The Court of Appeals Sixth Appellate District of Texas at Texarkana
GENEVA BROOKS d/b/a COMMITTEE TO REMOVE THE BOARD, DIANE
HIGGINS, PAULINE WHITE, DON YUST, VIRGINIA YUST, AURELIO OJADA,
ANTHONY MCBRIDE, AND SUSAN AUCLAIR, Appellants
NORTHGLEN ASSOCIATION, Appellee
Geneva Brooks and other lot owners (lot owners) appeal from the trial court's summary judgment granting declaratory relief in favor of Northglen Association, a homeowners' association (Northglen). The case as it stands on appeal concerns the authority of Northglen to levy and accumulate assessments against the lot owners and increase the amount of those assessments for maintenance purposes, and the authority of Northglen to foreclose liens securing those assessments against the homesteads of the lot owners who default in payment of the assessments.
This suit was originally commenced by Northglen, a homeowners' association for the Northglen residential subdivision in Harris County. Northglen sought injunctive and declaratory relief against lot owners Geneva Brooks, Diane Higgins, Pauline White, Don Yust, Virginia Yust, Aurelio Ojeda, Anthony McBride, and Susan Auclair, because of their efforts to remove Northglen's board of directors. These efforts were allegedly directed against the directors because the board had instituted legal action against some of the lot owners for violating the restrictive covenants applicable to the subdivision. The suit accused the lot owners of spreading false rumors about the directors and interfering with the board's operations. The lot owners counterclaimed against Northglen, adding the individual directors as parties. The lot owners sought in the counterclaim declaratory relief pertaining to the assessment and collection of subdivision maintenance fees. The parties have dismissed all causes of action against each other except those related to the validity of the subdivision maintenance fees.
The trial court held that the maintenance fees for Northglen Sections one, two, and three could be raised without limitation as determined by the subdivision board. The lot owners challenge this ruling in Issue Two. The trial court held that as to Sections four, five, and six, the amount of increases in maintenance fees that could legally be imposed were limited by the deed restrictions, but that Chapter 204 of the Texas Property Code permits Northglen to accumulate all increases authorized but not assessed in prior years and assess the cumulative total against the lot owners. This ruling is challenged in Issue One and Issue Three. The lot owners also challenge the trial court's ruling that the board may assess fees for late payments in addition to any penalties authorized by the restrictions. Issue Four challenges whether any additional liens authorized by Chapter 204 of the Texas Property Code may be foreclosed against a homestead interest. Issue Five challenges the award of attorney's fees to the lot owners if the case is reversed.
The lot owners agree that the court properly interpreted the restrictive covenants for Sections four, five, and six as to the allowable increases, but disagree with the court's determination that Northglen's board had authority to accumulate and assess all increases under the authority of the statute. The lot owners argue that the court improperly interpreted the statute, or in the alternative, the statutory provision is unconstitutional as impairing the obligation of contracts under U.S. Const. art. I, § 10 and Tex. Const. art. I, § 16.
The pertinent provision of the restrictive covenants for Section four reads as follows:
Until January 1 of the year immediately following the conveyance of the first Lot to an Owner, the maximum annual assessment shall not exceed Ten ($10.00) Dollars per month, or One Hundred Twenty ($120.00) Dollars per annum, per Lot: provided, however, that from and after January 1 of the year immediately following the conveyance of the first Lot to an Owner, the Board of Directors of the Association shall be empowered to increase said rate as the needs of the Association require; except that if any such increase shall cause the annual assessment to be greater than the aforesaid $120.00 plus the rise, if any, of the Consumer Price Index as published by the United States Department of Labor for the preceding month of July; or more than One Hundred Ten (110%) percent of the amount assessed in the preceding calendar year, whichever is greater, then shall such an increase require the vote of two-thirds (2/3) of each class of members of the Association who are voting in person or by proxy, at a meeting duly called for that purpose.
The provisions for Sections five and six are substantially the same. The lot owners contend that if the assessments are accumulated under Tex. Prop. Code Ann. § 204.010 (Vernon Supp. 2002), it would allow an increase of at least ten percent for every year the deed restrictions were in force (sixteen years) with interest compounded. They contend this would permit the annual assessment for these sections to increase from $120.00 per lot per year to more than $550.00.
