New HOA Rules For Texas

The Texas Legislature recently closed their 2011 session, including the passage of a new law aimed at regulating Homeowners’ Associations (HOA) with respect to association fees, liens, and foreclosures. The new legislation was signed into law by Governor Rick Perry on June 17, 2011 and will take effect on January 1, 2012.

SUMMARY OF THE NEW LAW
• Homeowners who are deliquent in the payment of their association dues must be offered an alternative payment plan prior to foreclosure proceedings (see Part 1: Alternative Payment Schedules).
• Payments received must follow a specific priority when being applied to amounts owed (see Part 2: Applying Payments)
• Collection agency fees can only be demanded after proper notice and the opportunity within 30 days to cure any outstanding debt (see Part 3: Collections)
• New guidelines for foreclosure limit proceedings to debts owed for more than 60 days, with proper notice from the HOA. There is also now a mechanism for each HOA to remove the right to conduct foreclosure actions from their association rules (see Part 4: Foreclosures).

The new restrictions are primarily aimed at assisting homeowners who are delinquent in their association dues. The requirement to offer an alternative payment plan will allow delinquent HOA members the chance to cure their debt before more drastic measures are taken. The new law also provides some relief from the payment of third party collection agency fees. It also provides HOA members an opportunity to modify their guidelines with respect to foreclosures. The new policy also could be beneficial to lenders who would no longer require HOAs to commit in writing and would have an opportunity to cure delinquent association liens before going to foreclosure.

PART 1: Alternative Payment Schedules

The new law requires HOAs to provide an alternative payment plan for members who are delinquent in their association dues. The plan must offer the opportunity to clear the debt within a timetable no shorter than three months. Debts cleared under the alternative payment plan would incur no additional fees or penalties. Guidelines established by each HOA with respect to their alternative payment plans must be filed in the county records. The law only applies to HOAs with more than 14 lots.

PART 2: Applying Payments

HOAs are now required to apply payments from association members in a prescribed manner. Any payments received must be applied to the amounts owed by the member in the following order:

1. Delinquent assessments
2. Current assessments
3. Attorney’s fees
4. Fines
5. Any other amounts owed

However, if a member enters into an alternative payment plan and then goes into default of that agreement, the association may apply the payment in any order they choose.

Part 3: Collections

HOAs will now have specific guidelines when utilizing collections agencies to collect amounts owed by members. Before assessing fees from a third party collection agency, the association must:

• Give written notice by certified mail to the member who is delinquent;
• Specify the amount delinquent and the total payment required to bring the account current;
• Provide the options available to the owner to avoid being turned over to collections;
• Provide at least 30 days for the owner to pay off the outstanding debt.

The owner will not be liable for fees from a third party collection agency if the fees are contingent on amounts recovered.  The owner will likewise not be responsible for collection fees if the collection contract does not require the association to pay all of the collections fees. The law also prevents assocations from selling or transferring its accounts receivable, except as collateral for a loan.

Part 4: Foreclosures

HOAs will now be required to obtain a court order for foreclosure in order to foreclose on a property under an assessment lien. The Texas Supreme Court will outline the specific requirements between now and January 1, 2012 when the new law takes effect. In addition, foreclosures may not commence until 60 days have elapsed after the association provided written notice, including the total amount owed and the opportunity to cure the debt under an alternative plan. A secondary effect of this portion of the new law is the elimination of the requirement that lenders ask associations to commit in writing to providing 60 days’ notice before foreclosure proceedings are to begin under the assessment lien. In simpler terms, this means that lenders will be able to cure delinquent association assessment liens prior to going to foreclosure and it makes it easier by eliminating the step of having to request the 60-day letter from the HOA.

The right of the HOA to foreclose on a property may now be removed from the association’s dedication of rights by a vote of at least 67% of all property ownership interests. In other words, HOA members may elect to remove foreclosure opportunities completely in the case of delinquent HOA dues with a two-thirds majority vote. The new law also states that a vote for this purpose may be petitioned by at least 10% of the voting ownership interests. This prescribes the procedure to get the measure before the entire membership so that associations cannot deny the opportunity to vote on such a measure.

Thank you to McGlinchey Stafford and Youngblood & Associates LLP for information used in the writing of this article. Specific questions should be directed at your legal counsel or legislative representatives.