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.
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23 Responses to New HOA Rules For Texas

  1. Karl says:

    Thank you for a very cogent, informative summary of the new law. As an HOA board member, I found this information very useful and plan to direct our homeowners to your site.

    • Thank you so much. Coming from an HOA board member, your compliments are much appreciated.
      We aim to provide a wide-variety of information about Austin on our blog and we hope you’ll also spend some time reviewing our other posts.
      Thanks for sharing our post with your association homeowners!

  2. Erika says:

    I have a question. How does the home owners put in a request for a new homeowners association?

  3. Forrest Holloway says:

    Looking for a sample HOA delinquent dues payment plan. Suggestions? Thanks

    • According to the information we were provided, the plans must be filed with the county in order to be enforceable. So, I would start with the county you live in (presuming you are in Texas, of course). I checked the Travis County website and couldn’t find any postings of these documents, so it might require a phone call or visit to the county offices. Another option would be to contact law firms who specialize in housing/real estate/HOA law and see if they can help (they may charge for this service). A third option would be a bit more tedious, but some HOA’s have their own websites and may post their new policies. Some will require that you are a member and have a login, so it may take some hunting to get to the info you need. Good luck and keep us posted if you find out anything.

      Thanks,
      Michael Ikeya, Marketing Coordinator for Mission Mortgage of Texas, Inc.

  4. Carla D.Evans says:

    Please can you tell me : Are the monthly HOA meetings with the board members open to the residents for the entire meeting?? I was told I had to leave after a very brief 5 minute time for question&answer.And that the meeting wasn’t open to the residents of that neighborhood.I feel we’re entitled to know everything that’s going on in our neighborhood.They can certainly make the info about who’s not paying their fees private.I don’t think that’s everybodies business.But as far as repairs,renovations,clean up committtees,trash pick up, police patrol,etc. the residents should be included and notified of these things. Our money is paying for this.

    • From the information we know, every HOA has the ability to set their own meeting rules and processes. Those rules are subject to change, and the mechanism for making changes should be outlined in the charter. It is possible for the residents to be kept out of proceedings if the bylaws of the organization stipulate that this may occur and when. How much the residents are told is also subject to the rules of the HOA. If your HOA is controlled by a board, then it would require action by the board to change things.

      I think you will find differing opinions on whether the full activities of the HOA board should be made available to the residents. Some will believe that this would entail a violation of privacy rights while others would stress that the HOA belongs to the residents and they should decide. The truth is, the HOA is controlled by the documents that created it and the rules must be followed for things to change. Your money does, in fact, pay for the actions of the board, but that does not automatically entitle you to full disclosure. Think of your federal income taxes. They pay for many things that you don’t get to read about, research, report or follow. For example, your taxes pay for CIA agents, but that doesn’t mean you are entitled to know who they are. Really, your money is paying for a membership to the organization, with all of its benefits and all of its limitations. If you do not like how your HOA behaves, then follow the guidelines in your charter to request changes. That is the best (and possibly the only) way you are going to overcome this obstacle.

      Thanks for commenting and I hope this helps.
      Michael Ikeya for Mission Mortgage of Texas, Inc.

  5. Cyndie Simmons says:

    I am the office manager and the only employee of a very small owners association. The assessments established back in 1974 are still the same. $2.50 a month for ownership of one lot. With the paying of my work, utilities, office supplies, and the opening and maintenance of the much needed pool in the Texas summer heat I do not see us surviving another two or three years. How can I change the By-Laws to get an increase of these assessments? It is also set up to where I can only charge any owner who has more than four properties for only four properfties. Some owners own fourteen properties or more. Any help would be wonderful. Thank you.

    • Thanks so much for your comment.