Tex. Prop. Code Ann. § 204.010 provides, in pertinent part, as follows:
(a) Unless otherwise provided by the restrictions or the association's articles of incorporation or bylaws, the property owners' association, acting through its board of directors or trustees may:
(16) if the restrictions allow for an annual increase in the maximum regular assessment without a vote of the membership, assess the increase annually or accumulate and assess the increase after a number of years.
Reading the plain language of the statute and the pertinent portions of the restrictive covenants for Sections four, five, and six, we agree with the trial court's determination. The restrictions for these sections do not expressly "provide otherwise" to the statutory authorization, so accumulation of the previously authorized but unassessed annual increases is allowed. The phrase "unless otherwise provided" or similar language, when used in a statute, usually refers to other statutes pertaining to the same subject matter. Here we construe the language to refer to other statutes on the same subject matter, or to agreements or restrictions applicable to the subdivision. We can find no instance where silence on the subject has been construed as "otherwise providing." The lot owners argue that the original provision allowing for the assessments and the annual increases in itself is an exclusive method of making the assessments and increases, and so it effectively "provides otherwise" to the statutory provision authorizing accumulation. We disagree. The deed restrictions in no way either authorize or prohibit accumulation. They are completely silent on that subject. As we have already noted, we do not believe that silence on the subject of accumulation may reasonably be construed to be a positive or express provision that accumulation is not permitted. Indeed, it seems that if the Legislature had thought that the original assessment provision itself denied the authority to accumulate, it would not have used the phrase "unless otherwise provided" in the statute authorizing accumulation. That the Legislature felt it necessary to use these words indicates, we think, that it did not believe that the bare provision for annual assessments necessarily prohibited accumulation.
The lot owners argue that if Chapter 204 of the Texas Property Code gives homeowners' associations authority to accumulate and assess maintenance fees where the original deed restrictions do not, the statute would be unconstitutional as a retroactive law and because it impairs the obligation of contracts in violation of Article I, § 10 of the United States Constitution and Article I, § 16 of the Texas Constitution.
Article I, § 10 of the United States Constitution provides:
No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
Article I, § 16 of the Texas Constitution provides:
No bill of attainder, ex post facto law, retroactive law, or any law impairing the obligation of contracts shall be made.
Although both the United States and Texas Constitutions prohibit laws that impair the obligation of contracts, it is now well settled that state police power regulations dealing with physical things such as land or natural resources are valid even if they have incidental effects on pre-existing contracts, if those laws or regulations are exercised in the interest of the public welfare. Barshop v. Medina County Underground Water Conservation Dist., 925 S.W.2d 618 (Tex. 1996). As stated by the United States Supreme Court in Henderson v. Thompson, 300 U.S. 258, 57 S.Ct. 447, 81 L.Ed. 632 (1937), the Texas Constitution has never been held to invalidate a police power statute dealing directly with physical things in the interest of the public welfare that touch only indirectly on contractual relationships that attached to those physical things before the statute or regulation was enacted. In so holding, the United States Supreme Court distinguished the Texas Supreme Court case of Travelers Ins. Co. v. Marshall, 124 Tex. 45, 76 S.W.2d 1007 (1934), by pointing out that in that case the law directly affected contracts by placing a moratorium on their enforcement. So the law involved in Travelers v. Marshall did not merely incidentally affect a contractual provision relating to specific physical things, but directly and explicitly abrogated specific provisions of pre-existing contracts. Subsequent to the decision in Travelers v. Marshall, Texas courts have consistently followed the reasoning set out in Henderson v. Thompson. See Barshop v. Medina County Underground Water Conservation Dist., 925 S.W.2d 618; Tex. Water Comm'n v. City of Fort Worth, 875 S.W.2d 332 (Tex. App.-Austin 1994, writ denied); Tex. State Teachers Ass'n v. State of Texas, 711 S.W.2d 421 (Tex. App.-Austin 1986, writ ref'd n.r.e.); Kilpatrick v. State Bd. of Registration for Prof'l Eng'rs, 610 S.W.2d 867 (Tex. Civ. App.-Fort Worth 1980, writ ref'd n.r.e.); Andrada v. City of San Antonio, 555 S.W.2d 488, 491 (Tex. Civ. App.-San Antonio 1977, writ dism'd); State Bd. of Registration for Prof'l Eng'rs v. Wichita Eng'g Co., 504 S.W.2d 606 (Tex. Civ. App.-Fort Worth 1973, writ ref'd n.r.e.); Dovilina v. Albert, 409 S.W.2d 616 (Tex. Civ. App.-Amarillo 1966, writ ref'd n.r.e.). As noted by the court in Andrada v. City of San Antonio, 555 S.W.2d at 491, and as quoted from the opinion in Manigault v. Springs, 199 U.S. 473, 26 S.Ct. 127, 50 L.Ed. 274 (1905), "The interdiction of statutes impairing the obligation of contracts does not prevent the State from exercising such powers as are vested in it for the promotion of the common weal, or are necessary for the general good of the public, though contracts previously entered into between individuals may thereby be affected . . . in other words, . . . parties, by entering into contracts may not estop the Legislature from enacting laws intended for the public good."
