Assessments form the financial lifeblood of a property owners association (“POA”). In the event that an owner does not pay their assessments, the results can be detrimental to the long-term health of the POA. Therefore, it is important for POAs to begin the collection process in a timely manner. If a board chooses to wait, the consequences could affect many aspects of the day-to-day operations of the POA.
Importance of Assessments
There are many misconceptions on how assessments are charged and applied. Whether the assessment is monthly, quarterly, or annually, the assessment funds the operations of the POA that benefit each homeowner. Items funded by the assessment vary from POA to POA, but for most include:
- Landscaping
- Common area maintenance
- Insurance
- Reserve funding
The assessments in some communities may go towards items such as trash pickup, water/sewer, cable/internet, electricity, or special amenities within the community.
Statute of Limitations
Should an owner fail to pay their assessment, it is important that board members and community managers know there is only a limited amount of time to pursue action against the owner. This time period is known as the “statute of limitations” (SOL).
Per Texas law, the SOL for initiating a lawsuit to collect delinquent assessments is four years. In other words, a POA must file a lawsuit no later than four years after the date an assessment (or other charge) came due. If a lawsuit to collect a delinquent assessment (or other charge) is filed after the SOL date, the owner can assert the SOL as a defense to the lawsuit and, if the charge being sought is more than four years old, the POA will not be successful in collecting the amount due.
As an example, if the POA’s 2026 assessment is due on January 1, 2026, the POA must file a lawsuit to collect the delinquent 2026 assessment no later than December 31, 2029. Filing a lien or sending a demand letter does not extend the SOL. The lawsuit must be filed prior to the SOL date. If the lawsuit is filed near the SOL date, the Association must actively pursue service of the lawsuit on the delinquent owner as soon as possible, or the POA will still run the risk of the owner asserting a successful SOL defense.
All POAs (and all community managers) should keep an eye on the oldest delinquency on an owner’s account in order to avoid an SOL issue. As most POA’s pre-litigation collection process takes three to four months at a minimum, it is important for a POA to be aware of accounts with possible SOL issues.
If an owner with a possible SOL issue enters into a payment plan agreement with the POA, the POA should discuss any option it has with the POA’s attorney to determine if the terms of the payment plan can include the owner waving the SOL defense in the event the owner defaults on the payment plan.
Having said the above, it is important to note that any period for which the owner is in bankruptcy will “toll” the statute of limitations for the period in which the owner was in an active bankruptcy. If your POA faces this situation, or if you believe that this may be a factor in determining the SOL date, you should consult with your attorney.
Why Collections Should Not Wait
The obligation to pay assessments is an obligation each owner voluntarily takes on when they purchase property in a restricted community in which assessments are levied per the governing documents. An owner’s failure to pay required assessments puts the burden on other owners to make up for the shortfall. One of the primary functions of the POA, acting through its Board of Directors, is to ensure that assessments and related charges are collected.
For these reasons, it is important that POAs do not wait to begin collection actions. Along with the risk of facing an SOL issue, POAs with a large percentage of delinquent owners run the risk of operating in the red or, in extreme situations, becoming financially insolvent.
Should that happen, the POA would be unable to contribute to reserves, pay for maintenance on common areas, and/or enforce the restrictions – all of which could result in decreasing property values throughout the community.
When the POA begins the collection process, it is important for POAs to consult with their legal counsel. The collection process in Texas is nuanced, and violations run the risk of the POA being unable to collect assessments and/or attorney’s fees incurred by the POA in collecting the delinquent amounts.
