What subject matter is discussed in the Association’s primary governing documents?
The three primary governing documents for most Associations include the Declaration, Bylaws, and Articles of Incorporation. The following subject matter is discussed in these documents:
1.Declaration: the Declaration is the initial document along with the subdivision plat that provides for the creation of a subdivision. A normal Declaration includes:
- a description of the land included in the subdivision;
- the name of the Association;
- establishes assessments and provides how assessments are to be calculated;
- deed restrictions setting forth what may be constructed, where construction may occur, and the permitted use of land described in the subdivision plat;
- creates an Architectural Control Committee and empowers it;
- establishes the types of Membership allowed by the Association; and
- provides an easement permitting the use of the common areas by all owners.
2. Bylaws: the Bylaws set forth management and procedural rules for the Association. A normal set of Bylaws will include:
- procedures for noticing and conducting annual and special meetings of the members;
- basic rules related to voting, quorum requirements, and using proxies at meetings of the members;
- procedures for noticing and conducting board meetings; and
- powers and duties granted to directors and officers of the Association.
3. Articles of Incorporation: the Articles of Incorporation (titled Certificate of Formation for recently formed Associations) are filed with the State of Texas and create the Association. The Articles of Incorporation include:
- the official name of the Association;
- the corporate address;
- the name and number of the initial directors of the Association; and
- describe the basic powers given to the Association.
What protections from personal liability are there for a Board of Directors?
The primary protection is the Directors’ and Officers’ insurance policy maintained by most Associations. Additionally, directors and officers are protected from liability for certain acts by the Texas Charitable Immunity and Liability Act. This law makes a volunteer immune from liability for any act resulting in death, injury, or damage as long as the volunteer was acting within their duties or functions in the organization and the act was not intentional, willfully negligent, or done with conscious indifference or reckless disregard for the safety of others.
What items may the board of directors discuss in an executive session?
The Board of Directors may adjourn an open Board meeting and reconvene in executive session to discuss:
- actions involving personnel,
- pending or threatened litigation,
- contract negotiations,
- enforcement actions,
- confidential communications with the property owner association attorney,
- matters involving the invasion of privacy of owners,
- or matters that are to remain confidential by request of the affected parties and agreement of the Board.
Actions taken in an executive session, including any approved expenditures, must be orally summarized in general terms in the regular meeting minutes.
Under what circumstances can the Board of Directors meet or take action without notice to the members?
The Board of Directors may meet, without notice to members, by any method of communication, including telephonic and electronic, if each Director may hear and be heard by every other Director. Alternatively, the Board of Directors may, without notice to members, take action by unanimous written consent to consider routine or administrative matters, or for a reasonably unforeseen emergency. Actions taken without notice to members, including any approved expenditures (actual or estimated), must be orally summarized in general terms in the regular meeting minutes at the next Board of Directors meeting.
Despite the above-referenced information, a Board of Directors may not consider certain topics without giving notice to the members. More specifically, the Board of Directors must give notice to members if it will consider or vote on:
- damage assessments,
- initiation of foreclosure actions,
- initiation of enforcement actions (excluding temporary restraining orders or violations involving a threat to health or safety),
- increases in assessments,
- levying of special assessments,
- appeals from a denial of architectural control approval, or
- a suspension of a right of a particular owner before the owner has had an opportunity to attend a Board meeting to present the owner’s position, including:
- any defense on the issue;
- lending or borrowing money;
- the adoption or amendment of a dedicatory instrument;
- the approval of an annual budget or the approval of an amendment of an annual budget that increases the budget by more than 10 percent;
- the sale or purchase of real property;
- the filling of a vacancy on the board;
- the construction of capital improvements other than the repair, replacement, or enhancement of existing capital improvements; or
- the election of an officer.
However, when the Association is in the developer control period, the only items that need to be considered or voted on in an open meeting are:
- adopting or amending the governing documents, including declaration, bylaws, rules, and regulations or the Association;
- increasing the number of regular assessments of the Association or adopting or increasing a special assessment;
- electing non-developer board members of the Association or establishing a process by which those members are elected; or
- changing the voting rights of members of the Association.
What happens if a mortgage company forecloses its lien on a property in a subdivision or condominium?
A mortgage company foreclosure typically extinguishes the Association’s lien rights in monies owed to it by a property owner through the date of the mortgage foreclosure. This occurs because the vast majority of Declarations provide that the Association’s lien is subordinate or inferior to the lien of a first mortgage. Although a mortgage foreclosure typically extinguishes the Association’s lien rights, the property owner remains personally liable to the Association for their past-due obligation.