Here, Section 204.010 of the Texas Property Code is not directed to any specific kind of contracts, and it does not directly contradict any contractual provision prohibiting the accumulation of assessments. Indeed, it expressly does not authorize accumulation of assessments if the applicable agreements provide otherwise. Therefore, in authorizing the accumulation of assessments it does not impair the obligation of the homeowners' agreements with the subdivisions in the constitutional sense.
The lot owners argue that the statutory provisions of Chapter 204 do not pertain to physical things and were not enacted to promote the common good under the police power, and therefore they violate the provisions against the impairment of contracts. We disagree. Zoning regulations affecting residential subdivisions as well as commercial developments are proper exercises of the police power and are valid even though they may affect or modify the provisions of previously executed contracts. See Biddle v. Bd. of Adjustment, 316 S.W.2d 437 (Tex. Civ. App.-Houston 1958, writ ref'd n.r.e.). Although Chapter 204 is not a zoning ordinance, it was enacted to promote the public welfare with regard to the property owners associations' ability to better provide services to the homeowners, maintain the common area facilities, and provide for the common security and restriction enforcement. Section 1(b)(3), (4) of the Statement of Legislative Policy (1) provides, for example:
(3) it is in the best interest of residential real estate subdivisions that a procedure be available to readily facilitate increases in the amount of the regular or special assessments to allow the property owners' associations to better provide services to the subdivisions; and (4) restrictions that severely limit the amount of the regular assessment may result in the inability of an ineffective property owners' association to maintain common area facilities, including swimming pools, tennis courts, clubhouses, greenbelt areas, or jogging trails, or to provide services, including streetlights, security, architectural control, and deed restriction enforcement.
We must initially presume that a legislative enactment is constitutional. Barshop v. Medina County Underground Water Conservation Dist., 925 S.W.2d at 629. The Texas Property Code, Section 204.010, provides that public policy considerations require the adoption of the procedure allowing the modification of existing property restrictions in residential subdivisions. As this statute is an expression of public policy for the promotion of the public welfare, and only incidentally affects pre-existing contracts, we find that it does not violate the United States or Texas Constitutional provisions prohibiting laws that impair the obligation of contracts. For the same reasons, we find that Chapter 204 is not unconstitutional as a retroactive law.
The lot owners mention in their brief that Chapter 204 may offend the due process and equal protection clauses, but the issue is not briefed so we will not consider it.
Restrictive covenants for residential subdivisions are subject to general rules of contract construction. Pilarcik v. Emmons, 966 S.W.2d 474, 478 (Tex. 1998). Whether the restrictions are ambiguous is a question of law for the court to determine. An ambiguity is not present simply because the parties advance conflicting interpretations of the restrictions. No party here contends the restrictions are ambiguous. Because the interpretation of the restrictions turns on contract construction-a question of law-we review the decision of the trial court de novo. Ostrowski v. Ivanhoe Prop. Owners Improvement Ass'n, 38 S.W.3d 248, 252-53 (Tex. App.-Texarkana 2001, pet. denied); Highlands Mgmt. Co. v. First Interstate Bank of Tex., N.A., 956 S.W.2d 749, 752 n.1 (Tex. App.-Houston [14th Dist.] 1997, pet. denied).
