POAs get scrutinized in 2013 Texas Legislative Session

Controversy and criticism of one group often spills over and affects the interests of others. This is TANO’s concern, as yet another legislative session featured bills, hearings and unpleasant media coverage regarding the operations of the thousands of Texas property owner associations (POAs), also called home owner associations (HOAs), and condominium owner associations (COAs). Hundreds of thousands of Texans pay monthly fees to these nonprofit community associations as a condition of their ownership of a residential property. The POAs are not IRS Section 501(c)(3) charitable nonprofits but are organized under the same Texas Nonprofit Corporation Law as charities but with different IRS tax-exempt status, usually Section 501(c)(4).

The Austin Business Journal reports that there are 25,000 or more such nonprofit associations in Texas, directly affecting as many as 5 million Texas residents. This network of nonprofits and their managers is represented nationally by the Community Associations Institute. The CAI monitors legislation and regulatory developments in all states, and seeks to retain the associations’ right to collect monthly owner assessments in a timely manner and to increase the flexibility of associations to operate and borrow money within federal and state regulations. The CAI reports that ten states currently have licensing or professional requirements for association managers (Texas has none).

There were a score of POA-specific bills pending in this legislative session, with many others affecting COAs and timeshare associations. Of most concern was HB 3803, which was the subject of a lively hearing on April 8 before the House Business and Industry Committee. This bill and others were the result of many complaints from property owners about the community governance by POAs, arbitrary regulations, rising monthly fees, unaccountability of POA boards and their hired administrators, cases of actual theft and fraud, and a lack of legal recourse to resolve disputes.

Many large POAs cover thousands of residential units and perform quasi-governmental functions such as neighborhood maintenance, refuse collection, recreation facilities, traffic control and issues related directly to the residential units themselves. Most serious is the legal power of an association to foreclose on a residential unit when a lien for unpaid assessments has been properly filed and perfected.

HB 3803 drew attention in that it proposed new regulatory and legal mandates that would be imposed on POAs. These include: detailed directives regarding governance by POA boards beyond that found in the Texas Nonprofit Corporation Law; specifics regarding members’ access to books and records of boards and management companies hired by them; mandatory insurance and fidelity bonding related to the service of volunteer board members; direct regulatory oversight of POAs by the Texas Attorney General’s Office; AG-imposed civil penalties up to $20,000 against individual wrongdoers (up to $250,000 in some instances); and new city and county registration and regulation of POAs. The bill did not advance past the House committee deliberations.

The scale of nonprofit POA operations in Texas and their direct effect on the lives of so many citizens means these issues will remain active. As is often the case, the role of well-intentioned volunteers who serve on the boards and committees of POAs is drawn into question, and burdensome or threatening government regulations will likely discourage their participation. Controversies regarding charitable nonprofits often boil down to issues of governance best practices, transparency, accountability, compliance with the law, and sound fiscal management of the funds of others. It’s no different with the thousands of local owners’ associations operating in Texas.

These POAs and COAs are the first cousins of nonprofit charitable organizations. If some or all of HB 3803-type proposals are adopted and become mandatory for Texas POAs, it is not unreasonable to speculate that this could be a template also to regulate all Texas nonprofit organizations in the future. The problems identified by POA residents and critics might beg for a legislative solution, and these discussions could have unintended consequences for Section 501(c)(3) organizations in Texas.

By Richard Meyer