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Wednesday, November 23, 2011

New Changes in Texas POA Legislation - Solar Panels

The 82nd Texas Legislature made many changes to the laws affecting property owners’ associations (“POAs” or “Associations”). One such change relates to an individual owner's right to install solar panels on their home in Texas.

Pursuant to Texas Property Code Section 202.010, Property Owners Associations cannot prohibit or restrict an owner from installing a solar energy device onto their property. If such provisions are included within an Association’s bylaws, then those provisions will be considered legally void. There are, however, exceptions to this rule. In those instances, an Association can restrict or prohibit an owner from installing solar panels onto their property if it threatens the public health or safety, violates a law, is not properly installed onto the roof, or it was installed without prior approval from the Association or an affiliated committee.

Posted by Austin Attorney Chloe Love

Friday, September 9, 2011

What Happens to Tenants in Texas When a Property is Sold at Foreclosure Auction?

The Protecting Tenants at Foreclosure Act of 2009 (“PTFA”) is a section of what is popularly called the Helping Families Save their Homes Act of 2009. Specifically, PTFA ensures that tenants who are losing their residence to foreclosure will have a sufficient period of time before being forced to leave their home. If the tenant is living at their home either without a lease or with a lease terminable at will, the immediate successor in interest (the person or entity taking over the property post-foreclosure) must give the tenant at least 90 days notice to vacate the property. If the tenant does have a bona fide lease, the immediate successor in interest must recognize the terms of the original lease. In this case, the tenant cannot be forced out of the property until the original lease expires. If the purchaser is going to use the property as his primary residence, however, the lease can be terminated with a 90-day notice period. These notice periods are designed to be the federal minimum, so they do not trump state laws that provide more time for tenants to vacate the property.

This could affect both Texas property owners associations and Texas property owners in undesirable ways. Most of the time, if there is a property owners association in place, the tenant is going to have a bona fide lease because the POA is generally not going to allow residential leases without written agreement. As a result, it is going to be difficult for the Texas POA to remove a tenant when an owner is not paying his POA dues. Even if foreclosure on the property occurs, it will, at a minimum, be three months before the tenant can be removed. This could mean that the POA will have to go even longer without receiving dues from one of the properties it governs. The Protecting Tenants at Foreclosure Act of 2009 is scheduled to sunset on December 31, 2012.

Wednesday, July 13, 2011

Amending a Texas Condominium’s Declaration

The procedure for adopting changes to a Texas condominium’s declaration differs depending on the year the condominium’s declaration was recorded. Chapter 81 of the Texas Property Code governs if the declaration was recorded before January 1st of 1994, at which point Texas adopted the Uniform Condominium Act. For properties that recorded their declarations before this Act was adopted, the process for amending the condominium’s declaration is simpler. Section 81.111 states that any amendments to a declaration that was previously recorded with the county clerk must be made at an “apartment owners” meeting. (Under Chapter 81, “apartment” means an enclosed space within a building that has direct exit to a thoroughfare or common space. Today the same parcels of a building would typically be called “condominiums” or “units”.) The amendment needs to be supported by at least 67% of the ownership interest in the condominium.

Chapter 82 of the Texas Property Code, which is the Texas Uniform Condominium Act (“TUCA”), is applicable to any condominium that recorded its declaration with the county clear after January 1st of 1994. According to § 82.002, it also applies if a condominium that recorded its declaration before January 1st of 1994 either puts a provision in its declaration saying that this Act would apply when adopted or if its declaration is amended to say that this Act will apply.

The process to amend a declaration is more involved under Chapter 82. According to § 82.067, support of 67% of the ownership interest is still required, but the amendment can be adopted by written ballot or an owner’s meeting that all owners have been informed of in writing. If an amendment is adopted, it must be recorded in every county where part of the condominium sits.

Section 82.067 also specifies certain amendments that require 100% of the votes. These amendments include, but are not limited to, changing special declarant rights, increasing the number of units, and changing unit use restrictions. Even with 100% owner support, an amendment may not increase or otherwise modify the obligations or rights of a declarant without the declarant’s agreement.

The association’s board must further designate an officer to prepare, execute, record, and certify any amendments made. If the board does not do so, the president of the association may take on the role of officer. The declaration can be amended by the association to allow the board to evict a tenant for not following the association rules, for not paying for damage he caused to the condominium, or for being at least 60 days delinquent on rent payments.

While the Texas Property Code sets specific requirements for amending a condominium’s declaration, it is important to remember that these are not the only rules governing such amendments. Condominiums can place different rules or procedures directly into the declaration itself. If this is the case, the rules set out in the declaration are valid unless they are in direct conflict with the language of the Texas Property Code.

