: Legislative Proposals to the Texas Senate
By LAWYERS FOR HOMEOWNERS
After its public hearing in Houston on January 16, 2002, the Property Owner Association Subcommittee invited an Attorney Task Force to consider options for legislation. We the Attorney Task Force held three meetings, moderated by Cathy J. Sisk, Chair of the Legislative Committee for Harris County Attorney Mike Stafford, and a conference call with Senate Staff. Participating lawyers who have represented homeowners included: David Kahne, Wendy Laubach, Marian Rosen, and David Furlow. Participating lawyers ("POA Lawyers") who have represented property owner associations ("POAs") included Robert Alexander, Michael Gainer, Roy Hailey, and Suzie Rice.
At the first meeting, Task Force lawyers agreed that Harris County has experienced abuses relating to legal fees and foreclosure powers, but differed as to the extent and causes of the abuse. In discussing proposed solutions, we focused on general principles rather than details.
Lawyers for homeowners made multiple proposals for legislation, including proposals noted in this report. Of the proposals, POA lawyers have agreed to almost none. As to most proposals, POA lawyers raised various objections. The two groups remain far apart with respect to basic issues that they discussed, and many important issues were not even discussed by the Task Force, much less resolved.
This Report sets forth the views of the lawyers for homeowners. It reflects what we proposed during negotiations of the Task Force. After the last conference, we sent a draft of this Report to the POA lawyers. The POA lawyers did not agree with this draft Report, and sent us a draft one-page report with which we do not agree.
In sum, areas of Task Force agreement do not constitute a suitable compromise of interests indeed counsel strongly disagree on how to address the principle areas of dispute or concern, some of which were not even discussed. While counsel continue to disagree, we all appreciate your attention to our differing perspectives, as well as the attention and assistance of Harris County Legislative Committee Chair Sisk.
The Task Force considered proposals intended to promote resolution of community disputes without the need for litigation, proposals to address complaints regarding attorney fees in litigation against homeowners, and proposals to reduce the number of foreclosure lawsuits. In addition, the Task Force debated whether to allow non-judicial foreclosures, that is, foreclosure and sale without any judicial determination of wrongdoing or oversight, and considered the need for recorded rules governing POAs, the desirability of Chapter 204, and impact of Brooks v. Northglen Association, ___ S.W.3d ___ (Tex. App. Texarkana 2002).
Lawyers for homeowners categorically oppose non-judicial foreclosures. These drastic actions: (1) have been abused in the past and present; (2) avoid both judicial and public oversight; (3) avoid the few existing statutory limits on judicially-supervised foreclosures, and (4) would avoid additional regulations discussed below.
In an effort to reduce the number of POA lawsuits, lawyers for homeowners proposed pre-litigation limitations and procedures reflecting practices of successful homeowner associations. These include rules to assure that homeowners receive fair notice and opportunity to be heard in a neutral forum, fair treatment of homeowners facing hardship, and community oversight of litigation.
Lawyers for homeowners proposed that, as
a condition to and before any lawsuit (not including rare lawsuits to stop
substantial risks to public health and safety), POAs be required:
Opportunity to be Heard in a Neutral Forum
Lawyers for homeowners proposed that the notice given to homeowners state two rights: (1) the right to appear in person before the POA Board to discuss any claimed violation, including disputes concerning annual assessments on this we had partial agreement; and (2) the right to require the POA to participate in free mediation, where such mediation exists. The notice should provide specific instructions to the homeowners, as to how to exercise one or both of these rights, the homeowner would be given a reasonable time to do so, and no attorney fees should accumulate (by POA charge or judicial award) before the POA Board holds any requested hearing, or the time to request a hearing is past.
Free mediation is available in Harris County. If free mediation is requested by the homeowner, no attorney fees should accumulate before completion of the mediation.
In any event, lawyers for homeowners stressed that neither mediation, nor a hearing before the Board, is a full solution so long as issues concerning attorney fees go unreformed, and so long as POAs retain the current powers to foreclose. Lawyers for homeowners also have concerns to assure full disclosure and neutrality in mediation, because (for example) in some instances mediators themselves have represented POAs.