We recognize several principles of contract construction as being applicable to this dispute. Our primary concern is to give effect to the written expression of the parties' intent. The contract must be considered as a whole, and each part of the contract should be given effect. Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994). It is the intent, expressed or apparent, in the writing that is controlling. New Caney Indep. Sch. Dist. v. Burnham AutoCountry, Inc., 30 S.W.3d 534, 539 (Tex. App.-Texarkana 2000, pet. denied). A restrictive covenant must be liberally construed to give effect to its evident purpose and intent. Tex. Prop. Code Ann. § 202.003(a) (Vernon 1995); Benard v. Humble, 990 S.W.2d 929 (Tex. App.-Beaumont 1999, pet. denied); Candlelight Hills Civic Ass'n v. Goodwin, 763 S.W.2d 474, 477 (Tex. App.-Houston [14th Dist.] 1988, writ denied).
As to Northglen Section one, the pertinent language of the assessment provision is as follows:
2. Annual Assessment or Charge. Each Lot in said Subdivision, when said Lot is certified by the Subdivision Engineer to be a completed building site, is hereby subjected to an annual maintenance charge and assessment not to exceed $10 per month or $120 per annum, for the purpose of creating a fund to be designated and known as the "maintenance fund," which maintenance charge and assessment will be paid by the Owner or Owners of each Lot within said Subdivision, and any annexed areas, to Northglen Association in advance, annually, commencing as to all Lots on the first day of each month following their certification of completion. The rate at which each Lot will be assessed will be determined annually by the Board of Directors of Northglen Association at least thirty (30) days in advance of each annual assessment. Said rate and when the same is payable may be adjusted from year to year by said Board of Directors as the needs of the Subdivision may in the judgment of the Directors require.
As to Northglen Section two, the pertinent language of the assessment provision is as follows:
2. Annual Assessment or Charge. Each Lot in said Subdivision, when said Lot is certified by the Subdivision Engineer to be a completed building site, is hereby subjected to an annual maintenance charge and assessment not to exceed $10 per month or $120 per annum, for the purpose of creating a fund to be designated and known as the "maintenance fund," which maintenance charge and assessment will be paid by the Owner or Owners of each Lot within said Subdivision, and any annexed areas, to Northglen Association in advance annually, commencing as to all Lots on the first day of the month following their certification of completion. The rate at which each Lot will be assessed will be determined annually by the Board of Directors of Northglen Association at least thirty (30) days in advance of each annual assessment. Said rate and when same is payable may be adjusted from year to year by said Board of Directors as the needs of the Subdivision may in the judgment of the Directors require.
Although the trial court's reasoning is not set forth in its findings of fact or its judgment, its ruling that Northglen's board of directors has unlimited authority to raise the annual maintenance assessment against each lot violates the principles of contract construction by which we are bound. We may not consider only the language in the restriction that permits the board to determine annually the rate at which each lot shall be assessed and simply ignore the language providing that the assessment shall not "exceed $10.00 per month or $120.00 per annum." Northglen contends that the stated limit, not to exceed $120.00 per lot per year, is applicable only until the "maintenance fund" referred to therein is fully funded, and after that occurs, the board has unlimited authority to determine additional maintenance assessments as it sees fit. The effect of this reasoning, however, would be to create two separate funds: one, the maintenance fund, limited to a maximum of $120.00 per lot per year; and two, another fund whose sources of revenue would be any amount assessed by the board and collected from the lot owners over and above the maintenance fund amount.
The quoted language and language from other parts of the restrictions simply will not support such a construction. The language can only be reasonably read as creating one fund, the "maintenance fund." There was no evidence before the trial court that Northglen keeps two separate maintenance funds. Further, in another part of Section two's restrictions, in which disbursement of the funds collected by the association is authorized, the language clearly refers to only one fund from which the association's expenditures are authorized. See, for example, subsequent language from Article VI. (2), for Section 2:
Northglen Association shall use the proceeds of said maintenance fund for the use and benefit of all residents of said Subdivision, as well as those of all subsequent sections of the Subdivision annexed as hereinafter set forth. Such uses and benefits to be provided by said Association may include, by way of clarification and not limitation, any and all of the following: acquisition, construction and maintaining parks, parkways, rights-of-way, easements, esplanades and other public areas; supervising and contracting for the collection and disposition of garbage, ashes, rubbish and the like; maintenance of any Common Area; payment of all legal charges and expenses in connection with the enforcement of all recorded charges and assessments, covenants, restrictions and conditions affecting said property . . . .
