Foreclosure filing research unveiled in Texas
by Beanie Adolph, Producer Foreclosure Study
Speech by Wendy Laubach, Houston attorney
Speech by Geneva Brooks,
Director of Property Rights Foundation Texas, Inc.
Remarks by Elizabeth J. McMahon
Executive Director AHRC
ARTICLE : Panel hears debate on home foreclosure
|After two years of
research a Texas family released their documentation at the public Senate
hearings on January 16, 2002, at the University of Houston, regarding practices
and solutions to home foreclosures abuses in Texas and especially
in Harris county. Detailed research was necessary in order to counter the
argument of the industry, after the publications of some infamous cases
in the media, like the case of 83-year-old Wenonah Blevins , that there
were just a few isolated cases.
In order to read the full documentation, please click on headline below!
Good morning Senator Lindsay, Ladies and Gentlemen:
It was just two years ago that I first learned about HOAs that have mandatory dues, that arbitrarily enforce ambiguous deed restrictions, that impose fines on neighbors' homes and that foreclose on neighbors' homes rather than helping neighbors in need. I could not then - and I certainly cannot now - imagine any American willingly surrendering Constitutional freedoms to be governed by such entities. There are no HOA promises that would induce me to sell my freedom and my rights.
When I learned of these HOAs, my family
and I began to study them closely by reviewing Harris County court records.
We have not liked what we have learned. Today, at this hearing, we
wish to make our research public by making it available on the Internet
at our web site - for free - at:
Our web site summarizes more than 12,000
court filings by HOAs since 1985 in the Houston area. In addition,
we have found many HOA "injunction" filings.
Now remember, each of these 12,000 cases is a threat - either express or by implication - to foreclose on a neighbor's home. These are actions against homeowners by HOA boards who claim they care about the homeowner. SUCH CARING!
When you go to our web site, the data is
listed by various categories. I have a handout available that presents
the home page of the web site where you can find, for example:
Or if you want to know more, you can find:
We also have attempted some analyses of
the data. You can find, for example:
I invite you to go to the web site and look up your subdivision. In fact, that is our primary goal. We hope everyone in Houston goes to this web site to check on his or her subdivision. We also hope our representatives in local and state government will visit this web site to learn more about what is happening to Texas homeowners.
Until now, the HOAs have been able to conduct
their foreclosures out of public view. Most HOA foreclosures have
been done without the knowledge of the majority of homeowners in the subdivisions,
so many foreclosure victims think they are alone. Whenever an injustice
occurs - such as the Wenonah Blevins case, the HOAs and their attorneys
claim that it is "an isolated
Our goal by introducing this web site is
to inform homeowners and our government. Americans have a great track
record of correcting injustice, once the injustice comes to light. I hope
and I trust that we will soon correct this injustice.
This definitely puts an end to the anyway ridiculous defense of "isolated cases". After all these documented facts the industry will definitely have a hard time to sell their excuses to anybody in his right mind! Please see below the speech of Geneva Brooks, Director of Property Rights Foundation Texas, Inc.
Definitely another eye-opener!
by Wendy Laubach, Attorney, Houston/Texas:
Iím a lawyer, so I hope no one will think Iím engaged simply in lawyer bashing when I make this observation.
There is a common denominator in the most horrible HOA abuse stories that have been hitting the media in recent years.
That common denominator is legal fees: legal fees in the thousands of dollars.
Legal fees that dwarf the size of the original dispute.
The average HOA foreclosure involves less than $1,000 in dispute. The average legal fees awarded exceed $1,000.
Cases are frequently reported in the media in which a few hundred dollars in late dues turns into thousands of dollars of legal fees and results in the loss of a home.
How to fix this problem?
The number one best fix would be to remove the foreclosure power altogether.
After all, what is it that attracts specialty law firms to a volume business in HOA foreclosures?
What attracts them is access to the value of home equity.
Shut off that fuel valve, and you quench much of the fire.
