One Part "Sigh of Relief" Mixed with One Part "Caution Ahead"

That's what you call the recipe for the Texas 2009 Legislative (regular) Session (although the folks who tracked, lobbied and arm-wrestled with State senators and reps over the record number of POA-legislation might invoke some more colorful metaphors to describe this session!).

Even though the vast majority of Property Owners Association-related legislation died on the floor of either chamber, or languished in sub-committees to be dusted off in another two years, this session was anything but ordinary. Of course, for those of us with vested interests in maintaining the sanctity of the Texas Property Code chapter 201, et. seq. relating to POA powers and governance, which should include all proponents of POAs, Boards of Directors, attorneys and the like, the conclusion of the legislative session was a welcomed sigh of relief.

However, the session did produce some new laws that POAs still need to be wary of, lest they let down their guards in the wake of the twin Property-Code-omnibus bills' failure to complete the legislative gauntlet. These comprehensive bills will be back, you can bet on that. One law in particular that I want to focus on is exactly one of those "housekeeping" type laws that could catch many unsuspecting POAs napping (and be costly in the form of lost assessment collections). Read on.

Senate Bill 1919 ("SB 1919"), relates to that most mundane of Association documents, the Management Certificate. SB 1919 modifies Section 209.004 of the Texas Property Code to add some "biteback" against those Associations that fail to file a proper Management Certificate in each county where a portion of the subdivision is located. The Management Certificate must list certain items of data, including the subdivision's name, the association's name, recording data for the subdivision and association dedicatory instruments, the name and mailing address of the association as well as its manager or other designated representative. See Tex. Prop. Code Ann. § 209.004(a) (2009).

Now under SB 1919, if a POA fails to file a Management Certificate, Section 209.004(d) states that "the purchaser, lender, or title insurance company or its agent in a transaction involving property in the property owners' association is not liable to the property owners' association for ... any amount due to the association on the date of a transfer to a bona fide purchaser, and any debt to or claim of the association that accrued before the date of a transfer to a bona fide purchaser" (emphasis added). Moreover, Section 209.004(e) states that the lien securing any amounts due on the date of transfer to a bona fide purchaser are enforceable only to the extent that amounts accrue AFTER the effective date of sale. OUCH.

Why such harsh legislation? It may have something to do with NOTICE and the logic makes sense. A Management Certificate is, after all, just another way of letting people know that a particular subdivision is deed-restricted, governed by a POA, and subject to terms and provisions contained within whatever dedicatory instruments are on file with the county of residence. In addition, these certificates provide a point of contact for those prospective and current homeowners who always whine that "they cannot contact their POAs" whenever issues of delinquent maintenance assessments and/or deed-restriction enforcement surface.

So is this new law, SB 1919, a procedural pitfall? You betcha. Ignore it at your own peril if you are a POA (or its Board of Directors, manager, agent or attorney). The ramification of non-compliance means that past-due indebtedness is effectively "wiped out" when a delinquent homeowner sells its property to a third-party buyer if that management certificate isn't on file with the county. But, when you look at the costs of compliance with SB 1919, e.g. creating and filing that darn management certificate, then the reasons for not doing so are NIL. Even if you have an attorney draft and file this (usually) 1-page document, you are only looking at a few hundred bucks versus thousands of dollars potentially lost in past-due assessments and collections costs. So the decision becomes a simple one when you look at the dollars-and-cents exposure to the POA.

*Special thanks goes out to Sharon Reuler, who maintained constant vigil over this year's legislative session and provided many timely updates and bill interpretations/amendments, as well as insight into the effects of these bills on POAs across the State. Ms. Reuler practices in Dallas, Texas and can be reached at www.txlandlaw.com. Kudos, Ms. Reuler!