Untitled Texas Attorney General Opinion ( 2004 )

ATTORNEYGENERAL OF TEXAS
GREG ABBOTT
August 25,2004
The Honorable Eugene D. Taylor Opinion No. GA-0237
Williamson County Attorney
Williamson County Courthouse Annex Re: Whether liens for public improvement district
Second Floor assessments levied against property that was not a
405 Martin Luther Ring, Box 7 homestead at the time ofassessment maybe enforced
Georgetown, Texas 78626 by foreclosure even though the property has become
a homestead between the date of assessment and the
date of the enforcement action (RQ-0187-GA)
Dear Mr. Taylor:
You ask whether liens assessed by a public improvement district against property that was
not a homestead at the time of assessment may be enforced by foreclosure even though the property
has become a homestead between the date of assessment and the date of the enforcement action.’
I. Legal Backwound
A. Statutory Lien Created by Chapter 372 of the Local Government Code
Chapter 372 of the Local Government Code, the Public Improvement District
Assessment Act, authorizes counties and municipalities to establish public improvement districts
(“districts” or “PIDs”) to undertake public improvements upon receiving a petition requesting that
a district be established. See TEX. Lot. GOV’T CODE ANN. $5 372.001 (Vernon 1999) (short title),
372.002 (Vernon Supp. 2004) (municipal and county powers), 372.005 (Vernon Supp. 2004)
(requisites for petition). If the governing body of a municipality or county finds that a proposed
improvement project would promote the interests ofthe municipality or county, “the governing body
may undertake an improvement project that confers a special benefit on a definable part of the
municipality or county or the municipality’s extraterritorial jurisdiction.” Id. 5 372.003(a) (Vernon
Supp. 2004). A public improvement project may include such items as landscaping, roadways,
pedestrian malls, libraries, parking facilities, mass transportation facilities, water, wastewater, or
drainage facilities or improvements, or parks. See id. 5 372.003(b). A PlD may be established and
improvements financed only after the governing body provides notice and holds a public hearing on
‘Letter from Honorable Eugene D. Taylor, Williamson County Attorney, to Honorable Greg Abbott, Texas
Attorney General (Feb. 19, 2004) (on file with Opinion Committee, also available at http://www.oag.state.tx.us)
[hereinafter Request Letter].
The Honorable Eugene D. Taylor - Page 2 (GA-0237)
the improvement’s advisability and a majority of the body votes to approve the distict. See id. $5
372.009(a)-(b) (hearing), (c) (notice), 372.010 (majority vote on improvement order).
After a PID has been established, “[tlhe governing body of the municipality or county shall
apportion the cost of an improvement to be assessed against property in an improvement district.
The apportionment shall be made on the basis of special benefits accruing to the property because
of the improvement.” Id. 4 372.015(a). After holding a hearing on a proposed assessment, the
governing body “by ordinance or order shall levy the assessment as a special assessment on the
property.” Id. § 372.017(b); see also id. $5 372.016 (requiring assessment roll, notice, and hearing),
372.017(a) (requiring governing body to hear objections to proposed assessments). In addition, after
notice and a hearing, a governing body may make a supplemental assessment to correct omissions
or mistakes in the assessment relating to the total cost of the improvement. See id. 3 372.019
(“Notice must be given and the hearing held under this section in the same manner as required by
Sections 372.016 and 372.017.“). And a governing body may make a reassessment or new
assessment of a parcel of land if(i) a court of competent jurisdiction sets aside an assessment against
the parcel; (ii) the governing body determines that the original assessment is excessive; or (iii) on
the written advice of counsel, the governing body determines that the original assessment is invalid.
See id. § 372.020.
Significantly, section 372.018(b) oftheLoca1 Government Code provides that an assessment
is a lien against the property assessed:
An assessment or reassessment, with interest, the expense of
collection, and reasonable attorney’s fees, if incurred, is afirst and
prior lien against theproperty assessed, superior to all other liens and
claims except liens or claims for state, county, school district, or
municipality ad valorem taxes, and is a personal liability of and
charge against the owners of the property regardless of whether the
owners are named. The lien is effective from the date of the
ordinance or order levying the assessment until the assessment is paid
and may be enforced by the governing body in the same manner that
an ad valorem tax lien against real property may be enforced by the
governing body. Delinquent installments of the assessment shall
incur interest, penalties, and attorney’s fees in the same manner as
delinquent ad valorem taxes. The owner of assessed property may
pay at any time the entire assessment, with interest that has accrued
on the assessment, on any lot or parcel.
Id. 5 372.018(b) (emphasis added).*
‘Section 5 1.008 of the Property Code generally requires that a statutory lien in favor of a govemmental entity
must be recorded in county real property records. See TEX. PROP. CODEANN. § 51.008(a) (Vernon Supp. 2004).
However, section 5 1.008 does not apply if “( 1) the lien is imposed as a result of failure to pay: (A) ad valorem taxes;
or(B) a penalty 01 interest owed in connection with those taxes; OI (2) the law establishing the lien expressly states that
(continued...)
The Honorable Eugene D. Taylor - Page 3 (GA-0237)
B. Article XVI, section 50 of the Texas Constitution and Attorney General Opinion
JC-0386
Article XVI, section 50 ofthe Texas Constitution protects a homestead from forced
sale for the payment of debts, with certain exceptions. It provides in pertinent part:
(a) The homestead of a family, or of a single adult person,
shall be, and is hereby protected from forced sale, for the payment of
all debts except for:
(1) the purchase money thereof, or a part of
such purchase money; [or]
(2) the taxes due thereon ..