Others today will speak more, Iím sure, about why the foreclosure power is not needed.
I will only observe that my neighborhood civic association has operated for 50 years without a foreclosure power.
We enjoy stable and increasing property values as well as neighborhood harmony.
I think you also will find from the comments today and your independent research that the most successful HOAs find a way to function without actually foreclosing.
They understand that exercising their foreclosure powers is a good way to create an adversarial neighborhood atmosphere, if not expose themselves to ruinous lawsuits.
I have some suggestions for partial cures if the foreclosure power cannot be done away with.
If there must be a lien on homesteads to secure HOA dues, confine the lien to the payment of dues.
Donít extend it to the collection of penalties or fines, particularly the statutory $200/day fines that some HOAs routine impose for trivial covenant violations such as oil stains on driveways or mildew on garage doors.
If you find that there must be a lien to secure penalties as well as dues, then at least donít extend the lien to legal fees.
In the American system, the parties typically pay their own legal fees.
Itís a good way to require them to be rational about when they use the expensive court system.
People should not be running up thousands of dollars to fight over hundreds of dollars in dues, just because they can reverse the charges.
Itís an invitation to lawsuit abuse.
Another suggestion is a change to one of the protective provisions in the new HOA law that took effect a few weeks ago.
The new law provides that the HOA must hold a hearing before taking certain enforcement actions, but it makes an exception for a suit to collect dues or a suit to foreclose a lien.
The exception should be removed.
Many suits to collect dues or foreclose liens could be avoided altogether if the parties were just required to talk to each other first.
The law requires that, when a hearing must be held, no legal fees can be run up until itís finished.
Thatís particularly appropriate before a collection or foreclosure suit is filed.
It would prevent the extremely common fact pattern of a dispute over nonpayment of a trivial amount of dues that balloons into a big lawsuit because a lawyer instantly sends out threatening letters and charges $150 a pop.
Pretty soon the suit becomes more about the fees than the dues.
The new law provides what sounds like a limitation on legal fees, but on closer examination it proves to be inadequate to the task.
The law allows the GREATER of $2,500 or 1/3 the amount in dispute.
First, the average amount in dispute is between $500 and $1,000, so $2,500 in fees is way too high a limit to do much good.
Second, the amount in dispute may not be simply the amount of unpaid dues.
It may not even be the actual cost of remedying some specific covenant default, like an unmowed lawn or unpainted garage door.
The statute unwisely allows HOAs to charge $200 a day for even the most trivial of covenant infractions, and HOAs routinely do charge it.
HOAs will be asking for legal fees equal to 1/3 their penalties.
The fees should be limited to 1/3 the unpaid assessments or 1/3 the actual out-of-pocket cost of fixing a problem, with no $2,500 alternative.
The new law says that HOAs canít foreclose merely over fines or legal fees, which is a good change.
But thereís a problem with how the protection is supposed to work.
First, HOAs frequently attempt to foreclose over a trivial covenant violation, relying on their statutory right to charge $200/day.
It should not be possible to foreclose over anything less than a very serious covenant violation that seriously threatens the neighborhood.
This would exclude the typical HOA case that alleges a cracked flower pot on the front porch, a stain on the driveway, mildew on the garage door, an unmowed lawn, and so forth.
The statute should empower the court to sanction an HOA and its law firm for bringing a foreclosure action that is deemed, after trial, not to rise to a very high level of neighborhood safety and impact.
Second, when homeowners get behind in dues and try to catch up, HOAs routinely apply the payment first to fees and penalties, leaving some or all of the dues unpaid.
If HOAs were bound by the Federal Fair Debt Collections Practice Act, or the Texas equivalent, they would be required to apply payments to the actual debt rather than to penalties or legal fees.
The statute should be modified to make clear that HOAs must do so.
Otherwise, lawsuits will continue to be filed against homeowners who have cured their delinquency but have not paid huge sums in legal fees.
The new law allows foreclosed homeowners to redeem their property, which is a step in the right direction. However, there is a problem.