      You have indicated a couple of important issues. One is the raising of the monthly HOA assessment or dues. The other is how to charge those with more than 4 properties. While I cannot provide any specific advice, I can offer the following guidance:

      1. To change the assessment/dues, you will need to look through the original charter documents to determine what process was outlined for making changes. Essentially, you need to change the bylaws and how that is done varies from association to association. Some have set up a board to make those decisions. Some require all voting members weigh in. Others may have something entirely different. What it comes down to is this: you can only change the assessment by following the procedures outlined in your charter documents.
      2. The concern about owners who own more than 4 should be looked at in two ways. You have already mentioned one…that they are only paying dues on 4 properties, regardless of how many they own. But also, this may have been done to limit the voting powers they have with the HOA. In other words, if you manage to change the bylaws to count all properties in the assessment, as a result you may be granting those owners a larger say in the decisions, which could backfire when you try to increase the assessment in #1 above. You would increase your collections of the $2.50 per month, but it might make it harder to vote in any increase.
      Now, the most important advice I can give you is this: Consult a real estate attorney. The legal documents that set up your association are likely written by attorneys and filled with “attorney-speak”. To make sure you do everything correctly, it might be in your best interest to consult with an attorney. Of course, attorneys cost money, so how they get paid will be up to you and your association. If you feel confident you can understand the charter documents such that you can enact changes without the use of an attorney, that’s up to you. But I feel strongly that to make sure you don’t do anything to violate the provisions you should ask a lawyer for help.

      • Cyndie Simmons says:

        Thank you for answering my questions. I will consult with a lawyer, I had the pleasure of meeting one of our owners just yesterday who is a lawyer. I will ask her if she can recommend a real estate attorney. I do want to deal with this matter correctly and do not want to violate any provisions as you have advised. Again my thanks and my appreciation for this website.

  6. vince hummer says:

    What are the requirements of a POA for notifying a home owner of a Final Notice of a violation of a resrtrictive covenant. Can this be done by email or is a certified return reciept letter required? What are the required number of days that the POA must give a homeowner if an appeal is requested

    • Hello Vince. Thanks for your question. Unfortunately, there’s no way for me to answer as every POA sets up their own bylaws and policies. If the bylaws state that email will be considered a viable communication method, then email is fine. It might say that they notice must be posted to the owner, mailed, certified mail, or other. The laws of the state are structured to be as little an influence on POA/HOA groups as possible…with the exception of these rules that were put into place recently. If it’s not covered in the new law, then the old rules still apply. Thus, the bylaws will hold the answers you seek.

      Good luck to you.

  7. Helen says:

    I heard that an HOA can get their local county tax assessor to collect dues as part of the annual tax bill. I’m a board member for a very tiny HOA here in Texas. We have a devil of a time getting some of our members to pay their dues. And they are the ones who fuss the most abt how messed up the streets are, too!

    How does that work?

    Thanks!

    • Hi Helen and thanks for your question.

      To our knowledge, the county tax assessors will not involve themselves in the collection of HOA dues. Besides the legal liability of having to understand and defend the HOA covenants that they didn’t write or enforce, there are other issues that would make this relationship all but impossible. HOA dues are determined by each board. If the county were to use their tax collectors, that would mean that tax bills couldn’t be sent out unless all participating HOAs submitted their dues and the data was input into systems not currently poised to handle such micro-level billing. Generally speaking, property taxes are also tax deductible from your Federal Income tax burdens, but HOA dues are not. The confusion of including those amounts in a tax bill, but having to exclude them from the tax deductions taken later would create problems for taxing agencies all the way up the IRS. Failure to pay would lead to another layer of complication as a tax lien can be placed, but HOA dues cannot, without the judgement of a court of law. So, if someone were to fail to pay, the county would have the burden of separating the HOA dues out of the tax lien filing…something I doubt they would be willing to do.

      Think about it from the County’s perspective. What upside do they have for performing this service? Would they get anything for handling billing for your HOA? What risks would they add by taking on this responsibility? How would non-HOA members feel about their County tax collectors spending their time and efforts on behalf of a private HOA? I think you can see how this would likely lead to numerous legal and legislative issues that I don’t think would be popular at this time.

