Summary of Chapter 209 of the Texas Property Code

SUMMARY OF
CHAPTER 209 OF THE TEXAS PROPERTY CODE

SECTION 209.003. APPLICABILITY OF CHAPTER

This Section makes chapter 209 applicable only to residential subdivisions throughout Texas that are subject to restrictions that authorize the association to collect regular or special assessments and that require mandatory membership in the association and it specifically excludes condominium developments.

SECTION 209.004. MANAGEMENT CERTIFICATES

RECORD
(a) This subsection requires an association to record in each county in which any part of the residential subdivision is located a management certificate stating:

RECORD
(b) This subsection requires the association to record an amended certificate no later than thirty (30) days after the association has notice of a change in the recorded certificate.

(c) This subsection states that the association is not liable for a delay in recording or the failure to record a management certificate, unless the delay is willful or caused by gross negligence.

"Gross Negligence" means more than momentary thoughtlessness, inadvertence, or error of judgment. It means such an entire want of care as to establish that the act or omission in question was the result of actual conscious indifference to the rights, welfare, or safety of the persons affected by it.

SECTION 209.005. ASSOCIATION RECORDS

(a) This subsection requires an association to make the books and records of the association, including financial records, reasonably available to an owner upon request in accordance with Article 2.23 of the Texas Non-Profit Corporation Act, which states in pertinent part, the following:

A member of a corporation, on written demand stating the purpose of the demand, has the right to examine and copy, in person or by agent, accountant, or attorney, at any reasonable time, for any proper purpose, the books and records of the corporation relevant to that purpose, at the expense of the member.

(b) This subsection states that an attorney's files and records relating to the association, excluding invoices requested by an owner are not considered records of the association, are not subject to inspection by the owner, or are not subject to production in a legal proceeding.

SUMMARY OF SECTION 209.006, 209.007 AND 209.008 OF
THE NEW CHAPTER 209 TEXAS ROPERTY CODE

SECTION 209.006. NOTICE REQUIRED BEFORE ENFORCEMENT ACTION

(a) Before a property owners' association may suspend an owner's right to use a common area, file a suit against an owner other than a suit to collect a regular or special assessment or foreclose under an association's lien, charge an owner for property damage, or levy a fine for a violation of the restrictions or bylaws or rules of the association, the association or its agent must give written notice to the owner by certified mail, return receipt requested.

DISCUSSION: This Section requires an association or its agent to give a written notice, via certified mail, to an owner prior to action by an association to 1) suspend an owners 'right to use a common area; 2) file any suit against an owner which is not filed for purposes of collecting a regular or special assessment or foreclosing an association lien; 3) charge an owner for property damage to Association owned property; or 4) levy a fine for any violation of restrictions, bylaws or rules. In this section common area must be read to include any and all swimming pools, tennis court, parks and/or any other recreational areas or amenities. We suggest that any notice sent via certified mail to an owner also be sent via regular mail.

(b) The notice must:

(1) describe the violation or property damage that is the basis for the suspension action, charge, or fine and state any amount due the association from the owner; and

(2) inform the owner that the owner:

A. is entitled to a reasonable period to cure the violation and avoid the fine or suspension unless the owner was given notice and a reasonable opportunity to cure a similar violation within the preceding six months; and

B. may request a hearing under Section 209.007 on or before the 30th day after the date the owner receives the notice.

DISCUSSION: This Section generally sets forth what the notice required in Subsection (a) must contain. It must adequately describe the violation or damage alleged to be the basis for the suspension of a right to use a common area, charge or fine for a violation of the restrictions, bylaws or rules and must state any amount due the association from the owner. We believe that the first portion of Subsection (b)(l) ["describe the violation or property damage"] necessarily includes the requirement that the substantive, specific deed restriction in issue stored vehicle, paint house, etc must be spelled out in the notice.

The notice must also inform the owner that he or she is entitled to a reasonable period of time to cure the violation and, if cure is accomplished within that "reasonable period", the owner may avoid the fine or suspension unless a similar violation has occurred with the same owner within the proceeding six (6) month period. The statute is silent as to what constitutes a "reasonable" cure period, but we suggest that 30 days notice should be more than sufficient.