Fair Treatment for Homeowners Facing Hardship
Lawyers for homeowners proposed that POAs should be required in good faith to allow a reasonable extension of time to pay assessments for persons who suffer financial hardship, such as persons who lose their job or suffer serious illness or disability.
Lawyers for homeowners proposed that no lawsuit be allowed without affirmative vote by the POA Board authority should not be delegated to lawyers. Lawyers for homeowners also proposed that, in addition to a separate POA Board vote, independent community oversight (an additional membership vote) be required before any foreclosure lawsuit could be filed.
Our Task Force agrees Texas law should be amended to ban "deferred billing", an issue that was of great import to POA lawyers but seen as less significant by lawyers for homeowners.
Agreement to End Deferred Billing
POA lawyers volunteered that deferred billing by attorneys can cause problems. In a deferred billing system, a POA does not pay attorney fees when the work is done. Instead, the attorney accrues the charges, and seeks to collect directly from the homeowner. In some approaches, the POA never faces a risk of having to pay the attorney, who keeps only what the homeowner pays. In some approaches, the POA assigns an interest in the cause of action, or at least the attorney fees, to the attorney.
Task Force lawyers agree that deferred billing, being neither necessary nor desirable, should be prohibited by law. POAs should be required to pay for work done by their attorneys, whether or not the homeowner pays attorney fees, and should not be allowed to assign their interests in the case to their attorneys. This means that all payment of attorney fees by a homeowner would belong to the POA, not the attorney. POA lawyers proposed legislation to clarify their authority to accept such payments, so long as they put the money in their trust fund, and lawyers for homeowners agreed, so long as all funds were paid to the POA.
Disputes re Statutory Creation of Duty to Pay Attorney Fees
Lawyers for homeowners proposed to eliminate those statutes that give rights for POAs to collect attorney fees from homeowners, where no deed restrictions authorize such charges. For example, homeowners¹ lawyers oppose use of Property Code 5.006 to create a one-sided duty for homeowners to pay POA attorney fees, oppose use of Chapter 204 (applicable only in Harris County) to impose attorney fees where not authorized by deed restrictions, and oppose use of Chapter 209 to the extent it may create duties to pay attorney fees not specified in deed restrictions.
Disputes re Unequal Ability to Recover Attorney Fees
Current law allows POAs the right to recover attorney fees where they sue homeowners (Property Code 5.006), but arguably does not give homeowners the same rights, not even when the homeowner prevails. See Meyerland Community Improvement Ass¹n v. Belilove, 624 S.W.2d 620, 621 (Tex. App. Houston [14th Dist.] 1981, writ ref¹d n.r.e.). The statute can reward POAs with attorney fees even if the homeowner had a strong defense on the law, or if the law was unclear.
Lawyers for homeowners believe this one-sided law unfairly enables POAs to employ lawyers, but makes it extremely difficult for homeowners to find counsel even when they have a strong case. Lawyers for homeowners believe that homeowners, more than POAs, have legitimate claims to recover attorney fees if they prevail when sued by a POA.
As a compromise, lawyers for homeowners proposed two changes, using the Declaratory Judgment Act as a model. See Texas Civil Practice & Remedies Code 37.009. First, to assure parity, whatever rights a POA may have to attorney fees if they prevail, homeowners should have the same rights to attorney fees if they prevail. Second, to assure fairness, Court should retain discretion not to award attorney fees in cases where homeowners reasonably pursued claims, even though they lost, for example, where homeowners pursued a claim based on a close legal question. Our preference would be to give homeowners a stronger right to recover attorney fees, because homeowners typically have resources much more limited than POAs.
Disputes re Amount of Attorney Fees
Lawyers for homeowners also proposed to set statutory limits to prevent POA lawyers from charging excessive amounts for form letters, to prevent POA lawyers from sending bills to perform non-essential tasks, and to prevent POAs from billing homeowners for attorney fees that the homeowner has not had any chance to contest.