The language permits expenditures for the stated purposes only from the proceeds of the "said maintenance fund," and not from any other source. The language does not authorize collection of or disbursement of any other fund for subdivision purposes.
Further, consistent with our obligation to give effect to all of the contract's terms, we may not ignore the "not to exceed" language that imposes a limitation of the amount of assessments the association may assess. The maintenance fund assessments may not exceed $120.00 per lot per year. (2) The trial court's judgment in this regard simply ignores the contractual limitation. Such a result cannot be reconciled with the language of the restrictions.
We disagree with the decision of the court in Samms v. Autumn Run Cmty. Improvement Ass'n, 23 S.W.3d 398 (Tex. App.-Houston [1st Dist.] 2000, pet. denied). One of the issues in that case was the authority of the association to increase annual maintenance charges in the subdivision. The assessment provision in the restrictions involved in that case were almost identical to those here as they pertain to Sections one and two. In determining that the assessment provision gives the association the right to change the annual assessment every year as it sees fit, the court set out a portion of the provision emphasizing the language that allows an annual determination by the board of the rate at which each lot will be assessed, and that allows the board to adjust the rate from year to year as the needs of the subdivision may, in the board's judgment, require. Although the language emphasized by the court, standing alone, would support its conclusion, the court ignored other language, including the "not to exceed" language in the same paragraph. The opinion also fails to consider that the effect of its ruling is to create two maintenance funds and another account of any amount over the "fully established" maintenance fund, which is nowhere authorized by the restrictions set out in the opinion.
As we noted earlier, in view of the "not to exceed" language, the evident intent of the restrictions to establish only one maintenance fund, and the specific language limiting authorized expenditures for subdivision purposes to the maintenance fund, we conclude that the restrictions in our case do not permit unlimited increases in the rate at which each lot may be assessed. We are not permitted to isolate certain passages from the restrictions, emphasize them, and conclude to the contrary. We therefore conclude that the trial court erred in this regard.
In making our conclusion that the restrictions for Sections one and two do not allow the association to raise the assessments above the "not to exceed" figure of $120.00 annually, we are not ignoring the language that allows the board to adjust the rate of the assessments from year to year. Rather, we construe this particular language to mean that the board may adjust the amount of the assessments within the "not to exceed" amount, and adjust and set the time when such assessments may be due.
In the Section three restrictions, the draftsman employed the same "not to exceed" language, i.e., that each lot in the section is subjected to an annual maintenance assessment not to exceed $10.00 per month or $120.00 per annum, for the purpose of creating a fund to be designated and known as the maintenance fund. The restrictions contain language authorizing the board to increase the maintenance charge as the needs of the subdivision require, but limits any increases in the annual assessment rate to ten percent per annum unless approved by a majority of both classes of membership voting at a meeting called for that purpose. The restrictions also state that the association shall "use the proceeds of said maintenance fund for the use and benefit of all residents of said Subdivision . . . ."
Again, giving effect to all the language contained in the restrictions, we conclude that the intent is to limit the assessments to a maximum of $120.00 per lot per year, and that more than a ten percent increase per year would require approval of the lot owners at a meeting called for that purpose. The lot owners' Issue Three is sustained as to Section three of Northglen.
Northglen contends that the Texas Property Code permits it to increase the maintenance assessment notwithstanding the limitations contained in the restrictions. As we have previously noted, Tex. Prop. Code Ann. § 202.003(a) requires a liberal construction of the provisions of restrictive covenants. Northglen points out that the stated legislative policy that precipitated the enactment of Chapter 204 of the Texas Property Code, combined with the required liberal interpretation of the restrictions, gives it the right to increase maintenance fees without the prior approval of the lot owners. In enacting what would become Chapter 204, the Legislature specifically set out its policy determination:
(a) Public policy considerations require that a procedure be available to allow for the extension of, addition to, or modification of existing property restrictions in residential real estate subdivisions.
(b) The legislature finds that:
(1) property owners' associations serve to benefit residential real estate subdivisions and assist in avoiding the problems described by Section 201.002, Property Code;
(2) there is a special relationship between property owners' associations and the property owners within the subdivision;
(3) it is in the best interest of residential real estate subdivisions that a procedure be available to readily facilitate increases in the amount of the regular or special assessments to allow the property owners' associations to better provide services within the subdivisions; and
(4) restrictions that severely limit the amount of the regular assessment may result in the inability of an ineffective property owners' association to maintain common area facilities, including swimming pools, tennis courts, clubhouses, greenbelt areas, or jogging trails, or to provide services, including streetlights, security, architectural control and deed restriction enforcement.
