Senate Committee on Intergovernmental Relations 

Background
An adequate history and explanation of the powers and duties of Property Owner Associations
(POAs) is available by referencing a previous report published by the Senate in 19981, as well
as a 2002 article by the House Research Organization.2 This subcommittee report does not delve into the same prefacing details, and instead focuses on specific problems brought to its attention.

To organize the study, staff compiled a list of the specific problems and solutions discussed in
testimony received in the first public hearing entitled Property Owner Association Issues (See
Appendix A-1). The list was divided into four topics that were cited most often: Foreclosure,
Mediation and other Legal Issues; Attorney Fees; POAs and Management Companies; and,
Harris County Issues. The list was then sent to knowledgeable advocates for both POAs and
owners to get their input prior to the second hearing.

The majority of problems communicated to the subcommittee pertained to planned communities
of single family residences and town homes with mandatory assessments. Therefore, this report
concentrates the examination and recommendations predominantly on those associations. The
references hereafter to associations or POAs reflect this focus.

Foreclosure
Foreclosure is at the forefront of the committee charge, so specific attention was paid to this
issue. Two types of foreclosure actions are available to POAs: Judicial and Non-Judicial.
Non-Judicial foreclosures require that a 21-day notice be given to the owner that a lien has been
filed with the county clerk and that the property is being posted for auction and will be sold to
the highest bidder to satisfy the debt owed the association. Typically the cost for non-judicial
foreclosures includes only a county filing fee and minor attorney fees. Since no court of law is
involved, the time frame to complete a non-judicial foreclosure is condensed and the cost is
usually less than $1,000. A Judicial foreclosure is more costly and time consuming with court
fees and docket schedules to consider. A POA must bring suit in district court and win a
judgement against the owner to foreclose the lien based on factual evidence. The property is then posted for auction and sold. The time period to complete such a foreclosure could be many
months and the cost could reach well into five figures.
Although the Texas Constitution specifically prohibits foreclosure in all but a few instances, the
power of POAs to foreclose is recognized by the 1987 Texas Supreme Court opinion on Inwood
North Homeowners’ Association v. Charlie Harris.3 Basically, the court said where a contractual
lien was created by the initial neighborhood covenants, the constitutional homestead protections
do not apply and, therefore, foreclosure is allowed to enforce the lien. In effect, this means that
the developer establishes a contractual lien, that runs with the land, on the properties before they
are sold.

In a word, owners believe the court was simply “wrong” in its ruling. Harvella Jones with the
Texas Homeowner’s Advocate Group, argued that the “contractual liens placed on the land by
the developer is a one-party contract, which in and of itself is in violation of Texas Contract law
which requires two parties to have privity of the contract at the same time. In addition, lien law
require(s) there be a set amount fixed against property as opposed to an empty lien being placed on property in anticipation of a future violation.”
In other arguments, the point was made that associations are no different than other creditors
prohibited from foreclosing to enforce a lien under the state constitution. Tom Adolph, attorney
and owner advocate, states “HOAs should not have any power to foreclose. HOAs should not be in a better position (to collect debt) than a doctor who saves a person’s life or a credit card
company or a lawyer or any other creditor.”

Meanwhile, POA representatives are just as adamant in their opposition to removing foreclosure
powers. They argue that a POA, while made up of neighbors, is a business and should be run
like one. Michael Gainer, a lead association attorney in Harris County, states “... a mechanic’s
lien for several hundred dollars may be foreclosed upon by the service or material provider.
Therefore, it is somewhat surprising that an Association’s foreclosure of an assessment lien
(which funds are needed for, and utilized to, provide needed services to a community, such as
street lights, security, amenities and maintenance) is construed by some persons to be more
onerous or offensive than (e.g.) foreclosure of a tax lien in the same or similar amount.”6
Similarly, Jim Windsor, President of Lakewood Forest Fund, stated “Removal of foreclosure
powers from HOAs puts us out of business. When foreclosure powers are removed from HOAs,
collection of maintenance fees becomes voluntary. No business (and the Lakewood Forest HOA
for example is a $1.3 million a year business) can exist when payment for services rendered is
voluntary.”

While they could not agree on the need for foreclosure, neither could the two sides agree on the
severity of the issue. Beanie Adolph, an owner advocate who owns a website dedicated to
tracking foreclosure filings in Harris County, testified that more than 12,000 foreclosure-related
filings by POAs in Harris County have been filed since January 3, 1985.8 However, POA
advocates point out that those numbers represent only filings that could lead to a foreclosure sale, not the actual number of sales that resulted from these filings. In fact, according to Harris
County Constable Ron Hickman, only a total of 18 POA related judicial foreclosure sales were
conducted in the 18 month period prior to January 2002.