Finally, the notice must inform the owner that he or she may request a hearing before the board of directors of the association on or before the thirtieth (30th) day after the date the owner receives such notice. The statute is also silent as to what happens if the owner does not "receive" the notice. This would almost certainly be the case if notices were only sent via certified mail. Therefore, as noted above, we highly recommend that all notices be sent via regular mail as well. Should the certified mail version of a notice be returned marked "refused" or "unclaimed", in the event the regular mail version is not also returned to sender, under applicable Texas Law, there is a presumption of receipt by the intended recipient. Moreover, the notice should be sent to all addresses for the owner that the Association has in its records.

SECTION 209.007. HEARING BEFORE BOARD; ALTERNATIVE DISPUTE RESOLUTION

(a) If the owner is entitled to an opportunity to cure the violation, the owner has the right to submit a written request for a hearing to discuss an verify facts and resolve the matter in issue before a committee appointed by the board of the property owners' association or before the board if the board does not appoint a committee.

DISCUSSION: In the event an owner is entitled to an opportunity to cure a violation (i.e. has not received a notice and opportunity to cure a similar violation within the preceding six (6) months) the owner has the right to submit a written request for a hearing before the board or a committee appointed by the board. If an owner is in a position to be notified a similar violation within any six (6) month period, a different notice should be sent which does not include the language regarding opportunity to cure.

(b) If a hearing is to be held before a committee, the notice prescribed by Section 209.006 must state that the owner has the right to appeal the committee's decision to the board by written notice to the board.

DISCUSSION: It is our view that all such hearings should be conducted by the Board of Directors without any referral to or appointment of a committee.

(c) The association shall hold a hearing under this section not later that the 30th day after the date the board receives the owner's request for a hearing and shall notify the owner of the date, time, and place of the hearing not later than the 10th day before the date of the hearing. The board or the owner may request a postponement, and, if requested, a postponement shall be granted for a period of not more than 10 days. Additional postponements may be granted by agreement of the parties. The owner or the association may make an audio recording of the meeting.

DISCUSSION: This section makes the hearing mandatory within the 30th day after the date the board receives the owners written request for a hearing. It is the obligation of the board to notify the owner of the time, place and date of the hearing no later than the 10th day before the date of the hearing. Either party may make an audio recording 'of the meeting.

It is recommended that all such meetings be recorded by the Association. It should also be noted that one ten (10) day postponement is mandatory if an owner so requests. It is not subject to Association discretion. If such a ten (10) day postponement is requested, it is recommended that a new notice of the new date, time and place of the meeting be sent to the owner.

(d) The notice and hearing provisions of Section 209.006 and this section do not apply if the association files a suit seeking a temporary restraining order or temporary injunctive relief or files a suit that includes foreclosure as a cause of action. If a suit is filed relating to a mater to which those sections apply, a party to the suit may file a motion to compel mediation. The notice and hearing provisions of Section 209.006 and this section do not apply to a temporary suspension of a person's rights to use common areas if the temporary suspension is the result of a violation that occurred in a common area and involved a significant aid immediate risk of harm to others in the subdivision. The temporary suspension is effective until the board makes a final determination on the suspension action after following the procedures prescribed by this section

DISCUSSION: This section exempts any suit seeking a temporary restraining order, temporary injunction or suit that includes foreclosure as a cause of action from the requirements of section 209.006 and 209.007. If suit is filed which otherwise would be subject to the provisions of 209.006 and 209.007, either plaintiff or defendant may file a motion to compel mediation.

The critical language, in our view, is that in italics above. In short, by filing a standard suit for a permanent injunction that also includes a claim for foreclosure under 204.010 of the Property Code (only available in Harris County), whether or not it includes any claim for temporary injunction or temporary restraining order, one can avoid the need to comply with the provisions of 209.006 and 209.007. The remainder of the provision deals with temporary suspensions of right to use common areas which are generally self explanatory.

(e) An owner or property owners association may use alternative dispute resolution services.

DISCUSSION: This is self-explanatory and does nothing to change the current state of the law.

SECTION 209.008. ATTORNEY'S FEES

(a) A property owners' association may collect reimbursement of reasonable attorney's fees and other reasonable costs incurred by the association relating to collecting amounts, including damages, due the association for enforcing restrictions or the bylaws or rules of the association only if the owner is provided a written notice that attorney's fees and costs will be charged to the owner if the delinquency or violation continues after a date certain.

DISCUSSION: This provision requires that an association provide to an owner advance written notice that attorney's fees and/or costs will be charged to an owners account in the event a violation is not cured or a charge paid (including any fine) by a date certain. This notice regarding attorney's fees should be on each and every notice, invoice or statement sent to an owner.