***This article was prepared by Rachel Robinson and edited by Austin Attorney Chloe Love.

Tuesday, June 21, 2011

Texas Laws Governing Condo Associations

Although condominium associations in Texas are private entities governing developments, this does not mean that they are outside the reach of public law. Of the many rules and regulations that condominium associations must abide by, federal law is the strongest. Regardless of their status as a private entity, associations may not do anything that goes against a federal law, and as federal law changes, so must the practices of condominium associations. All condominium associations must respect laws like the Helping Families Save their Homes Act of 2009, the Fair Housing Act, and the Americans with Disabilities Act.

The next set of governing restrictions comes from Texas state law. Just as Texas associations must abide by federal law, associations cannot take any action that is outside the realm of what is allowed by Texas law. The Texas Property Code, with acts like the Uniform Condominium Act, can directly control what actions condominium associations are allowed to take. Finally, condominium associations are governed by the local ordinances, codes, and regulations of the city or county in which they are located. This means that what is legal is Austin may not be legal in Houston. Because the associations are governed by these laws, it is important that property owners boards stay familiar with the current laws and how they are changing.

Texas Condominium associations are also governed by any documents relating to the property that are properly adopted and recorded with the county real property records. The recorded documents that govern are usually created by the individual developments. These typically include the recorded declarations, CC&R’s, articles of incorporation, and bylaws – in order of superiority. The bylaws must be in line with the articles of incorporation, which must be in line with the declaration, for example. The key to this is that the document that created the development, whether that be a declaration or a CC&R, will always rule (as long as it is within the legal limits set out by public law). These documents created by the developments are recorded with the county and treated as official legal documents, and the condominium associations must give them that level of reverence.

The final, and weakest, governing power on condominium associations are the policies and practices of the condominium association board. When the board makes a rule or implements a policy, it must be respected as long as it complies with all public law and recorded documents.

***This article was prepared by Rachel Robinson and edited by Austin Lawyer Chloe Love.

Tuesday, March 15, 2011

TUCA: Where do liens come from?

Amongst condo-dwellers and their property management (to a lesser extent, single family home-owners subject to an owners’ association), I frequently hear the phrase, “Let’s just file a lien.” This is often mentioned when an owner and member of the association has failed to make timely payment of their regular monthly assessments. However, “filing a lien” is not really an accurate statement of how the Association should perfect it’s interest in the property.

Under the Texas Uniform Condominium Act (“TUCA”), which applies to all condos in the State of Texas that were formed on or after January 1, 1994, the Association already has a lien against delinquent owners, without the need of any filing. TUCA Section 82.113 provides that an assessment levied by an association against a unit or unit owner is a personal obligation of the unit owner and is secured by a continuing lien on the unit and on rents and insurance proceeds received by the unit owner and relating to the owner’s unit. Emphasis added.
Furthermore, the association’s lien has priority over many other types of liens. Typically, the governing documents for your condominium will echo the statement from §82.113 of TUCA, further stating that a continuing lien in favor of the association exists whenever an owner is delinquent in payment of his/her assessments.

Usually, once I provide this explanation, condo board members follow up with a very good question, “If the lien already exists, why are we filing anything in the real property records?” The answer to that question is simply one of logistics. For sake of explanation, let’s say Bad Neighbor owes the Association $10,000 in past due assessments. Let’s further assume that Bad Neighbor has indicated that he has no intention of ever paying his assessments, because he disagrees with the management decisions that have been made by the Board. If Bad Neighbor then chooses to sell his unit to Innocent Purchaser, there would be nothing to indicate to the innocent purchaser that there are any current amounts owed to the Association. However, if the Association has chosen to file a “Notice of Lien” in the real property records, potential purchasers and title companies will be able to see that Bad Neighbor owes money to the Association. Typically, a title company will require that all liens be cleared before they will issue title insurance, which will likely result in the Association being paid. Therefore, filing a Notice of Lien may just be the lowest-cost method of collection past due assessments. (However, beware of first lien holder foreclosures, as has been discussed previously in this blog)

Monday, January 24, 2011

When might foreclosure of an Texas assessment lien prove useful?

The statutory superiority of the liens under 82.113(b) of Texas Uniform Condominium Act (particularly with regard to first deed of trust liens), significantly takes away from the usefulness of foreclosing on the assessment lien. The thought of the Association acquiring the foreclosed-upon unit also presents significant downsides. Should the Association acquire the Unit in foreclosure, it will then be responsible for paying any tax liabilities, including any that were outstanding at the time of the foreclosure. Additionally, if the Association were to acquire the foreclosed-upon unit subject-to a superior mortgage lien, it will then be “on the hook” for the mortgage’s obligations, including the monthly mortgage payment, and any outstanding payments on the mortgage. If a unit owner is delinquent on their assessments to the Condominium Association, it is a very real possibility that they are also in default on their taxes associated with the unit, as well as on their mortgage.