The statute provides that part of the price of redemption is to pay ďany debtĒ then owing to the HOA.
I predict that HOAs will not permit homeowners to pay simply the amount they were sued over, plus the fees awarded by the court, which is bad enough.
HOAs will tack on any additional debt they believe can be imposed under their bylaws for additional or ongoing disputes.
The homeowner will never catch up, and the redemption right will prove illusory.
Finally, I have some comments about what needs to be done to ensure that HOAs function democratically.
HOAs are often touted as democratic institutions, and courts often are reluctant to interfere in their governance on the theory that HOAs are quasi-governments in which the homeowners have the right to express their wishes within their associationís own bylaws.
But those rights are routinely taken away by covenants and bylaws that would never pass muster in a real government.
HOA members need an HOA bill of rights.
Homeowners lack freedom of speech within their associations.
Homeowners who start alternative website or circulate flyers are harassed.
They are denied access to the HOA newsletters for which their own dues have paid.
The HOA law should guarantee freedom of speech and assembly.
The franchise needs to be protected.
The basic right of homeowners to vote is threatened by the standard form of bylaws used by most Houston HOAs.
Typical bylaws provide that homeowners cannot vote if an at time the board deems them in violation of any rule.
In the North Glen subdivision, citation letters went out to nearly 2/3 of the neighborhood just before an election.
This is particularly scary when you consider that the HOA law allows changes to the covenants themselves by a mere vote of a majority of members whenever a quorum is present, which may be a tiny fraction of the total property owners.
The HOA law should guarantee that no homeowner can lose his right to vote as long as he owns property in the neighborhood.
Homeowners are threatened with unreasonably vague covenants that serve as the basis for taking away their homes.
In a recent case reported by the Houston Chronicle, a foreclosure suit was filed over an oil stain.
The HOA covenants didnít prohibit oil stains openly.
What they prohibited was ďnuisances.Ē
No homeowner could possibly have imagined that he could be exposed to foreclosure merely for having an oil stain on his driveway, based on the ďnuisanceĒ language in the recorded covenants.
The HOA law should provide that foreclosure actions brought under unreasonably vague standards are void.
Certainly the law should provide that HOAs cannot be awarded their legal fees in cases of this kind.
Finally, the playing field for amending covenants needs to be level.
Currently, the law implies that the statute overrides the majority voting rule required for amending its covenants if it is voting to CREATE an HOA.
It should be equally clear that the vote required for an amendment is overridden by the statute if the neighborhood is voting to DISBAND the HOA and return to a voluntary civic association without liens.
Similarly, residents should have a periodic autmoatic chance to change their minds about whether the HOA regime is right for their neighborhood.
There should be a sunset law for HOAs unless a strong majority of the neighbors vote to keep them periodically.
The period for triggering the sunset law should be shorter for HOAs that have filed foreclosure actions on more than a small percentage of their members in any one year.
I am Geneva Kirk Brooks, a retired educator but I have also been a real estate broker for about fifty years. I am the director of Property Rights Foundation Texas, Inc. We are owners fighting for our constitutional property rights.
Property ownership, next to liberty, is our most precious freedom but without property rights there is no liberty. All tyrants seize property because control of land gives control of people.
As an educator, I must educate you as to what has happened in the past so you will understand why and what is happening today to our vanishing property rights, so here are the facts as bare as the bottom of a newborn babe.
To understand the foreclosure racket in Texas since 1995 you need to know that that was the year Governor George Bush opened Texas to the foreclosure racket by signing House Bill 2152, later called 204, not called 507, as pay-back to the national lawyer group for their huge contribution. To understand about the foreclosure racket nationwide, you have to go back to l964 the year anti-discrimination laws were passed. There was great anguish, hand wringing, and eyes rolling skyward with moans of, "Oh God, what can we do to keep all those Mexicans and Negroes out of our communities? We gotta find a way without violating the law".
