Because of our aging communities and extreme weather events, Property Owners Associations across Texas are trying to figure out how to pay for the costly, unbudgeted maintenance and repairs of common areas, common elements and other items that are the Association’s responsibility. Such items may include screening walls, fences, siding, roofs, carports, garages, detention ponds, balconies, streets, lighting, trails, pools and landscaping. This article will provide a VERY brief overview of SOME of the legal issues and prerequisites HOAs should consider before levying a special assessment, increasing regular assessments, levying an individual assessment, or approving a loan.
First, consider whether your client is a Subdivision Association or a Condominium Association, and if it is a Condominium Association, know when its Declaration was recorded and whether Chapter 81 of the Texas Property Code applies. For the sake of this article, a “HOA” means a residential property owners association (including associations that administer condominiums and subdivisions). A Condominium Association is a HOA that administers condominium development, while a Subdivision Association is a HOA that administers a subdivision development. Each of these HOAs is subject to various provisions of the Texas Property Code. We will also assume in this article that the HOA is a Texas Non-Profit Corporation. But you, as the HOA’s counsel, should not assume anything. Just because the HOA has always called themselves a condo does not mean they are a condominium development. I have seen a developer of a subdivision development prepare and record bylaws invoking the Texas Uniform Condominium Act. And be wary of the client who insists they are neither a Subdivision Association nor a Condominium Association but, instead, a “Townhome Association.”
Next, determine whether the expense contemplated is the HOA’s responsibility (often called a “common expense”), as opposed to an owner expense. Things to think about are whether the money the HOA needs is for maintenance, repair, an insurable loss, an insurance deductible, and/or a capital improvement. Maintenance and repair responsibilities can be different from insurance responsibilities, especially in condominiums. In order to make this determination, HOA’s counsel will need to analyze all of the HOA’s dedicatory instruments and for a condominium development, Chapter 82 of the Texas Property Code (and Chapter 81 if applicable).
Once you confirm that the money needed is for a HOA common expense, determine the HOA’s authority to increase assessments, levy a special assessment, to obtain a loan, and/or to collateralize the Association’s right to collect assessments and to assign its rights to collect assessments. With respect to Condominium Associations, their own dedicatory instruments may provide such authority, but the Texas Property Code also grants Condominium Associations with certain powers and authorities. For example, Texas Property Code §82.102(f) specifically grants the Condominium Association through the Board of Directors the power by resolution to: (1) borrow money; and (2) assign as collateral for the loan authorized by the resolution: (A) the association’s right to future income, including the right to receive assessments; and (B) the association’s rights. Texas Property Code § 82.111(j) provides that the cost of repair or replacement in excess of the insurance proceeds is a common expense, and the board may levy an assessment to pay the expenses in accordance with each owner’s common expense liability. Conversely, for Subdivision Associations, there is no statutory authority to levy special assessments, borrow money or pledge assessments as collateral. If the Subdivision Association’s dedicatory instruments authorize the Subdivision Association’s board of directors to levy a special assessment, increase assessments or borrow money, Texas Property Code § 209.0051 states that the board may not, unless done in an open meeting for which prior notice was given to owners, consider or vote on matters like increases in assessments, levying of special assessments, or lending or borrowing money. If the HOA lacks the authority it needs to obtain the money it needs, consider amending the appropriate dedicatory instruments to obtain that authority.
In short, reading and understanding the HOA’s governing documents, as well as the pertinent statutes, are important factors in appropriately obtaining the funds the HOA needs in order to do the things it is supposed to do. Hiring counsel on the front end can make the process run smoothly.
Kate Kilanowski is a Partner at Cagle Pugh Ltd., LLP. She can be reached at kate.kilanowski@caglepugh.com.