With those significant detractors, a Condominium Association might be left wondering if there is ever a time where foreclosing upon an assessment lien is useful. However, there are still some situations where foreclosing on the assessment lien can still be worthwhile and valuable tool.

Most obvious is where no first vendor’s lien or first deed of trust lien exists to take superiority over the assessment lien; for example where the unit was acquired with cash, or where the mortgage was acquired, but the mortgagee bank failed to timely file their lien.
It is also worth noting that it is difficult to predict what a property will fetch at sale, and the Association might find a favorable price at auction, and then be able to turn around and market the property again at a price that will more than make up for the outstanding obligations it might have acquired with the unit in foreclosure.

Foreclosure of the assessment lien might also be beneficial not in the collection of unpaid assessments, but with an eye towards ensuring that future assessments are paid. Generally, when a unit has a first-mortgage lien on it, and that unit owner has not paid their assessments, the owner likely is also behind on their mortgage payments, and that mortgagee bank therefore would “take the lead” in seeking foreclosure with their own interests in mind. However, a situation might arise where the unit owner is just barely “scraping by”, and is able to pay their mortgage, but yet cannot (or is unwilling to) pay their assessments. In such a situation it might be beneficial for the Association to “cut their losses”, and usher in a new unit owner through foreclosure that is able to pay those assessments going forward. Should the Association decide to buy the property at sale, the Association would take the unit subject to the first mortgage lien (and its resultant payment obligations month-to-month until the unit is resold), and would not obtain satisfaction of the delinquent assessments, but would hopefully have a new owner in place willing and able to pay the assessments.

Another situation where foreclosure of the assessment lien might be favorable is where the mortgagee bank is unwilling to foreclose, despite the unit owner’s failure to pay on the mortgage, and that unit owner has habitually failed to pay their assessments. Though rare, such a situation might arise (and recently has arisen more often) where the value of the property has greatly diminished since the acquisition of the mortgage, and where interest rates have significantly fallen since the acquisition of the mortgage. In other words, where the homeowner is “underwater”, or “upside down” on their mortgage. If the unit owner is still able to make some payment on the mortgage and/or if they perceive the unit owner as eventually being able to pay the mortgage in the future, it might make more sense from the bank’s perspective to bet on the homeowner paying down the valuable and higher-interest mortgage long-term, then to take on a property now worth significantly less, with a resultant new mortgage that will be worth significantly less (especially given lower interest rates in the wake of the recession). In that instance, by foreclosing on the assessment lien, the Association would either have a new owner hopefully able and willing to pay assessments, or by seeking foreclosure, the mortgagee bank may even step in and pay the back-assessments to keep the unit out of foreclosure, and then seek collection of those amounts out of the mortgagor unit owner.

Overall, while the assessment lien arguably may be more “bark” than “bite”, there are still circumstances where it can still be a useful tool, and a Condominium Association should not rule out turning to foreclosure when the situation is right.

Priority of Texas Assessment Liens

Other than the time, cost and effort required in pursuing foreclosure of the assessment lien, the Texas Uniform Condominium Act, or, TUCA, further limits its usefulness, by statutorily recognizing certain types of liens that are superior to the Texas assessment lien, and therefore are not extinguished by an assessment lien foreclosure. Any Texas condominium unit taken at foreclosure will be taken subject-to any superior liens.

Section 82.113(b) outlines four types of liens that are superior to the assessment lien. As one might expect, liens for property taxes and other governmental assessments are superior to assessment liens related to the Condominium Association, as are liens recorded prior to the filing of the Declaration for the Condominium Association in the real property records.

Most notable of the statutorily superior liens though regards first deed of trust liens, commonly known as mortgages. Pursuant to Texas Property Code Section 82.113(b)(3), an assessment lien is inferior and subordinate to “a first vendor’s lien or first deed of trust lien recorded before the date upon which the assessment sought to be enforced becomes delinquent under the declaration, bylaws, or rules.” So while the process for perfecting a lien under TUCA is essentially effortless and trouble-free, and further relates back to the date of filing of the Declaration (thereby establishing a priority position with respect to subsequent liens), unfortunately, the assessment lien would be inferior to the extent that the underlying assessments became delinquent subsequent to the recordation of the first mortgage lien in the real property records. Given that most unit owners will acquire a unit only through the acquisition of a mortgage, unless a mortgagee fails to properly protect their interests through timely recordation of their lien, delinquent assessments will only arise after the mortgagee (typically a bank or credit union) has already secured their “place-in-line”, and established superiority over the assessment lien.