The way was found. The way was CAI - the Community Associations Institute, emboldened by Chubb Insurance Corporation, or one of its affiliates, that was established at Alexandria, Virginia, for the purpose of cleansing neighborhoods.
CAI is a school to teach lawyers how to add just enough helpless whites, preferably old, sick, poor widows Ė yes, like 83 year old widow Wenonah Blevins and paralyzed Robby Hopkins - to the "minority mix" to avoid law violations. Also, CAI teaches unscrupulous lawyers how to go into communities and woo board members to allow CAI to take over the Civic Clubís non-profit status and management the community, promising, " We manage your community free, all you have to do is let us keep all we collect from owners in legal fees and the foreclosures. We will keep you on the board, with a salary (or other inducements) as long as you wish to serve using our method of manipulation of ownersí votes.".
Since l995 up to 11,000 foreclosure filings have occurred in Harris County alone, violating our Texas Constitution which says properties may only be foreclosed for unpaid taxes, mortgages or improvement loans and violating our U.S. Constitution that guarantees "due process". Judge Patrick Mizell of Houston says of the law used by the foreclosure racket in Texas, "Its crazy. Its unfair. Its unconstitutional". An appeal is in the 6th Appeals Court at Texarkana which will determine the constitutionality of this Texas law. We expect a decision soon. Watch for it!
Letís look at the law signed by Governor George Bush in 1995. CAI lawyer Michael T. Gainer, a speaker here today, drafted this unconstitutional bill which was sponsored by Representative Kevin Bailey, also a lobbyist, and both got it pushed through and signed into law during the last ten seconds of a thirty minute extension of a waning session, on a voice vote with no record of who voted for it, in a near empty chamber with the constitutional rules suspended. This bill was never read or referred to any committee for study, research, recommendations or hearings. No witness were called to testify. This bill passed in this illegal way trashes our Texas Constitution and our U.S. Constitution and all our Homestead laws. I'm going to read this blood-chilling paragraph again. Listen carefully.
Senator Ken Armbrister reports that the seizure of non-profit status allows CAI to operate without any state oversight or regulations. His report states that management companies are "de facto" political entities and should be ruled by the same state regulations and laws as a city. CAI claims 501(c)(3) status and gets away with it because owners are forced to pay all legal fees directly into the private accounts of CAI lawyers without any showing on the accounts of the community.
ASSOCIATIONS A FATALLY FLAWED CONCEPT?
REMARKS TO THE TEXAS STATE SENATE HEARING ON HOMEOWNER ASSOCIATIONS
HOUSTON, JANUARY 16, 2002
BY ELIZABETH J. McMAHON
My name is Elizabeth McMahon.
I have been working on homeowners association issues for 13 years both locally in California and also nationally. I served as the consumer representative on Subcommittee of the California State Senate Housing Committee set up to revise the California homeowner association laws. I set up the first national data gathering site for homeowner associations, and subsequently, the first homeowner association news service. I am currently the Executive Director of the American Homeowners Resource Center, and Editor in Chief of AHRC News Services. My remarks here, which are necessarily brief , are based on that 13 year experience.
1. It is my considered conclusion that homeowner associations should either be abolished or comprehensively reformed. Born in the heyday of the post World War II housing boom, they were originally intended to provide citizens with decent, modern housing. However, they were quickly hijacked by a powerful coalition of lawyers and other homeowner association vendors, who formed a national trade group called Community Associations Institute (CAI). The very founder of CAI has admitted this. They lobbied state legislatures across the country to pass laws that cabin, crib and confine the homeowner, that strip homeowners of their constitutional and civil rights and that have turned homeowner associations into cash registers for themselves. In California alone, one prominent CAI lawyer has earned an estimated $150 million from homeowner associations.
2. Homeowner associations are a multi-headed hydra. Cut off one head, and a dozen more replace it. The Texas Senate hearing is a laudable effort to address the foreclosure issue, but if history is any guide, it will spawn many more hearings down the road. If the decision is made not to abolish homeowner associations, I offer the following considerations for your thoughtful review.