(c) The purpose of this Act is to:
(1) provide a less burdensome procedure for extending the term of, adding to or modifying residential real estate restrictions by approval and circulation of a petition by a property owners' association.
Tex. Prop. Code Ann. § 204.001 historical note (Vernon Supp. 2002) (emphasis added) [Act of May 27, 1995, 74th Leg., ch. 1040, § 2, 1995 Tex. Gen. Laws 5170-5175].
Subsection (c)(1) specifically states that the purpose of the act is to provide a less burdensome procedure for changing or adding to restrictions, which is by approving and circulating a petition. Further, we emphasized the phrase "extending the term of, adding to or modifying" because that or a similar phrase is used in subsequent sections of Chapter 204. For example, Section 204.003:
An express designation in a document creating restrictions applicable to a residential real estate subdivision that provides for extension of, addition to, or modification of existing restrictions by a designated number of owners of real property in the subdivision prevails over the provisions of this chapter.
Tex. Prop. Code Ann. § 204.003 (Vernon 1995) (emphasis added). This section was addressing the problems recognized in Section 1(a) of the legislative policy statement, i.e., extending, modifying, or adding to existing restrictions. It specifically states that if such procedures are provided in the restrictions, they prevail over this chapter. The same phrase appears again in Tex. Prop. Code Ann. § 204.005 (Vernon Supp. 2002), both in the title of the section, "Extension of, Addition to, or Modification of Existing Restrictions," and, more importantly, in the language of the statute itself:
(a) A property owners' association has authority to approve and circulate a petition relating to the extension of, addition to, or modification of existing restrictions. A property owners' association is not required to comply with Sections 201.009-201.012.
(b) A petition to extend, add or modify
existing restrictions approved and circulated by a property owners' association
is effective if:
It is apparent that Section 204.005 of the Texas Property Code intends to address the problem of the extension, addition, or modification to existing subdivision restrictions by providing an alternative means, i.e., the circulation of a petition, by which such restrictions may be amended. The statute also sets forth how to handle the situation of multiple sections of a subdivision and what type of notice is necessary to the lot owners. The language of Section 204.005 will not support an interpretation that would permit increasing maintenance fees in direct contravention of limitations specifically set out in the restrictions. If the Legislature in this statute intended to grant homeowners' associations the authority simply to increase assessments above limitations stated within the restrictions, without some kind of amending procedure, there would be no need to place in the statute the mechanism for circulating a petition.
We hold that, regarding Northglen Sections one, two, and three, neither the language of the restrictions nor the provisions of Chapters 202 and 204 of the Texas Property Code permit the association's board to increase the per lot per year assessment above $120.00, unless the restrictions are amended as provided in the covenant, or as provided by the modified amendment procedure set forth in Chapter 204.
Northglen's original bylaws permitted it to charge interest of six percent per annum on maintenance fees not paid within thirty days after the due date. The bylaws were subsequently modified to permit the imposition of the late charge against any assessment that is not paid within thirty days after the due date.
The lot owners contend that the authority of Tex. Prop. Code Ann. § 204.010 is limited to default situations, i.e., when no other provision is made regarding the subject matter of the statute. We do not agree. There is no case authority to support the argument that silence on the subject matter is considered to "otherwise provide." The bylaws in question do not specifically limit the penalties for late payment to the imposition of six percent interest; they further do not forbid the imposition of a late charge. This is an area in which the bylaws and restrictions have not otherwise provided, and the plain language of Tex. Prop. Code Ann. § 204.010(a)(10) permits a late charge. Where there is no specific prohibition against an action of the association, the rule of liberal construction permits the association to take action that is necessary or desirable for the good of the subdivision. Candlelight Hills Civic Ass'n, v. Goodwin, 763 S.W.2d at 478-79. The resolution that imposed the late charge made a finding that late payments adversely affected the association's ability to carry out its duties. The lot owners have raised no challenge to this factual determination by the board. This issue is overruled.
