HOA Accountability Bill Stirs Debate at Capitol

Representatives Mike Villarreal (l), D-San Antonio, Ruth Jones McClendon (c), D-San Antonio, and Sylvester Turner, D-Houston, criticize Republican Senators and Gov. Rick Perry for an inadequate effort on April 28, 2011.
Representatives Mike Villarreal (l), D-San Antonio, Ruth Jones McClendon (c), D-San Antonio, and Sylvester Turner, D-Houston, criticize Republican Senators and Gov. Rick Perry for an inadequate effort on April 28, 2011.

A bill aimed at making nonprofit homeowners associations more financially accountable and transparent pitted homeowner activists against people representing for-profit HOA contractors on Tuesday.

House Bill 3803, by state Rep. Ruth Jones McClendon, D-San Antonio, would require homeowners associations, which have government-like powers to levy assessments and foreclose on homes, to better safeguard the money they collect for the common good of the neighborhood. 

And it would for the first time introduce state oversight of HOAs — an elusive goal of Texas homeowner activist groups. The legislation would allow the attorney general to investigate breaches of fiduciary responsibility by board members and levy penalties of up to $20,000 per violation. That would go up to $250,000 if the violation was intended to harm an elderly Texan.

“All we’re trying to do is to get them to pay attention to what they’re doing with other people’s money,” McClendon said.

Homeowner Xina Togba said the association in her Lakeville subdivision in Katy could use a little state oversight. Under current law, homeowners who have beef with their HOA have little legal recourse other than filing a lawsuit, which can be expensive and daunting.

 

Togba told the committee that her board has towed hundreds of vehicles without proper notice, saying many of the cars were removed from public streets and even homeowners’ driveways. She also complained that the board has been secretive about its meetings and has been dragging its feet on providing basic financial information.

She said the management company that runs the Lakeville Community Association, SCS Management, has refused to even provide a copy of its contract with Lakeville.

“We have no strategy other than to be loud and speak up,” she said. 

A voicemail left for SCS Management was not immediately returned; a message left on Lakeville's website was not immediately returned, either.

McClendon’s bill ran into fierce opposition from the HOA lobby, including the industry's main advocacy group in the state, the Texas Community Association Advocates, or TCAA. The industry critics say the legislation is unworkable and punitive to the voluntary board members who run them. TCAA represents HOA boards and members and the interests of for-profit contractors, such as HOA management companies and foreclosure lawyers, at the Texas Capitol.

Dallas HOA attorney Judd Austin, a TCAA board member, said the legislation would have a “chilling effect on the volunteer spirit of the communities,’’ telling the House Business and Industry Committee that the board could handle its own financial affairs without additional state regulations.

Besides the AG oversight, the bill would require board members to have surety bonds and get insurance providing coverage for the risk of fraud and dishonest acts.

Embezzlement and fraud cases have left some homeowners associations in dire financial shape. Prosecutors say that in the Houston area last year, for example, one property manager hired to run several associations in Fort Bend County stole more than $2 million, according to a report on KTRK-TV, Channel 13.

 

And in Nevada, federal prosecutors have charged dozens of people in a far-reaching conspiracy to take over homeowners associations and direct millions in contracting dollars to themselves in a massive corruption scheme.

Andrew Fortin, vice president for governmental affairs at the giant HOA management company Associa of Dallas, said the goals of McClendon’s bill are laudable. But he expressed opposition to it and said he is working with her office to to improve it.

“We think that there are things that can be done on this,” Fortin said. “We don’t think that the current bill captures the experience that other state have had in addressing issues of protecting financial assets of the community and ensuring our boards are accountable.”

Homeowner activist Harvella Jones, president of the National Homeowners Advocate Group, said the fiercest opposition is coming from companies that are profiting from HOA dues money.

“It’s created a money making industry for a lot of the special interest groups,” Jones said. “These are our homes. … We need something to protect the money.”

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