3. It has become crystal clear to me that no effective reform is possible without a special government oversight agency for homeowner associations. If the state general fund is currently not able to financially support such an agency, a modest fee of a $1 a month for each association homeowner would be clearly economically efficient. Because of the regulatory oversight, there would be fewer violations of state law and CCR¹s by boards, lawyers and management companies. Courts would not be clogged with expensive lawsuits, and homeowners would not have to shoulder the unbearable and wasteful transaction costs of defending their rights. A properly designed agency could do much to replace the present climate of unrest, anxiety and fear that plagues so many homeowners living in associations. Such an agency could quickly and expeditiously resolve disputes and ensure that offending board members, lawyers and management companies are fined for their violations. Homeowner associations have in many cases become lawless highways where bandits lie in wait for unsuspecting homeowners.
4. Foreclosures in homeowner associations should become as rare as foreclosures by state governments for the non-payment of property taxes. In California, the state waits 5 years before it forecloses on a home. People around the world are astounded that Americans can lose their homes in homeowner associations so quickly and for such paltry amounts. They see a home as central to every person¹s life, and they are shocked that in America, a person¹s home has become a pawn in the foreclosure racket. The Blevins case is not some idle exception. A properly constituted state agency should be able to ensure that no citizen is thrown out on the street unnecessarily.
5. A top priority for the state agency is to reform the insurance for homeowner associations. A lot of abuses are made possible by the structure of existing insurance. For example, current D&O policies act as a sword not a shield for homeowners (see accompanying article). Board members are secure in their castles because they can violate the rights of homeowners, and know that multi-million dollar D&O policies will protect them to the hilt. Because the state mandates that homeowner associations purchase D&O policies, and because the homeowner pays the premium out of his own pocket, special provision should be made that insurance companies be required to have a fiduciary duty to the homeowner as well. Management companies should be required to purchase their own D&O policy, not get a free ride at the homeowner expense by piggy backing on the association policy. Bribes and kickbacks by insurance companies should be specifically outlawed, with substantial fines for violations.
6. A state agency should once and for all eradicate the practice by CAI lawyers of making homeowner associations cash registers for themselves. CAI lawyers manufacture lawsuits in a multitude of ways. They push boards into violating homeowner rights, knowing that they will earn substantial legal fees from the insurance policy when the homeowner sues. As a class, lawyers are the single most pernicious cause of harm in homeowner associations, not just in Texas, but around the country.
Homeowner associations are seriously flawed both in their fundamental concept and practice. Executives (board members) are generally completely untrained for the operation of what are often multi-million dollar enterprises. Lacking the external discipline of stockholders that the normal business enterprises have, or the regulatory oversight that municipalities have, boards operate in a legal no man¹s land. The law should clearly recognize that homeowner associations are another layer of government, and make them comply with state law regarding elections, disclosure and non-discrimination. Lawyers and management companies should be banned from keeping them in power. The lack of professionalism and expertise often allows petty animosities to rule the day. This creates ill will, which causes more ill will, and before long, an association is a seething cauldron, close to the boiling point. In one association in Arizona, the cauldron boiled over, and a homeowner shot 3 board members to death because he believed that they were unnecessarily harassing him.
In the midst of all these complexities and confusions, one simple fact should act as a guiding beacon. People need safe, comfortable and adequate homes. People in prior generations were able to do that without the entangling mess of laws and regulations that homeowner associations represent today. Is it a too impossible a task for this generation to achieve that? I do not think so. However, it will take courage, a clear mind, and a willingness to place the welfare of the citizen¹s home before that of such powerful economic interests as lawyers and other association vendors.
I know that the collapse of Enron has caused much pain and suffering in Houston. Hence, I do not lightly make the following comparison. Unless the issue of homeowner associations is comprehensively tackled, there will be many future Enrons within them also.
Thank you for your attention, and if I can be of any assistance, please do not hesitate to contact me.
Elizabeth J. McMahon