Does a deed in lieu of foreclosure have the same effect as a mortgage foreclosure?
It is not unusual for a Declaration to specify that a deed in lieu of foreclosure will have the same effect as a mortgage foreclosure. When this language exists in a Declaration, a deed in lieu of foreclosure will extinguish the Association’s lien rights in the same manner as a mortgage foreclosure.
What options are available to the Association when an owner refuses to correct a deed restriction violation?
Deed restriction violation matters should be addressed on a case-by-case basis, but the options that may be considered include:
- some Associations are authorized to assess fines without filing a lawsuit;
- the Association may file a lawsuit seeking a court order that requires the violating owner to correct their deed restriction violation and pay fines;
- most Associations are authorized to hire a contractor to cure deed restriction violations related to a lot’s appearance, such as forced mows; and
- most Associations are authorized to suspend an owner’s right to use common areas.
Can self-help costs (forced mows, etc.) be charged back to the owner?
Most Declarations provide that the cost associated with self-help may be charged back to the owner if the owner has refused to take necessary action after being provided notice. Many, but not all, Declarations also provide that the self-help costs are secured by the lien securing assessments. The language of the Declaration must be reviewed to determine the authority to charge back self-help costs.
Can the Association assess fines?
Many Associations have the legal authority to assess fines. However, in order to assess a fine, the Declaration for the subdivision must provide such authority.
Is the Association allowed to have a vehicle towed?
The only permissible way to tow a vehicle in Texas is to comply with the regulations of the Texas Transportation Code. The Association’s governing documents cannot provide alternate authority. Most Associations with private streets are able to initiate the towing of vehicles, but subdivisions with public streets are unable to tow vehicles from the street. Associations cannot tow vehicles from owners’ lots.
What should an Association do when a county taxing entity sues a property owner for delinquent taxes and names the Association in the lawsuit?
If the Association is served with a lawsuit filed by a taxing entity, it is advisable to send the lawsuit to the Association’s attorney to confirm that a response to the lawsuit is not required. When a taxing entity files a lawsuit to collect delinquent taxes, it typically sues the delinquent property owner and all lienholders, including the Association. If the lawsuit and citation properly state that the Association is being sued “In Rem Only,” then the taxing entity is not seeking a monetary judgment against the Association and no response is required by the Association. In this circumstance, the taxing entity is following the required procedure to establish its superior lien on the property.
Can the Association back-charge legal fees and costs to the property owner?
Almost all Associations can back-charge legal fees and costs to the property owner incurred when collecting delinquent assessments and enforcing deed restrictions. Legal fees and costs incurred in connection with collecting maintenance assessments are typically secured by a lien on a property in the subdivision. However, legal fees and costs incurred when enforcing deed restrictions are typically not secured by a lien on a property in the subdivision.
Can the names of delinquent owners be published in a newsletter?
No, the Association cannot publish information about an owner’s debt to third-party individuals. Only the board of directors, the managing agent, and the Association’s attorney should be provided with information regarding an owner’s delinquency.
Which Association documents must be recorded with the County Clerk’s office?
The Association’s Declarations, bylaws, Articles of Incorporation, architectural guidelines, rules and regulations, policies, and all amendments and supplements to these documents must be recorded with the County Clerk in order to be effective. Generally, any document that the Association intends to enforce should be filed with the County Clerk’s office.
Is the Association permitted to pass rules and regulations?
Associations may always pass rules and regulations that apply to common areas. However, in order to pass rules or regulations that apply to owner lots or units, the Declaration for the Association must provide such authority. Many Declarations do provide this authority.
May rules and regulations expand upon the provisions in the Declaration?
Rules and regulations may clarify or interpret existing governing document provisions, but they may not conflict with the governing documents and they may not add matters that are completely beyond the provisions of the existing governing documents.
Can the Board of Directors amend the Bylaws to allow a quorum to be reached at the annual meeting of the members?
Typically, the Board of Directors may only amend the Association’s Bylaws if the Bylaws authorize the Board to make such an amendment. However, even when the Bylaws state otherwise, Texas law can be interpreted to authorize an Association’s Board of Directors to amend the Bylaws to ensure that elections are held each year at the annual meeting. As a result, to achieve a quorum, some Associations’ Boards of Directors have amended the quorum requirement in the Bylaws to provide for elections at the annual meeting of the members.