The authority to foreclose on homesteads for nonpayment of subdivision maintenance dues was first enunciated by the Texas Supreme Court in Inwood N. Homeowners' Ass'n v. Harris, 736 S.W.2d 632 (Tex. 1987). Notwithstanding the constitutional recognition of the sanctity of the homestead and its immunity from most liens, the Court found that the characteristics of such assessments met the requirements for liens enforceable through foreclosure against homesteads for two reasons: 1) the assessments were covenants running with the land; and 2) the homestead exemption does not operate to circumvent and avoid an inherent characteristic of the property acquired.
One of the requirements for a valid covenant running with the land is notice to the person acquiring the property. Inwood N. Homeowners' Ass'n v. Harris, 736 S.W. 2d at 635. The Texas Supreme Court in Inwood North found that the purchasers of property in the subdivision were bound by the terms of the instruments in their chains of title that contained the restrictions, and that the deeds acquired by each of them gave notice of their obligations. The Court stated:
Thus, this case revolves around when the lien attached on the property. If it occurred simultaneously to or after the homeowners took title, there is authority which would deem the homestead right superior. On the other hand, if the lien attached prior to the claimed homestead right and the lien is an obligation that would run with the land, there would be a right to foreclose.
Id. at 635 (citations omitted).
The lot owners rely on Op. Tex. Att'y Gen. No. 97-019 (1997), which concluded that costs imposed by a subdivision board pursuant to Chapter 204 of the Texas Property Code, but not authorized by the restrictive covenants themselves at the time of the acquisition by the homeowners, did not create a lien that would precede a homestead right dating from before the board's actions. The opinion cited dicta from Boudreaux Civic Ass'n v. Cox, 882 S.W.2d 543, 547 (Tex. App.-Houston [1st Dist.] 1994, no writ), suggesting that if an amendment to the restrictions creates a new lien subject to a homestead declaration, it is not enforceable; if it is a modification to an existing lien, it would be enforceable through foreclosure.
In Davis v. Huey, 620 S.W.2d 561 (Tex. 1981), the Texas Supreme Court held that architectural restrictions imposed by a restrictive covenant were enforceable only if the purchaser acquired his property with constructive notice of such restrictions. The Court said it was essential that the purchaser-landowner have notice on the limitations on his title.
Based on those authorities, we conclude that any new type of assessment, late charge, or attorney's fee that is imposed solely through the authority of Chapter 204 of the Texas Property Code cannot be enforced by foreclosure against a homestead. In addition, a subdivision assessment within the limit authorized by the restrictive covenant could be enforced through foreclosure against a homestead because it would be the requisite covenant running with the land affixed to the property before the owner acquired it. If a fee or charge is imposed solely because of the provisions of Chapter 204 after an owner acquired his homestead interest, the requisite notice necessary for a covenant running with the land would be lacking, and the lien would be inferior to the homestead. This would include: (1) the late charges to which we referred earlier in the opinion; (2) any increased assessments or fees in excess of that allowed by the original restrictions; and (3) any accumulated or increased fees authorized solely by Chapter 204. If the amount is increased through the proper amendment procedure, there would be a modification of the contract with the subdivision association, and the agreed modification would be subject to enforcement through foreclosure, because there would be the required notice or constructive notice.
For the reasons stated, we affirm the judgment of the trial court as to Issues One, Three, Four and Five. As to Issue Two, we reverse the trial court's judgment and render judgment that Northglen may not increase the annual assessments for Sections one, two, and three above that provided in the deed restrictions unless authorized by vote of the lot owners.
William J. Cornelius
The provision includes the following language "except that if any such increase shall cause the annual assessment to be greater than the aforesaid $120.00 plus the rise, if any, of the Consumer Price Index as published by the United States Department of Labor for the preceding month of July; or more than One Hundred Ten (110%) percent of the amount assessed in the preceding calendar year, whichever is greater, then shall such an increase require the vote of two-thirds (2/3) of each class of members of the Association who are voting in person or by proxy, at a meeting duly called for that purpose."
This restriction does more than just allow an annual increase up to the maximum without a vote of the membership, it specifically limits that increase to a percentage of the increase "assessed in the preceding calendar year." Furthermore, the provision specifically provides that if the percentage is greater than the percentage of the increase assessed in the preceding year by a certain percentage, then two-thirds of each class of members of the association must vote for such an increase. There was not a two-thirds vote for such an increase.
