I’m a lawyer, so I hope no one will think I’m 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, I’m 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.
Don’t 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 don’t extend the lien to legal fees.
In the American system, the parties typically pay their own legal fees.
It’s 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.
It’s 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 it’s finished.
That’s 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 can’t foreclose merely over fines or legal fees, which is a good change.
But there’s 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 “any debt” 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 association’s 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 didn’t prohibit oil stains openly.
What they prohibited was “nuisances.”
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 “nuisance” 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.