Who is allowed to tabulate votes at an election of Directors or other Association votes?
No person who is a candidate for election to the Board of Directors or who is otherwise the subject of an Association vote, or anyone related to that person within the third degree of consanguinity, may tabulate or have access to ballots cast in an election or vote.
What is the process for performing a recount of the votes cast at an election of Directors?
Any member may request a recount of an election or other Association vote within 15 days of the date of the election or vote. In order to request a recount, the member must submit a written demand for a recount, via certified mail, with a return receipt requested, to the Association’s managing agent or other designated representative contained in the Association management certificate. The demand for a recount may also be made in person to the managing agent or other designated representative contained in the Association management certificate.
A recount must be conducted by a person who is otherwise allowed to tabulate ballots for the Association, and who is a current or former county judge, county elections administrator, justice of the peace, county voter registrar, or other person agreed to by the Association and the member requesting the recount. The recount must be paid for by the member requesting the recount, but if the recount changes the result of the election or vote, then the Association must reimburse the member for the cost of the recount.
Who should sign the Association’s Management Certificate?
The Association Manager traditionally signs the Management Certificate. However, either the Association Manager or an Officer of the Association may sign it.
Will a mortgage company provide the total balance due on a property owner’s mortgage to an Association?
Not normally. Due to consumer protection laws, most mortgage lenders will not discuss the mortgage balance or related information with anyone other than the person obligated to pay the mortgage.
Is the Association required to provide one property owner access to another property owner’s account information or deed violation history?
No, except as provided below, an Association is not required to provide a property owner access to documents that contain the personal account information of another property owner or information related to another property owner’s deed violation history. There are two exceptions to this rule, as follows:
- the owner whose records are the subject of the request gives the Association written permission to provide the records to the other property owner and
- a court orders the Association to provide the records.
Is an Association subject to the Open Meetings Act?
No. The language of the Open Meetings Act is frequently misinterpreted. It only applies to Associations that base maintenance assessments on the appraised value of lots, and it is very rare for an Association to calculate assessments in this manner. Association meetings and records are only open to members and only as required by Chapter 209 of the Texas Property Code.
What is the statute of limitations to pursue a delinquent assessment?
Four years. A lawsuit must be filed within four years from the date a charge becomes due and owing.
What is the statute of limitations to pursue a deed restriction violation?
There are many factors specific to each deed restriction violation that require a case-by-case determination of when the statute of limitations may run on a deed restriction violation.
Should the Association accept a partial payment or a payment with a notation in the memo?
Oftentimes, such payments can be accepted. However, the content of the specific notation and status of the property owner’s account determine whether or not a particular payment can be accepted. Therefore, it is advisable to consult with the Association’s attorney prior to accepting such a payment.
What document shows ownership of a property?
The only document that reliably shows ownership of a property is the deed. Sources such as the Appraisal District and other databases can provide helpful information but ultimately cannot be relied upon.
Does the mortgage company own the property until the mortgage is paid off?
The mortgage company does not own the property. However, it has a lien on the property to secure payment of its loan to the property owner.
What is a foreclosure?
Foreclosure occurs when an Association exercises its lien rights to cause property in the subdivision to be sold at a public auction for the purpose of satisfying an unpaid debt.
What is an Appointment of Trustee?
An Appointment of Trustee is a document, typically signed by the board president, that designates a person to conduct a foreclosure sale and grants the power held by an Association to foreclose on a property to the designated person.
What is the difference between judicial and expedited foreclosure?
Judicial foreclosure occurs when the Association files a lawsuit against a property owner for the purpose of obtaining a court order which allows a property in the subdivision to be sold at public auction to satisfy an unpaid debt. The public auction, known as the foreclosure sale, is conducted by the county constable.
Expedited foreclosure occurs when the Association files an application to obtain a court order which allows the Association to foreclose its lien against a property in the subdivision through a Trustee sale. After obtaining the court order, the Association appoints a Trustee, usually its attorney, to sell the property at a public auction to satisfy the unpaid debt. The Association must provide lawful notice to the property owner prior to selling property at a public auction.
When can expedited foreclosure be used by an Association?
All Associations that have an assessment lien in their Declaration can utilize either an expedited foreclosure or a judicial foreclosure at their option.
What are the benefits of using expedited foreclosure vs. judicial foreclosure?
Expedited foreclosure typically takes less time and can be less expensive than a judicial foreclosure. Expedited foreclosure imposes time constraints on the court in granting the application for foreclosure. Expedited foreclosure does not require the personal service of a lawsuit upon the property owner. Additionally, it is not subject to discovery requests and reduces the requirement for court appearances.