Allowing the accumulation in spite of this provision is to defy and ignore the legislative mandate which allows such accumulation only in the event it is not otherwise provided by the restrictions.
I do not believe such interpretation was the intent of the Legislature, those agreeing to and accepting the restrictions, and the plain language of the statute and the restrictions.
Ben Z. Grant
Date Submitted: February 27, 2002
1. Tex. Prop. Code Ann. § 204.001 statutory note (Vernon Supp. 2002) [Act of May 27, 1995, 74th Leg., ch. 1040, § 1, 1995 Tex. Gen. Laws, 5170, 5171].
2. State ex rel. Roth v. Bookhart, 586 P.2d 382 (Or. Ct. App. 1978), involved a "wage assignment" (compare to a garnishment) imposed on an individual to insure payment of delinquent child support payments. The applicable statute limited the amount of a person's wages that may be "assigned" for such purposes to an amount "not to exceed" one fourth of the individual's disposable earnings. The Oregon Court of Appeals construed the phrase "not to exceed" to mean that the trial court had no discretion to set the amount of wages assigned any higher than the specified amount. Id. at 386.
|Ruling reins in resident groups
Appeals court shackles neighborhood associations
By T.J. MILLING
Copyright 2002 Houston Chronicle
April 24, 2002
A Texas appeals court appears to have dealt a blow to homeowners associations, limiting their power to use foreclosure to collect delinquent dues.
The 6th Court of Appeals held that a 1995 law in the Texas Property Code cannot be used to raise dues and foreclose on delinquent homeowners. That law, part of the state code but applicable only to Harris County, was written to give the organizations more power to deal with Houston's lack of zoning.
The court in its April 18 decision on Geneva Brooks v. Northglen Association in northwest Harris County appears to be saying the organizations have abused that power, critics said.
"This is a very important precedent. ... This decision reins in homeowners associations," said David Kahne, attorney for the homeowners in the case. "It's a welcome step forward for homeowners to be secure within their deed restrictions."
Absent zoning, deed restrictions are an important way to protect property values by keeping unwanted businesses out of neighborhoods and making homeowners maintain minimum upkeep.
But publicity about cases like that of Wenonah Blevins, 83, who lost her $150,000 home in northwest Harris County last year over an $814.50 delinquency, have fomented critics of the organizations' power. Blevins and the Champions Community Improvement Association settled, and she got her home back. It was not immediately clear how the ruling would have affected her case.
In the appeals court ruling, the three judges addressed five issues. In the first, the court ruled that the homeowners organization could accrue increases. This means that if the deed restriction allows a 10 percent increase a year in dues, the organization could wait five years with no increase and then raise dues by 50 percent, or 10 years and raise them 100 percent.
The second issue was whether Northglen Association could raise dues above limits set out in the deed restrictions. The answer was yes and no.
In one part of the subdivision, the language of the restriction set an explicit cap, so the court held the dues were limited to the cap unless homeowners voted to raise them. In another part, the language was not as specific, so the court held the organization could use the 7-year-old law, Texas Property Code Chapter 204, which doesn't require a vote or set a cap.
The lone dissenting judge said both parts should be capped and subject to a vote for increases.
The third issue was whether the organization could charge late fees, and the court said yes.
The fourth issue was whether the organization could foreclose on delinquent property owners. The court held that the deed restriction must have explicit language stating the threat of foreclosure for nonpayment of dues. Absent that, the organization could not use Chapter 204 to foreclose.
The fifth issue was whether the homeowners could recoup legal fees. The court said no.
Attorney Michael T. Gainer, the author of Chapter 204, called the decision "a tie," meaning that fees could be raised to maintain neighborhoods for the protection of property values but foreclosure was no longer an option in some cases.
Kahne, the owners' attorney, called it a huge win for homeowners by removing to some extent "the hammer of foreclosure."
"Recognition of the limit on foreclosure power sets a substantial limit on the abuses in the collection process by attorneys," he said.
Brad Mitchell, attorney for Northglen Association, said he thought it was a narrow decision on specific points of law.
Neither side has yet decided whether to appeal the decision to the Texas Supreme Court, but Kahne said, "the battle over Chapter 204 is far from over."