts were harassing or outrageous. Hidden Forest did not repeatedly call Hern or send letters to his home or business.

The Court refused to side with the HOA in its claims that the jury's award of only $728.00 was against the great weight of the evidence, and should be increased to $25,000.00. Despite the fact that the HOA's attorney testified that he personally spent 75 hours on the case (at $250/hr) , his associate spent over twelve hours on the case (at $200/hr), and his legal assistant spent almost 26 hours(at $125/hr), the Fourth Court found that:

the jury was aware of the simplistic nature of Hidden Forest’s case, which merely sought to recover assessments that Hern admitted he had not paid. The amount Hidden Forest sought in attorney’s fees was more than 26 times the amount it recovered due to Hern’s failure to pay assessments. The jury could have rationally determined that 3.78 hours was a reasonable amount of time to expend in legal services for this case (dividing $728 awarded in attorney’s fees by Newton’s hourly rate of $250).

A full copy of the Fourth Court's opinion can be found here.

In the end, it appears that the HOA spent a bunch of time and money to collect an amount that the homeowner was willing to pay all along. Spending attorneys' fees chasing attorneys' fees is never a good ida, especially in the arena of HOA litigation. Not surprisingly, though, local media reports that both sides are claiming victory in this dispute.