Legal Fees
POA boards must work within the context of a number of state laws as well as their own legally
written declarations and dedicatory instruments, and therefore hire legal professionals to advise
them. In addition, they often rely on attorneys to urge deed restriction compliance and to collect
unpaid dues. However, ranking just behind foreclosure in the number of complaints received
by the subcommittee, attorney involvement in POA disputes and unreasonably high attorney fees
were common complaints conveyed by owners. Generally, owners opposed attorney
involvement in neighborhood affairs in all but essential situations. Of greatest concern was that some attorneys charged unreasonable fees for writing simple letters.
Typically, POA boards or their management companies will send a succession of letters to an
owner urging compliance and offering the opportunity to appear before the board before sending the matter to their attorney. The attorney then also sends a succession of letters similar to those
sent by the board and that is when the cost can escalate. The fees for generating these letters are reportedly anywhere from $50 to $500 per letter. Most distressing to owners is that such letters are usually pre-formatted “form” letters that could have just as easily have been sent by the
board. And, the fees are often disproportionate to the amount of arrearage to be collected or to
the importance of the restriction violation at issue. They argue that the board does not care what
the cost is because the owner ultimately pays the bill. POA advocates argue that the board
typically only sends a matter to an attorney when all other avenues have failed. They assert that
high fees often follow the best legal representation and that their access to such representation
should not be hindered.
Another major concern was of contractual agreements between POAs and law firms that allow
a firm to directly bill the owner for legal fees. Sometimes referred to as “Deferred Billing Programs”, these agreements allow a law firm to collect money directly from the owner on behalf
of the POA. In effect, the POA client is not actually paying for services and may not be aware
of the fees being generated. The firm collects the monies owed, including attorney fees, directly
from the owner.
The Attorney Task Force appointed by the subcommittee considered these and other concerns.

To elaborate on issues not agreed upon, each side presented separate recommendations for the subcommittee to consider. Although unable to agree on most issues, they did find common
ground in proposing to prohibit deferred billing practices. Association attorneys on the panel
assert that eliminating such practices will force associations to be more conscious of attorney
billings because they would receive regular invoice statements and pay accordingly. The
owner attorneys agree, but were concerned that associations could still approve of costly billings
knowing that ultimately they would collect the payments from owners.

Of additional concern was the imbalance in the awarding of attorney fees in POA suits. Present
law provides that reasonable POA attorney fees may be recovered from an owner when the POA prevails in a suit against an owner. However, no such provision exists allowing owners to
recover attorney fees in suits where the owner prevails, even when the case against the owner
was found to be lacking in merit. POA attorneys understand this concern and agreed that some
parity is warranted. However, they caution that allowing owners to recover attorney fees in all
cases could be problematic. Unlike POA attorneys that are held in check by their board clients
when going through costly procedures such as discovery, they say defense attorneys have no such restraint. They believe it would be prudent to limit the recovery to unreasonable suits brought against owners.

POA Administration
The individual board member is most equipped to understand the needs and desires of their
neighbors because they, too, are owners. Yet, the responsibility and power associated with
running the association, which typically is a non-profit corporation, are sometimes
overwhelming. They must objectively enforce rules and restrictions without prejudice; define
or redefine standards for the community; hire management companies, service contractors and
attorneys; conduct meetings; and, maintain financial matters for the corporation. Unfortunately,
some boards are comprised of persons without the skills to handle these duties and as a result,
they occasionally may take actions contrary to prescribed practices.
When boards act inappropriately, the individual owner is the only defense - which was a concern
in 1998 when POAs were last studied by the Senate. As stated in the Senate State Affairs
Committee Interim Report of 1998, “There is no state agency that monitors or regulates
violations of this Act (Texas Non-profit Corporations Act).” It continues further: “The
remedy provided under the Act requires the homeowner to pursue legal recourse against the
board.” Owners argue that it is not reasonable to require an individual to bring suit in court to
compel a POA board to follow its bylaws or statutory requirements.

One suggestion to the subcommittee to prevent board improprieties was to mandate relevant
education for board members. POA representatives’ main concern in opposing such a proposal
was that it is already difficult to find and encourage owners who are willing to volunteer to serve
on a POA board. They point out that many umbrella organizations such as the Community
Associations Institute, a national organization comprised of associations and professionals
involved in the industry, already provide many opportunities for boards members to receive
information and education to help them to become better members.