In our view, a "date certain" does not mean language referencing a date after which a period of time expires. A date certain here should mean an actual calendar day of the year so as to avoid any argument about the meaning of "date certain".

(b) An owner is not liable for attorney's fees incurred by the association relating to a matter described by the notice under Section 209.006 if the attorney's fees are incurred before the conclusion of the hearing under Section 209.007 or, if the owner does not request a hearing under that section, before the date by which the owner must request a hearing. The owner's presence is not required to hold a hearing under Section 209.007.

DISCUSSION: Notwithstanding compliance with 209.008(a) immediately above regarding a date certain, an association is prohibited from seeking to collect or collecting attorney's fees and/or costs from an owner which are incurred at any time prior to the conclusion of the hearing required under 209.007 or, if no such hearing is requested by the owner, before the date by which the owner must request such a hearing. [Not later than the 30th day after the date the owner receives the notice.] That means that at least 30 days should be allowed to pass before referring any matter for handling to an Association attorney. Moreover, in the event a hearing is requested by an owner, the board must conduct the hearing whether the owner is present or not.

(c) All attorney's fees, costs, and other amounts collected from an owner shall be deposited into an account maintained at a financial institution in the name of the association or its managing agent. Only members of the association's board or its managing agent or employees of its managing agent may be signatories on the account.

DISCUSSION: Any and all monies received from an owner must now be deposited directly into an association account not into an attorney's trust account. As such, with any so called "deferred fee" or similar type arrangement wherein the law firm would collect the money, handle the accounting and make disbursements, these tasks will now revert to the obligation of the association/management company.

(d) On written request from the owner, the association shall provide copies for attorney's fees and other costs relating only to the matter for association seeks reimbursement of fees and costs.

DISCUSSION: No longer may an association withhold attorney's fees invoices under any argument of privilege, work product or any other legal theory without running afoul of this provision. Although the statute is silent on this point, in our opinion, in the event the invoice contains information subject to the attorney client privilege, that invoice may be redacted, wherein the privileged information is blacked out and not legible but the invoice itself would still be provided to the requesting owner..

(e) The notice provisions of Subsection (a) do not apply to a counterclaim of an association in a lawsuit brought against the association by a property owner.

DISCUSSION: This provision makes clear that if the association is merely filing a counterclaim in a suit wherein it is already a named defendant, it does not have to comply with the advance notice of its intent to charge back fees and costs against an owners account.

(f) If the dedicatory instrument or restrictions of an association allow for nonjudicial foreclosure, the amount of attorney's fees that a property owners' association may include in a nonjudicial foreclosure sale for an indebtedness covered by a property owners' association's assessment lien is limited to the greater of:

(1) one-third of the amount of all actual costs and assessments, excluding attorney's fees, plus interest and court costs, if those amounts are permitted to be included by law or by the restrictive covenants governing the property; or

(2) $2,500.

DISCUSSION: This provision applies only to nonjudicial foreclosure actions wherein no lawsuit will be filed. It further limits the amount of attorney's fees which may be included in such an action to the greater of one-third of the balance due excluding attorney's fees or $2,500.00.

(g) Subsection (f) does not prevent a property owners' association from recovering or collecting attorney's fees in excess of the amounts prescribed by Subsection (1) by other means provided by law.

DISCUSSION: In the event attorney's fees in a nonjudicial foreclosure exceeded $2,500.00 or one- third of the balance due whichever is greater, the association may still maintain an action at law to collect the remaining amounts due. Such an action could take the form of a suit in Justice Court establishing personal liability of the owner, a suit in a Court of competent jurisdiction seeking to foreclosure an assessment lien in the event that the lien was not foreclosed upon in the underlying nonjudicial matter or, in the event that a foreclosure was delayed by virtue of an owners' filing of a suit for a TRO or temporary injunction, a counterclaim could be filed by the association wherein the additional fees could be sought.

SECTION 209.009. FORECLOSURE SALE PROHIBITED IN CERTAIN CIRCUMSTANCES

Pursuant to Section 209.009, a property owners association can no longer foreclose its lien if the debt which the association is attempting to collect consists solely of fines assessed by the association or attorney's fees incurred by the association which result from work done for the association in relation to fines assessed by the association. There is no definition of fines in the Act; however, it is believed that fines are those monetary penalties established by the Board of Directors of the association and which the Board of Directors of the association assesses against owners for violation of the deed restrictions, by-laws, and rules and regulations. It is our opinion that fines do not include regular or special assessments. It also appears that an association may foreclose if the debt consists of fines and attorney's fees associated with fines. We recommend that the Association not foreclose in such a case.

