Allegations of abusive tactics by homeowners associations against property owners has resulted in a bill in Texas that pits property rights advocates against real estate developers.
The Texas House Committee on Business and Industry recently heard testimony on HB 366, which deals with the priority of the debts incurred by homeowners in relation to delinquent payment of homeowners association dues and fines.
Supporters of the legislation contend that homeowners association powers are repeatedly abused and the threat of foreclosure is used as a hammer to force homeowners to pay dues and fines.
‘Will Stop False Delinquency’
“This is a step in making some real reform with homeowners associations. It will keep homeowners associations from using accounting gimmicks and creating a false delinquency in order to threaten home owners with a foreclosure,” said State Representative Rob Orr (R-Burleson).
The legislation continues to be a point of contention between property rights advocates and real estate developers.
Witnesses testified to an unlevel playing field in favor of associations. They cited examples where payment options create a cycle of debt that ultimately costs owners their homes.
However, representatives of homeowners associations asserted that owners may choose to live in neighborhoods without restrictions, thus the associations should be permitted to enforce their contracts.
Sets Order of Payment
Both the House and Senate versions of the bill specify that assessments would be paid first in order to reduce the underlying debt. After that debt is settled, the homeowners associations’ attorney fees and any other liability that could trigger foreclosure would be paid. Finally, the fines and fees unrelated to the assessments or foreclosures would be settled before any other outstanding debt.
Currently, payments are generally applied to attorney fees first. Thus the threat of foreclosure remains even though some payment by the owner has been made. By statutorily mandating that payments must be applied to underlying debt that could trigger a foreclosure before going to attorney fees or other items, the bills aim to reduce the threat of foreclosure when payments have been made.
Julie Drenner ([email protected]) is director of the Austin, Texas office of The Heartland Institute’s Center on Finance, Insurance, and Real Estate.