Disputes re Premature Billing for Attorney Fees
Lawyers for homeowners proposed that POAs not be able to collect disputed bills for attorney fees. This would mean that, if there is a dispute as to an attorney fee bill, the POA could not take the payment out of money that the homeowner pays for other purposes, such as annual assessments.
REQUIREMENTS FOR FORECLOSURES
Lawyers for homeowners oppose foreclosures against homesteads. At a minimum, lawyers for homeowners proposed limits to stem abuses associated with foreclosures over minor debts and vague or subjective standards.
The Attorney Task Force considered foreclosure cases brought to recover unpaid annual assessments separately from foreclosure cases brought to recover fines or attorney fees charged based on other covenant violations. Task Force members generally agreed that the basis for foreclosure is weakest where owners pay annual assessments required by their deed restrictions. Before 1995, relatively few POAs claimed foreclosure power against homeowners who paid annual assessments. This changed after Property Code Chapter 204 passed, when some POAs increasingly began to seek foreclosure based on attorney fees or fines.
Seeking compromise on this issue, lawyers for homeowners proposed that POA foreclosures should be prohibited, except for substantial failures to pay annual assessments mandated by deed restrictions. The exception would allow a foreclosure lawsuit after the POA obtained judgment for more than a specified amount, for example, $3,000, or three times the POA¹s annual assessment (not counting attorney fees). For smaller debts, lawyers for homeowners believe POAs should follow collection practices available to every other small business, organization, or person (and, if deed restrictions permit, POAs could maintain a passive lien and recover debts when the home is sold).
GOVERNING RULES, CHAPTER 204, AND BROOKS V. NORTHGLEN ASSOCIATION
Lawyers for homeowners believe all rules governing homeowners should be recorded. We proposed to require written notice of any changes in such rules.
We believe homeowners should be subject to the rules set forth in, or expressly authorized by, their deed restrictions, articles of incorporation, and bylaws. Homeowners should vote on any amendments to deed restrictions, articles of incorporation or bylaws. We oppose use of Property Code Chapter 204 (or any other statute) to give POA Boards of Directors additional power (without a homeowner vote) to change deed restrictions, articles of incorporation, or bylaws. We particularly oppose Boards of Directors using Chapter 204 to increase annual assessments and other charges to homeowners without homeowner vote.
Where deed restrictions pre-date passage of Chapter 204, homeowners¹ lawyers dispute the constitutionality of Chapter 204, and thus disagree with the resolution of "Issue 1" in the decision of Brooks v. Northglen Association, supra. While we appreciate that Court¹s ruling that POAs cannot seek foreclosure based on violations of duties or debts created under Chapter 204 ("Issue #4" in that decision), we note that POA foreclosure cases continued even after the Attorney General issued a similar ruling 5 years ago. Op. Atty Gen. 97-019.
NO ENFORCEMENT OF UNCONSTITUTIONAL RESTRICTIONS
Lawyers for homeowners also proposed to change Property Code 203.003 to prohibit POAs, as well as any other agency, from enforcing unconstitutional deed restrictions. This would include protection of the constitutional rights of homeowners to display political campaign signs. Display of such signs would remain subject to reasonable time, place, and manner restrictions, the same rules followed by municipalities.
Lawyers for homeowners also raised other issues of concern, including: conflicts of interest; homeowners¹ rights to vote in POA elections, to obtain POA records, to be safe from retaliation, and for penalties when POAs violate the law; as well as a requirement for POAs to report to the State and homeowners, the number of foreclosure and other lawsuits filed annually.
The views expressed in this report reflect the perspective of lawyers for homeowners on the Task Force as individuals, not the position of any of our clients, and does not set forth the view of the County Attorney, Legislative Committee Chair Sisk, or any Legislator. This report does not attempt to address all issues of concern to participants, and we all appreciate the opportunity to elaborate at the forthcoming hearing of the Subcommittee