SECTION 209.010. NOTICE AFTER FORECLOSURE SALE

Pursuant to Section 209.0 10, if an association forecloses its lien on a lot in the subdivision either through a private power of sale set out in the deed restrictions or through judicial foreclosure pursuant to a court order, the association must send written notice to the lot owner of the date and time the sale took place and informing the lot owner that he has a right to redeem the property pursuant to the terms of Section 209.011. We recommend that the notice include the name and address of the purchaser although not required. The notice must be:

(a) sent not later than the 30th day after the date of the foreclosure sale; and

(b) sent by certified mail, return receipt requested to the lot owner at the last known mailing address as reflected in the records of the association. We recommend the notice be sent regular mail also.

The association must also record an affidavit in the real property records of the county in which the lot is located not later than the 30th day after the date the association sends notice of the foreclosure sale to the lot owner. The affidavit must state the date on which the notice was sent to the lot owner and must contain a legal description of the lot. Any person may rely on the information contained in the affidavit recorded in the Real Property Records of the county in which the lot is located.

There is no specification in the Act as to how the association is to send the notice of the foreclosure sale to the lot owner or prepare and record the affidavit in the Real Property Records of the county in which the lot is located. It is our opinion that these documents should be prepared by the association's attorney and can be executed and/or recorded by an officer or director of the association, the association's managing agent, or the association's attorney.

SECTION 209.011. RIGHT OF REDEMPTION AFTER FORECLOSURE

(a) An association or third party who purchases occupied property must commence and prosecute a Forcible Entry and Detainer action in order to obtain possession of the property.

NOTICE
(b) The foreclosed owner may redeem the property not later than the l 80th day after the date Association mails written notice of the sale to the foreclosed owner pursuant to Section 209.0 10. (However, if the redeeming owner sends a written request to redeem the property pursuant to Section 209.011(m) on or before the last day of the redemption period, the right of redemption is extended until the 10th day after the association and the third party purchaser provide written notice to the redeeming owner of the amounts that must be paid in order to redeem the property.)

[209.0 10 written notice sent certified mail, return receipt requested (We recommend a copy by regular mail, as well) to the foreclosed owner's last known mailing address as reflected in the association's records stating:

* the date and time of sale and

* informing the foreclosed owner of his/her right to redeem the property under Section 209.011]

(c) An association or third party who purchases the property may NOT transfer ownership to any person other than the foreclosed owner during the redemption period (the 180 days following the issuance of written notice to the foreclosed owner pursuant to Section 209.010).

(d) If the property was purchased by an association, to redeem a foreclosed property, the foreclosed owner MUST pay the association:

(1) all amounts due to the association at time of foreclosure;

(2) interest calculated from date of foreclosure on all amounts owed the association at the rate specified in the dedicatory instruments for delinquent assessments, or ten (10) percent per annum if not otherwise specified in the dedicatory instruments;

(3) costs incurred by the association in connection with the foreclosure and in conveying the property back to the foreclosed owner, including attorney's fees;

(4) any assessment(s) levied against the property subsequent to the foreclosure;

(5) any reasonable costs incurred by the association (i.e., mortgage payment, repairs, maintenance, leasing expenses); and

(7) the purchase price paid by the association at foreclosure less the amount bid by the association at foreclosure

COMMENT: It is unclear what the intent of this provision is; however, if the association purchases the property for an amount in excess of the judgment amount, it may result in a payment to the redeeming owner of more than that difference between the amount paid at foreclosure and the judgment.

(e) If the property was purchased by a third party, to redeem the foreclosed property the foreclosed owner:

(1) MUST pay the association:

(A) all amounts due to the association at the time of foreclosure less the amount paid by the purchaser at the foreclosure sale;

(B) interest calculated from date of the foreclosure through the date of redemption on all amounts owed the association at the rate specified in the dedicatory instruments for delinquent assessments, or ten (10) percent per annum if not otherwise specified in the dedicatory instruments;

(C) costs incurred by the association in connection with the foreclosure and in conveying property back to the redeeming/foreclosed owner, including reasonable attorney's fees;

(D) any unpaid assessments levied against the property by the association after the date of foreclosure; and

(E) taxable costs incurred by the association in the Forcible Entry and Detainer action.