The other common suggestion was to authorize an agency to oversee POAs, receive and
investigate complaints, and take appropriate corrective actions against an offending board.
Some suggested the Attorney General’s Consumer Protection Division would be equipped to
handle such responsibility statewide, while others thought local county attorney offices could
best handle such local issues. Most opposition to the proposal suggested that it would take much more industry knowledge and time than government could provide. However, owners suggest
that most complaints are egregious enough that industry knowledge required to investigate such
matters would be insignificant.

Another significant administrative concern expressed to the subcommittee related to practices
of management companies. POAs often hire management companies to handle day-to-day
administrative duties for which boards are responsible. For the average board, a good
management company can relieve the headaches associated with maintaining common areas,
collecting dues, paying bills and enforcing restrictions. However, a poor management company
can cause just as many problems.

Most complaints regarded boards giving too much control to management companies to enforce deed restrictions and collect dues. Specifically, owners were concerned that some POAs provide an incentive to management companies by allowing them contingency fees for each restriction violation or dues collection letter they send to an owner. Management companies argue that
they should be allowed additional fees if the work they perform is greater than their base contract projected for such work.

Ultimately, boards must rely on their best judgement in hiring management companies because
they are not required to hold certificates or licenses signifying their expertise in the industry.
Reputable industry representatives assert that they would welcome an opportunity to prove that
they have a minimum understanding of the law and competence in managing POAs to set them
apart from unscrupulous or ill equipped companies giving the industry a bad name.

Harris County
A whole host of factors affect Harris County POAs differently than those in other counties. First,
it is one of the largest counties in America and home to a tremendous number of associations.
More importantly, it is home to the City of Houston, which has no zoning ordinances. Therefore,
Houston associations take on a disproportionate responsibility to maintain the aesthetics of
neighborhoods. Finally, a chapter of the Property Code is specifically targeted only to POAs in
Harris County, which affects the practices of associations differently than any other county in the
state.
Chapter 204, Property Code, is devoted solely to associations located in whole or in part of
Harris County. Enacted in 1995 through House Bill 2152, the purpose of the act was to “provide
a less burdensome procedure for ... modifying residential real estate restrictions by approval and circulation of a petition by a property owners' association ... and codify certain powers of
property owners' associations”.16 The goal was to provide relief to associations with very old and poorly written dedicatory instruments that did not take into account the future roles and
responsibilities of associations. Restrictions with specific limits on assessments that reflected
the 1960s economy and 100 percent voter approval requirements to make changes to restrictions are two of the most commonly cited problems with associations in Harris County. A number of associations in Harris County have dedicatory instruments that do not address specific powers that are to be granted an association board. Simple authority for hiring management companies; settling litigation; entering contracts relating to operating the subdivision; making improvements to common areas; purchasing liability insurance; and other basic authority most associations take for granted are often non-existent.

In light of these omissions, Chapter 204.010(a), Property Code, provides boards with authority
to make necessary changes without a vote of owners. However, this subsection also allows
boards the power to impose payment for “services” provided to owners; charge unrelated costs
to an owners assessment account; and, to accumulate an assessment increase one year, then begin billing owners for it a number of years later.

On April 18, 2002, Texas 6th Court of Appeals addressed many of the issues on which owner
advocates have expressed concerns about Chapter 204, Property Code, in Geneva Kirk Brooks v. Northglen Association.17 The case considered the authority of Northglen to levy assessments
without a vote of the owners and their authority to foreclose liens to enforce those assessments.
Generally, the court held that associations could impose new or additional fees by the authority
vested in Chapter 204, Property Code, but that they could not foreclose to enforce such fees.
Both sides claimed partial victory, but the issue remains unresolved. The case may eventually
be settled by the Supreme Court.

Proponents argue that to completely remove all of Chapter 204, Property Code, would severely
limit the effectiveness of those POAs. Generally, owners in Harris County want the right to vote
on POA matters, especially those relating to assessments, like the rest of the state. However,
some believe the dedicatory instruments governing the associations should supercede any
statutory additions.

