The continued growth of property owners associations (POA) and further state statutes allowing for action from both the association and the homeowners is leading to increased legal action in the courts from both parties. It has now become almost inevitable that a POA will be involved in a lawsuit either as the plaintiff or defendant. No matter which side of a lawsuit the POA falls on, there are steps the POA will have to take to ensure that it is prepared for every phase of the legal process ahead.
Lawsuit Against the POA
In the event a lawsuit is filed against the POA, the POA should work with their general counsel, community manager and insurance professional to determine if one of the POA’s insurance policies or a vendor’s policy (should the circumstances arise that a vendor becomes involved) will indemnify the POA during the lawsuit. Depending on the particulars of the lawsuit, this may be covered by the POA’s general liability, directors and officers, employer liability, or other policy or multiples of these policies. If a vendor is also involved in the lawsuit, the vendor’s policies may take precedent over the POA’s and provide further indemnity for the POA.
After determining the applicability of the insurance policies, the POA should begin working with their legal counsel. If a claim is filed using the POA’s insurance policy(s), the insurance carrier will assign an attorney to the matter (assuming the claim is picked up by the carrier). Depending on the carrier, the POA may request to continue using the POA’s general counsel if that law firm is not assigned to the case. The attorney will assist in guiding the POA on the best approach to the lawsuit.
A helpful tip to remember, no matter what the lawsuit involves, once it is filed, all communication between parties should go through each party’s attorney. A board member communicating with a party involved against the POA could place the POA and individual board member’s indemnification at risk, in addition to potentially having a detrimental impact on the POA’s case.
Lawsuits involving vendors or association amenities, such as the pool, playground, landscaping and maintenance can be more complicated. These lawsuits will often involve lengthy depositions from POA staff, board members and other concerned parties. Following the guidance of the POA’s legal counsel is crucial during these steps. The attorney will advise board members and POA staff that are called to give testimony on the best approach to take to potential questions that are asked during discovery. It is the attorney’s responsibility to advise the POA and Board regarding these legal issues during the pendency of the lawsuit with the goal of obtaining the most favorable outcome possible given the facts and legal issues that are pertinent to the suit.
Lawsuit Filed by the POA
The POA has a responsibility to each of its members to ensure that all members of the POA contribute to the POA on an equal basis and follow the regulations set forth in the governing documents. POAs do this through the enforcement of reasonable collection and deed restriction violation procedures. An action of last resort for the POA in each process is the option to file a lawsuit against a homeowner.
Deed Restriction Violations
For deed restriction violations, a single-family POA must follow the requirements of Sec. 209.006 of the Texas Property Code, which requires notice of violation be sent to the owner via certified mail and Sec. 209.007, which gives the owner the opportunity to have a hearing before the Board. Sec. 209.006 and Sec. 209.007 do not apply for POAs filing a lawsuit for a temporary restraining order (TRO) or temporary injunctive relief. A situation where this may arise is a homeowner beginning unapproved construction on their lot.
Once the POA proceeds with the notice process, and if the violation is not remedied, the POA may choose to file a lawsuit for the violation. The POA should work with its legal counsel to compile the relevant governing documents, notice of violations and communications with the owner to for evidentiary purposes during the litigation process. All communication moving forward with the owner should be initiated by the parties’ attorneys.
Collections
For both single-family and condominium POAs, the right to collect delinquent assessments is granted by Chapter 209 (single-family) and Chapters 81 and 82 (condominium) of the Texas Property Code.
There are numerous sections within each of these chapters that govern the collection process. There is also the federal Fair Debt Collection Practices Act (FDCPA) that was recently amended by adding Regulation F, which brought drastic changes to the collections practice. When making the decision to pursue a lawsuit for the collection of delinquent assessments, the POA will want to consult with its manager and legal counsel to ensure the process of every legal statute has been followed correctly.
Once it has been determined the legal parameters have been met to move forward with the lawsuit, much like a lawsuit for deed restriction violations, the POA should work with its attorney to compile the relevant governing documents, collections policies and communications, and all communication moving forward should only be conducted by the POA’s attorney.
Lawsuits are complicated legal processes that no POA should take lightly. Between legal and procedural matters, it is important for POAs to consult closely with their legal counsel through every step of the process. As lawsuits by and against POAs continue to rise, it is also important for POAs to have strong and clear collection and deed restriction policies. These policies can assist and protect the POA in the event of a lawsuit. The POA should also ensure it has the proper insurance policies in place that can indemnify the POA in the event of a lawsuit. By working with knowledgeable subject matter experts across the legal, insurance and community management fields the POA will be better prepared for any lawsuit that may come its way.