      The covenant of your HOA should spell out precisely how delinquent dues will be handled, up to and including legal action. If the HOA is mandatory and you have residents who are not paying, then the proper procedures should already be outlined for you. I would highly suggest that your board invest in the services of a good real estate attorney to determine what avenues you have available based on the covenant.

  8. What part of the new HOA rules apply to pre 1994 HOA’s? Specifically concerning delinquent fees and non-juducial forclosures.

    • Hi Lorri,

      Thanks for your question. It is our impression that the age of the HOA has no bearing on the whether or not the new laws apply. As we read the statutes, it seems as though the rules put in place at the end of 2011 refer to all HOAs in the state of Texas.

      As always, we recommend that you retain an attorney experienced in real estate law before taking any action. As every HOA is different, you really need expert legal advice specific to your situation and a licensed attorney is your best bet.

  9. Lisa says:

    Hello. How do I find out if membership to my HOA is mandatory? The bylaws state that a property owner “shall become a member upon payment of dues”. Another article states that to be eligible for the board of Trustees, you “must be a member of the association”. They seem to be loosely written with some ambiguity which leads me to believe that membership may be optional. I quit paying dues a few years back because I was sick of them giving gifts to local charities with funds from the dues. I am not against charities but I believe I should be able to choose the ones my monies flow to. Would the bylaws specifically state membership is mandatory by all property owners? THANK YOU!

    • Hello Lisa,

      If your HOA is mandatory, you would have been notified at the time of purchase. Your closing package should include information about the HOA and list whether it is mandatory or not. If you’ve quit paying dues and heard nothing from the association, it is most likely that yours is voluntary. Review your closing package and if you have questions call the title company who prepared the documents. They can help you to determine for sure if your HOA is mandatory or voluntary.

      Every HOA is different, so there is no way for us to know for sure. Please consult with an expert before making any decisions.

  10. Peter says:

    I would like to comment on the Mission Mortgage reply to a question by Carla D. Evans on February 20, 2012 regarding homeowners attending board meetings. Chapter 209 of the Texas Property Code requires HOA boards to make all meetings open to homeowners, with the exception of Executive Sessions. The HOA must give advance meeting notice including the date, time, place and agenda. Items for Executive Session topics are specifically limited by law; e.g., to matters involving attorney client privileged information, personnel issues, or private or confidential homeowner information.

  11. Grace says:

    Do HOA’s have to send owners a statement to collect the mandatory yearly HOA fee?? If they do not send it out to the homeowners…who is responsible for non-payment??

    • The rules for providing invoices or statements would be within the HOA documents. In other words, each HOA can set their own procedures for notifying residents. There are unified rules regarding collecting past due HOA fees and telling residents that they are past due. But there is nothing that I know of that sets expectations uniformly for how HOA’s ask for payments that are not late already.

      For specific assistance, you may want to consider hiring a real estate attorney to review the HOA documents.

  12. Marilyn says:

    Our HOA documents state that fireworks are not allowed. We also have a sign posted at appropriate times of the year stating that a $500 fine will be assessed. We send reminder notices. If an owner shoots off fireworks on one day only, do we still need to send a warning letter first asking for remedy and compliance. And then if it happens again (within a [period of time), then we can fine them? (state law) It seems that owners can set off fireworks with no consequence, because there will not be anything to remedy.

    • Hello Marilyn and thanks for commenting. Unfortunately every HOA is structured differently so the remedies you seek must be outlined in your HOA documents. For individually determined preferences within a neighborhood, there are no overarching state laws. The laws enacted by the state are specifically geared towards how dues are collected, particularly when they are past due. The laws do not compel or limit the actions of each HOA with respect to setting forth fines. As we normally do, we highly recommend that you review the HOA documents with an experienced real estate attorney to determine what is allowed within your specific community.

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