General Problems
Although not addressed specifically in the body of this report, some of the problems and
solutions listed in the Property Owner Association Issues list previously cited warrant action (See Appendix A-1). Board members with conflicts of interest with attorneys and management
18 Texas Senate Interim Committee on State Affairs Report, November 2, 1998, Charge 2.
companies; harassment by selective enforcement of deed restrictions; unreasonable constraints
on access to public records; mediation availability; election improprieties; and developer
involvement are but a few of the concerns examined by the subcommittee. Where warranted,
the subcommittee has addressed many of these issues in its recommendations.

Findings
The two committee hearings and an ongoing dialogue with POA board members, attorneys,
management company representatives and owner advocates provided the subcommittee with an enormous amount of information on this issue. However, the matters of concern today are
basically the same as those discussed in the 1998 report.

The subcommittee finds that for the most part, owners living in associations are happy and
content to live in such communities. Most willingly pay their assessments, get along with their
boards, and enjoy the convenience of an association handling neighborhood business for them.
They are wary of legislative involvement and protective of the powers they believe their
associations need to continue as effective organizations.

The subcommittee finds that many of the problems examined by the subcommittee, while not
indicative of a majority of associations, are worthy of solutions. The Legislature originally
intervened in association matters in 1985 to extend restrictions set to expire in certain
neighborhoods. The statutes subsequently evolved to generally recognize and confer greater
powers for associations until 1999 when owner considerations were passed into law. The focus
since then has been on evening the playing field, so to speak. This endeavor should continue as
long as such laws don’t go so far as to prevent associations from carrying out the duties for
which they were created.

The subcommittee finds that the previous study was correct in stating that POAs are “de facto
political subdivisions,” which is increasingly evident as developers are encouraged by cities and
counties to provide services that were the responsibility of local governments in the past.19
However, some owners serving on boards are not adequately educated or equipped to handle this responsibility while also maintaining the delicate balance between the basic rights of the owner vs. the good of the neighborhood.

The subcommittee finds that while unique opportunities exist for the Legislature to provide relief
for many of the problems encountered by older Harris County associations with poorly written
declarations and dedicatory instruments, the solution provided in Chapter 204, Property Code,
allowing boards to take certain actions without consent of owners is inappropriate and should
be remedied.

The subcommittee finds that while actual foreclosure sales do not occur frequently, associations
often begin the foreclosure process prematurely. Associations need some enforcement power
to be effective; however, foreclosure is a poor solution. As such, foreclosure should only be
available as a last resort.

The subcommittee finds that while attorney involvement, and high legal fees in particular, are
a concern, it is not reasonable to legislate fee limits. Instead, the circumstances leading to
attorney involvement and the contractual relationship entered into by associations should be
addressed.

The subcommittee finds that the provisions in the numerous statutes affecting property owner
associations are unclear, redundant or confusing. A uniform act or at least reorganized
provisions of the present laws would be of benefit to all involved.

Recommendations
The subcommittee finds that many of the state’s associations operate openly, fairly and
effectively. The recommendations made hereafter prescribing particular practices emulate those
associations.

Recommendation 1.1 
Enact statutory language prohibiting single family residence POAs from enforcing liens through non-judicial foreclosure.
While non-judicial foreclosure is less costly and time consuming than judicial foreclosure, the
benefits of due process far outweigh other considerations. Most condominium associations
believe the day-to-day reliance on individual dues is critical to maintaining the infrastructure and
services that one associates with condominiums. Therefore, the subcommittee does not
recommend extending this prohibition to condominium associations.

Recommendation 1.2
Recommend the 78th Legislature consider other alternatives to foreclosure as a method to enforce mandatory assessments. Although the subcommittee does not endorse any specific alternative to foreclosure at this time, the issue should continue to be debated.

Recommendation 1.3 
Amend §209.009, Property Code, to ensure that foreclosure is prohibited except for matters relating only to collection of mandatory assessments.
The intended purpose for §209.009, Property Code, was to prohibit foreclosure for matters
unrelated to assessments. Explicit language should make the intent clearer.

Recommendation 1.4
Amend §209.011(b), Property Code, to allow two years for an owner to redeem a property sold at foreclosure sale. This would mirror the two years allowed for tax foreclosure redemptions of homesteads in §34.21(a), Tax Code.

Recommendation 1.5
Enact statutory language mandating a waiting period before a POA may employ an attorney to collect from a homeowner any dues in arrears. Thereafter, the POA could employ legal assistance and take any actions available to it under the law. POAs could be allowed to charge limited interest on the arrears up to the date of final payment.
This recommendation follows a schedule established by Spring Shadows Civic Association in
Harris County to collect dues in arrears (See Appendix A-8). By following this schedule, they
are still able to aggressively pursue collection efforts while also allowing ample time for owners
to settle their debt. As a result, the POA and owners avoid unnecessary attorney fees.

