By Eric Tonsul

The state of Texas has been growing rapidly over the last several years. Millions of new people have moved to the State bringing with them new opportunities via new industry or expansion in existing industries, and the property owners association (POA) industry is no exception. New community managers and board members are needed to represent the variety of communities being built across Texas to accommodate our State’s new residents. To each of you that has recently joined the POA industry or the great state of Texas to fill one of these roles, we say welcome! The industry is full of rewarding opportunities, but there are nuances in Texas law that can cause, even experienced Texas community managers and board members, headaches for days. Throughout this year, you will note in our education programing a focus on those that may be new to the POA industry and/or industry professionals that may be new to Texas.  In this article, we want to shed light on some of those nuances as it relates to the collection of delinquent assessments and help get your career in the Texas POA world off on the right foot.

The Non-Profit Corporation

In Texas, almost all POAs are non-profit corporations bound by Chapter 22 of the Texas Business Organizations Code. The POA relies on the payment of assessments for the various duties and obligations it must perform to serve its owners and residents. When assessments are not paid, or collection action is not consistently performed, the POA’s operating funds decrease which, in turn, either forces the POA to draw from its reserve, which creates its own set of issues, or it begins reducing services it is obligated to provide. This can then create a domino effect where services continue to deteriorate and more owners refuse to pay due to the lack of services received for the assessments paid. To avoid a situation like this from occurring, the POA needs to be consistent in its collection practices. The rules governing these practices are generally set forth in the Texas Property Code.

Texas Property Code

When referencing the Texas Property Code, you will need to know what type of community you represent to find the correct chapter in the Property Code governing your community.

If you are in a Single-Family and Townhome community with mandatory membership and mandatory assessments[1], you will reference:

• Chapter 202
• Chapter 209

If you are in a Condominium community, you will reference:

• Chapter 202
• Chapter 81 Declaration recorded prior to January 1, 1994)
• Chapter 82 (Declaration recorded on or after January 1, 1994)

Our firm has compiled the most important sections of the Property Code in easy to follow guides for both Single-Family and Townhome and Condominium communities that are available on our website. To help you better understand the pre-attorney collections process, we are going to highlight a few of the provisions in the Property Code related to the collection of delinquent assessments and breakdown the necessary requirements a manager and/or board must follow during the collections process.

This article will primarily focus on the collections process for Chapter 209 communities. If you represent a condominium community governed by Chapters 81 or 82 of the Texas Property Code, Chapter 209 provisions will not apply. Please reference Sec. 82.102(a)(2) and (12) for the powers of the association on the collection of assessments for condominium communities, as well as the association’s declaration and collection policy.

The Collections Process

In order to avoid allegations of arbitrary and capricious enforcement of the POA’s policies, managers and board members need to be diligent in their processes.

Due Diligence Procedures

The due diligence process should begin by sending a letter to the delinquent homeowner as required by the POA’s dedicatory instruments, such as a Collection Policy.  The final collection letter to be sent by a POA prior to turning over an account to the POA’s legal counsel is a letter that complies with  Sec. 209.0064 of the Texas Property Code[2]. Sec. 209.0064(b) states a POA may not hold an owner liable for fees of a “collection agent,” a debt collector as defined by the federal Fair Debt Collection Practices Act (15 U.S.C. Section 1692a), unless the association first provides written notice to the owner by certified mail that:

• Specifies each delinquent amount and the total amount of the payment required to make the account current;
• If the association is subject to Section 209.0062 or the association’s dedicatory instruments contain a requirement to offer a payment plan, describes the options the owner has to avoid having the account turned over to a collection agent, including information regarding availability of a payment plan through the association; and
• Provides a period of at least 30 days for the owner to cure the delinquency before further collection action is taken.

Sec. 209.0064(c) goes on to state a owner is not liable for fees of a collection agent retained by the POA if:

• The obligation for payment by the association to the association’s collection agent for the fees or costs associated with a collection action is in any way dependent or contingent on amounts recovered; or
• the payment agreement between the association and the association’s collection agent does not require payment by the association of all fees to a collection agent for the action undertaken by the collection agent.

As a part of your due diligence procedures, it is important to remember to follow the collection policy of the association. The policy will help guide you through the procedures and ensure you treat every matter in the same manner.  The association or its agent should also maintain a standard template for its letters.

What Should the Letter Look Like?

In addition to the requirements from the Texas Property Code, the 209 collection letter should be broken down as follows:

• Itemization

Include all amounts due in owing to the association

• Payment plan options (covered in detail below)
• Period to cure (30 days)
  • As we detailed above, the date by which the delinquency is required to be cured before further action from the association begins should be clearly listed.
• Common area usage suspension
  • Include language stating the homeowner’s common area usage will be suspended if the delinquency is not cured, or a payment plan is not entered into
• Military notice (50 U.S.C App. Section 501 et seq is strongly recommended)

Payment Plans

We have seen numerous examples in the last year and at many other points that life situations can sometimes change drastically, and a homeowner’s financial ability may not be as sound as it had previously been. For situations like these, the Texas Property Code has established Sec. 209.0062. This section requires POAs of more than fourteen (14) lots to adopt partial payment plan schedules to allow an owner to make partial payments to the POA of delinquent regular assessments or special assessments without accruing additional monetary penalties. POAs may include reasonable costs associated with administering the payment plan or interest.

As set by the statute, the minimum term for the payment plan offered by the POA is three (3) months. A POA is not required to allow a payment plan to extend for more than eighteen (18) months past the date the owner initially requested the payment plan. Other facets of payment plans that POAs are not required to do as outlined by Sec. 209.0062 include: 1) entering into a payment plan with an owner who failed to honor the terms of a previous payment plan during the two (2) year’s following the owner’s default of a previous payment plan, 2) make a payment plan available to an owner after the period for cure has detailed in the 209 collection letter has expired, or 3) allow an owner to enter into a payment plan more than once in any twelve (12) month period.

When entering into a payment plan with an owner, the POA cannot arbitrarily decide how the money will be applied to the owner’s account. Sec. 209.0063 of the Texas Property Code lays out how payments are to be applied if received by the POA. According to statute, the payment shall be applied in the following order of priority:

• Delinquent assessments;
• Current assessments;
• Any third-party collection costs or attorney’s fees associated with the collection;
• Other attorney’s fees;
• Fines assessed;
• Other amounts owed to the association

This statute also states POAs are not required to apply payments in this order if the owner becomes delinquent under an alternative payment schedule; however, fines can never be given priority.

The collection of delinquent assessments is a serious matter, and all managers and board members should treat it with great care. It is important to adhere to the policies of the POA to ensure all homeowners are treated equally in the collections process while also remaining sympathetic to the possibility of unforeseen circumstances bringing unexpected financial hardships at any time. By remaining sympathetic, you can go a long way to ensuring the long-term obligations of all owners to the POA are met for years to come.

[1] Regarding the applicability of Chapter 209

[2]  Sec. 209.0064 does not apply to condominium associations