Interestingly, the “uniform act” upon which TUCA is modeled, created by the National Conference of Commissioners on Uniform State Laws, contained provisions allowing for up to six-months worth of assessments to have “super-priority” even over first deed of trust liens. However, what many regard as a strong banking lobby in Texas was able to prevent that provision of the model act from making it into TUCA.
Similar to the first deed of trust lien, under 82.113(b)(4), liens, such as “mechanics and materialman’s” liens arising from improvements made to the unit are also superior to the assessment lien to the extent that any assessments sought through foreclosure of the lien became delinquent subsequent to the recordation of that lien. However, this subordination to mechanic's and materialman's liens may be eliminated by declaration. So, should a unit owner hire a contractor to make improvements to the unit, and the contractor records the lien, that lien would have superiority over assessments that only became delinquent after the recordation of that contractor’s lien.

Additionally, under 82.113(b)(4) (again, unless the Declaration provides otherwise), an assignment of insurance proceeds on the unit is also superior to assessment liens to the extent that any assessments sought through foreclosure of the lien became delinquent subsequent to the recordation of the insurance assignment.

“Opting out” of the superiority of mechanics and materialman’s liens and insurance assignments through the Declaration is one step a Condominium Association can take to improve the utility of the assessment lien.

Prepared by Austin Lawyer Chloe M. Love

Texas Process of Foreclosing on an Assessment Lien

The statutory framework governing the foreclosure of condominiums resides within Chapter 82 of the Texas Property Code. Pursuant to Section 82.113(d) of TUCA, the process for effectuating the sale of the property through a foreclosure is delineated by Texas Property Code Section 51.002, which is the same statutory provision utilized for foreclosure and power of sale in connection with single family residences. That being said, Section 82.113(d) of TUCA also allows the Condominium Association to amend or alter the procedures set forth by Section 51.002 through its Declaration.

Section 51.002 requires that 20 days notice of foreclosure be given to a unit owner, with opportunity to cure the default giving rise to the foreclosure. Then, upon expiration of the 20-day notice, a “Notice of Sale” must be posted at the county courthouse at least 21 days prior to the sale, thereby alerting the public of when and where the sale is to occur. If there are other lien holders with an interest in the property (for example, a bank holding a mortgage), that lien holder may demand that the Association provide written notice prior to any foreclosure. At any time prior to the sale, the unit owner may halt the foreclosure by paying all amounts then due and owing (Section 82.113(j)). Foreclosure sales must take place on the first Tuesday of each month between 10 am and 4 pm. The Condominium Association may bid on the property at the sale.

If the unit was used as a residence, and the Condominium Association purchases the unit at the sale, the unit owner will still have a 90-day window to “redeem” the property by paying all amounts then due and owing, plus interest on that amount from the date of the sale to the date of the redemption, in addition to reasonable costs and attorneys’ fees incurred in foreclosing the lien (Section 82.113(g)).

After the sale, the former owner may not simply vacate the unit upon the request of the Association, In such instances, a Condominium Association should be prepared to bring a forcible detainer action in a Justice of the Peace Court to evict the unit owner if they or their tenant refuses to vacate.

Liens for Past Due Assessments Owed to Texas Condominium Associations

As one would expect, the statutory provisions giving rise to Texas liens regarding assessments owed to a Condominium Association reside within the Texas Uniform Condominium Act, commonly referred to as “TUCA” (or “too-kuh” if spoken aloud). TUCA may be found in Chapter 82 of the Texas Property Code.

Pursuant to Section 82.113 of the Texas Property Code, assessments owed by a unit owner of a Texas condominium are a “personal obligation of the unit owner and [are] secured by a continuing lien on the unit.” Unless the Declaration of the Condominium Association holds otherwise, the lien exists and is “perfected” upon recordation of the Declaration in the real property records in the relevant county and requires no further recording by the Condominium Association. Of course there must be delinquent assessments before one can have an actionable lien capable of being foreclosed upon, but for purposes of determining when a lien came into existence once a Condominium Association is confronted with a delinquent unit owner, the lien relates back to the date upon which the Declaration was filed in the real property records. Because the lien arises for any delinquent assessments subsequent to the filing of the Declaration of the condominium complex, the lien for any particular unit arises with no effort or cost to the Condominium Association, and the Association need not file the lien in the real property records for it to have a valid and subsisting lien. That being said, the act of filing the lien can be useful in alerting others of the existence of a lien, limiting the unit owner’s ability to sell the unit. Filing of the lien in the real property records can also be a useful tool in prompting payment of the assessment, as some unit owners may be loathe to see their name and reputation tarnished in real property records for “all the world to see.”

Section 82.113 of the Texas Property code also states that “[b]y acquiring a unit, a unit owner grants to the [condominium] association a power-of-sale in connection with the association’s lien.” Section 82.113 further confers on a condominium association the power to foreclose on the lien and effectuate the sale by judicial and non-judicial means. However, pursuant to Section 82.113(e), a condominium association may not foreclose when the amounts owed consist solely of fines.

Prepared by Austin Attorney Chloe Love