Recommendation 1.6
Enact statutory language permitting a homeowner, in a case brought against the homeowner, to recover reasonable legal fees (as determined by the judge) from the POA if the POA is found to have no reasonable basis to sue the homeowner. No provision exists for owners to recoup their legal defense fees in cases where POAs unreasonably bring suit. This recommendation would discourage boards from pursuing ill advised enforcement suits.

Recommendation 1.7
Enact statutory language prohibiting “deferred billing” arrangements with attorneys and management companies.

The subcommittee received reports of attorneys billing owners directly without POA board
knowledge. In addition, some management companies are said to automatically add penalties
in the form of administrative fees when owners are cited for restriction violations. This
recommendation is intended to limit extraneous fees charged to owners and to ensure that the
client POAs are invoiced directly for the services provided.

Recommendation 1.8
Amend §§209.006-007, Property Code, by expanding an owner’s right to a hearing before a POA board to include all issues of disagreement, including assessment and fee issues as well as deed restriction and architectural control issues.
Under present law, a number of conditions must exist before a POA must extend a hearing
opportunity to an owner. This recommendation is meant to give owners all possible opportunities to be heard by the board to settle issues and avoid unnecessary attorney fees.

Recommendation 1.9
Amend §§209.006-007, Property Code, to require that when notifying an owner of their hearing rights a POA should state a range of any potential legal and management fees that could be charged to their account if the matter is pursued further and/or ultimately sent to the POA attorney. If owners are made aware of the potential costly consequences of delaying compliance, they may be more likely to settle the issue and avoid further charges.

Recommendation 1.10
Enact statutory language prohibiting conflicting legal and management representation by persons serving on a POA board or who are related to persons serving on a POA board. While this does not appear to be a widespread problem, prohibiting such impropriety is a simple provident measure to ensure owner protections.

Recommendation 1.11
Enact statutory language prohibiting POAs from barring homeowners from voting in POA elections unless the homeowner is more than 60 days in arrears on their maintenance dues or has not corrected a deed restriction violation that has already been either mediated or adjudicated. Most POAs considering the general proposal to prohibit all suspensions of voting privileges protested only that it should not extend to dues arrearages. They argue that maintaining voting privileges should be an incentive for owners to stay current on their dues, to which the subcommittee agrees within reason - hence the 60 day requirement.

Recommendation 1.12
Repeal §202.004, Property Code, which provides that a court may assess civil damages up to $200 a day for deed restriction violations. Although most POAs do not ultimately seek such damages, some associations cite this statute when they notify owners of violations which leads to unnecessary adversarial posturing.

Recommendation 1.13
Enact statutory language requiring POAs to offer payment plans with interest, when requested by owners, in certain circumstances. Owners temporarily unable to remedy dues arrearages should be given an opportunity to make necessary arrangements to meet their dues obligations before attorneys are hired to urge collection.

Recommendation 1.14
Enact statutory language authorizing the Office of the County Attorney and/or the Office of the Attorney General to investigate complaints and bring suit against POAs in certain instances.
It is unreasonable to expect an individual owner to bring suit against a POA board to compel
them to act appropriately. Enforcement of statutes should not be left to citizens.

Recommendation 1.15
Amend Chapter 204, Property Code, which applies only to Harris County POAs, to require a vote of the owners before a board may impose or increase assessments, fines, and fees as well as impose new rules and regulations. Older POAs in Harris County often have poorly worded declarations and restrictions that hinder their ability to adequately meet the demands of their owners. Chapter 204, Property Code, was meant to help such POAs, but giving unilateral powers to boards without a vote of owners was inappropriate.

Recommendation 1.16
Amend Chapters 551 and 552, Government Code, to subject POAs with mandatory dues to the Open Meetings and Public Information Acts. As most POAs argue, associations carry out many of the duties and responsibilities of small governments and should be recognized as quasi-governments. As such, it is not unreasonable to mandate comparable public disclosures.

Recommendation 1.17
Recodify association laws or adopt relevant portions of the Uniform Planned Community Act.
Association laws in the Property Code are confusing, redundant, and occasionally conflicting.
In addition, association provision are scattered throughout the Civil Statutes, Tax Code,
Government Code, and others, making it difficult for owners and associations to follow. The
1998 Senate Interim Committee on State Affairs similarly recommended the Uniform Planned
Community Act be adopted.