COMMENT: It is our opinion that this is clearly a misnomer. If a third party is the purchaser at the foreclosure sale, there would be no Forcible Entry and Detainer action filed by the association.

And

(2) MUST pay to person who purchased property:

(A) any assessment(s) levied against the property after the foreclosure sale and paid by the purchaser;

(B) the purchase price paid by that person/entity;

(C) the filing fee for Trustee's/Agent's Deed;

(D) the amount paid by the purchaser for ad valorem taxes, penalties and interest on the property after the date of foreclosure; and

(E) taxable costs incurred by third party in Forcible Entry and Detainer action.

DEED
(f) If the foreclosed owner redeems the property, purchaser (association or third party) SHALL immediately execute and deliver to the redeeming/foreclosed owner a deed transferring property to the redeeming/foreclosed owner. If the purchaser fails to do so, the redeeming/foreclosed owner may file a cause of action against the purchaser and may recover reasonable attorney's fees if the redeeming/foreclosed owner prevails in such action.

(g) If the redeeming owner fails to record the deed transferring property to the redeeming/foreclosed owner before the expiration of the redemption period, the redeeming owner's right of redemption against a bona fide purchaser or lender for value expires after the redemption period. (A bona fide purchaser is one who has purchased property for valuable consideration, in good faith, and without notice of outstanding rights of other parties.)

(h) The purchaser (association or third party) or person to whom the purchaser transferred title after the expiration of the redemption period may presume that the foreclosed owner did not redeem the property unless the foreclosed owner files in the real property records where property is located:

(1) a deed from purchaser; or

(2) an affidavit that:

(A) states that the foreclosed owner has redeemed the property; and

(B) contains a legal description of the property.

(i) If the property was purchased by an association, all rent and other income collected by the association after the date of the foreclosure and up to the date of redemption SHALL be credited toward the amount to be paid by the redeeming/foreclosed owner under Section 209.011(d) and any excess income shall be refunded to the foreclosed owner.

If a thirty party purchased property, all rent and other income collected by the third party after the date of the foreclosure and up to the date of redemption SHALL be credited toward the amount owed to third party purchaser under Section 209.011(e) and any excess income shall be refunded to the foreclosed owner.

AFFIDAVIT
(j) If a third party is the purchaser, BEFORE executing the deed transferring the property to the redeeming owner, the third party SHALL obtain from the association or its authorized agent an affidavit stating that all amounts owed to the association have been paid.

The association SHALL provide the third party purchaser such affidavit not later than the 10th day after the association receives all amounts owed to the association under Section 209.011(e).

Failure of the third party purchaser to comply with this provision does not affect the validity of redemption by the redeeming owner.

(k) The redeemed property remains subject to all liens and encumbrances which existed prior to foreclosure.

Any lease negotiated by the purchaser (association or third party) is subject to right of redemption and the redeeming/foreclosed owner's right to reoccupy property immediately after redemption.

(1) If the redeeming owner makes partial payment of amounts due the association at any time prior to expiration of the redemption period but fails to pay ALL amounts necessary to redeem the property before the expiration of the redemption period, the association SHALL refund the partial payment(s) to the foreclosed owner's last known address as reflected in the association's records no later than the 30th day after expiration of the redemption period.

(m) If the foreclosed owner sends written request via certified mail, return receipt requested, to redeem the property on or before the last day of the redemption period, the foreclosed owner's right of redemption is extended until the 10th day after the date the association or third party purchaser provides written notice to the foreclosed owner of amounts due in order to redeem property. [This could extend the expiration of the redemption period to 220 days after the foreclosure sale date (30 days + 180 days + 10 days + whatever period of time is required for the association and third party purchaser to provide written notice to the redeeming owner as to the amount that must be paid by the redeeming owner to redeem the foreclosed property).]

AFFIDAVIT
(n) After the redemption period and any extension thereof, the association or third party SHALL record an affidavit in the real property records in the county 'where the property is located stating that the foreclosed owner did NOT redeem the property during the redemption period and any extended redemption period.

AFFIDAVIT
(o) the purchaser (the association or third party) MAY file an affidavit in the real property records where property is located stating:

(1) the date the citation was served in the Forcible Entry and Detainer action and

(2) the legal description of property.

Any person may rely conclusively on information contained in affidavit.

(p) Rights of the foreclosed owner apply whether the foreclosure sale is conducted by an association or by a constable or a sheriff pursuant to a judgment obtained by an association authorizing foreclosure of an association's lien.