Do you recommend using judicial or expedited foreclosure?
We recommend using expedited foreclosure when it is available because it is commonly more economical and less time-consuming than judicial foreclosure, and the Association can control the sale of the property at the Trustee sale.
What is non-judicial foreclosure and can it be used to foreclose an Association lien?
Non-judicial foreclosure occurs when the Association appoints a Trustee (usually its attorney) to sell a property at a public auction for the purpose of satisfying an unpaid debt. Non-judicial foreclosure does not involve filing a lawsuit, but the Association must provide lawful notice to the property owner prior to selling the property at a public auction. As of January 1, 2012, only Condominium Associations may use non-judicial foreclosure to foreclose an assessment lien. Almost all Condominium Associations have the ability to conduct non-judicial foreclosures.
Can a property owner get their property back after it is foreclosed upon?
Yes. When a homeowners’ association forecloses on a property, the property owner has 180 days to re-establish ownership, known as the “right of redemption,” from the date the homeowners’ association sends the property owner notice that the foreclosure sale occurred. When a condominium association forecloses on a property, the property owner has 90 days to re-establish “right of redemption.”
How is a mortgage company impacted by a foreclosure sale conducted by the Association?
Typically, a mortgage company is not impacted by a foreclosure sale conducted by an Association. The vast majority of Declarations provide that the Association’s lien is subordinate or inferior to the lien of a first mortgage. Therefore, the mortgage company can fully protect its interest at any time by foreclosing its lien on the property for non-payment. However, second mortgage liens and some other liens that are not first mortgage liens are typically subordinate to the Association’s lien.
Is the Association required to pay the property owner’s mortgage if the Association takes ownership of a property through a foreclosure sale?
The Association is not required to pay the property owner’s mortgage if it takes ownership of the property through a foreclosure sale. A mortgage is a contract solely between the former property owner and their lender. The Association simply owns the property subject to the mortgage lien, and the mortgage lender may protect its interest by foreclosing upon its lien.
Does a bankruptcy extinguish an assessment debt owed to the Association?
Not typically. However, bankruptcy typically delays payment to the Association.
How does a Chapter 13 bankruptcy work?
A Chapter 13 bankruptcy is the most common type of bankruptcy involving Association delinquencies. A Chapter 13 bankruptcy provides for payment of the Association’s debt within a structured payment plan set up by the Bankruptcy Court. The payment plan usually lasts five years. If a property owner owes more on their mortgage than the value of their home, Chapter 13 will extinguish an assessment debt. A Chapter 13 bankruptcy will extinguish fees and costs related to deed restriction violations and fines if these charges are not secured by the Declaration’s assessment lien.
How does a Chapter 7 bankruptcy work?
A Chapter 7 bankruptcy is a short-term bankruptcy that usually lasts 4 to 8 months. It does not extinguish the Association’s debt unless the owner owes more on their mortgage than the value of their home. A Chapter 7 bankruptcy will extinguish fees and costs related to deed restriction violations, as well as fines, if these charges are not secured by the Declaration’s assessment lien.
What communications may an Association have with an owner that is in bankruptcy?
The Association should not make a demand for payment to a person in bankruptcy. Once an Association is notified that an owner is in bankruptcy, it should refer the matter to its attorney.
What can be done to collect assessments that become delinquent while a bankruptcy is pending?
The most efficient step to obtain payment for assessments that become delinquent during bankruptcy is to communicate with the owner’s bankruptcy attorney to have the new delinquency included in the bankruptcy plan payments. If these attempts are not successful, the only formal method for collecting new unpaid assessments is to file a Motion for Relief from Stay with the bankruptcy court, requesting the court’s permission to pursue normal collection efforts such as foreclosure. Motions for Relief from Stay are inefficient because the cost to pursue the Motion cannot be recovered in full. Depending on the type and stage of the bankruptcy, the best solution may be to wait until the bankruptcy is closed.
What is the difference between a dismissed bankruptcy and a discharged bankruptcy?
A dismissed bankruptcy is a failed bankruptcy. When a bankruptcy is dismissed by the bankruptcy court, the Association may normally proceed with collecting the full balance due from the property owner. A discharged bankruptcy is one that was successfully completed by the property owner. When a property owner is discharged by the bankruptcy court, the Association should consult with its attorney to determine if or how any debt owed to the Association by the property owner has been altered.
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