TEX. CONST. art. XVI, 5 50. In Attorney General Opinion JC-0386 this office concluded that a
homestead may not be subject to forced sale for the nonpayment ofPlD assessments under the “taxes
due thereon” clause of article XVI, section 50, because PID assessments are not taxes for purposes
of that provision. See Tex. Att’y Gen. Op. No. JC-0386 (2001). As the opinion noted,
The words “tax, ” “taxes,” and “taxation” in the Texas Constitution,
used without a qualifying word, mean ad valorem tax, taxes, or
taxation. See [Taylorv. Boyd, 63 Tex. 533,541(1885).] Ad valorem
taxes are annually collected for the ordinary purposes of municipal
government and are based on an estimation of the value of the entire
taxable property in a city, from which an estimate is made of the
percent of taxation of this value that will raise the sum necessary to
meet the “current annual want.” Id. at 540. In contrast, assessments
are charges imposed for purposes that do not require that they be
imposed annually, or with reference to time. See id. They are not
usually based upon a percentage of the value of the taxable property
of a city, but upon the real or supposed benefit resulting from the
improvement of the property on which the specific charge is laid.
Id. at 4. Relying on Supreme Court of Texas cases holding that a special assessment is not a “tax”
within article XVI, section 50 of the Texas Constitution, City of Wichita Fulls v. Williams, 26
S.W.2d 910, 915 (Tex. 1930), and Higgins v. Bordages, 31 SW. 52, 55 (Tex. 1895) the opinion
concluded:
‘(...continued)
recording the lien is not required.” Id. 5 51 .OOS(a)(I)-(2). In addition, it does not apply to “(I) a lien created under
Section 89.083, Natural Resources Code; (2) a state tax lien under Chapter 113, Tax Code; OI(3) a lien established under
Chapter 61 or 213, Labor Code.” Id. 5 51.008(c). You have not asked OI briefed whether a stahltory lien created by
section 372.018(b) of the Local Government Code is subject to section 51.008 of the Property Code’s recording
requirement, and we do not address the issue here.
The Honorable Eugene D. Taylor - Page 4 (GA-0237)
A homestead is not subject to forced sale to collect the assessments
against it. A homestead may not be subjected to forced sale for
nonpayment of a public improvement district assessment under the
“taxes due thereon” clause of article XVI, section 50 of the Texas
Constitution.
Tex. Att’y Gen. Op. No. JC-0386 (2001) at 4 (citations omitted).
II. Analvsis
As background to your request, you note that the legislature in 2001 amended chapter 372
of the Local Government Code to authorize counties to establish PIDs. See Request Letter, supra
note 1, at 1. In researching chapter 372 for your county, you reviewed Attorney General Opinion
JC-0386. You note that while that opinion concluded that a homestead may not be subject to forced
sale for the nonpayment of PlD assessments under the “taxes due thereon” clause of article XVI,
section 50, the opinion does not address “the enforceability of a PlD assessment lien ordered before
a homestead exemption is established, as distinct from [a PID lien on] property that is already a
homestead at the time of assessment.” Id.
As you point out, in some cases a district will be created and assessments levied before
property is developed as a subdivision and sold as multiple lots owned as homesteads: “The district
and the developer who owns the unimproved land are already contractually obligated to pay the
lenders the full amount ofthe assessment before any homesteads are created in the district. That debt
is secured by the statutory assessment lien against all the property in the district.” Id. at 2. You posit
a situation in which, “[a]t the time the homeowners establish their homestead, the liens guaranteeing
repayment are already in place and the owners expressly acquire title subject to the liens.” Id. at 2.
Given this possible scenario, you ask us to address the following question:
Are liens assessed by a public improvement district against
property that was not subject to the constitutional and statutory
homestead exemption at the time of the assessment enforceable by
forced sale, even though the property may have become a homestead
between the date of the assessment and the date of the enforcement
action?
Id. at 1.
InInwoodNorth Homeowners ‘Association, Inc. v. Harris, 736 S.W.2d 632 (Tex. 1987), the
Supreme Court of Texas addressed whether the homestead laws of Texas protect the homeowners
against foreclosure for their failure to pay neighborhood assessments imposed by the developer.
Several homeowners had purchased lots in a subdivision subject to a declaration providing that all
lots within the subdivision “were impressed with certain covenants and restrictions” that would “run
with the land and be binding upon all parties acquiring rights to anyofthe property.” Id. at 633. The
declaration included the covenant that lot owners agreed to pay annual assessments. Id.
The Honorable Eugene D. Taylor - Page 5 (GA-0237)
After concluding that the covenants created contractual liens, the court then considered the
extent to which constitutional homestead protection applied. Id. at 634. The court noted that as a
general rule, article XVI, section 50 protects homesteads against all debts except those specifically
listed. Id. Importantly, however, the court also observed that homestead rights
may not be construed so as to avoid or destroy pre-existing rights.
Minnehoma Financial Co. Y. Ditto, 566 S.W.2d 354,357 (Tex. Civ.
App.-Fort Worth 1978, writ ref d n.r.e.). It has long been held that
an encumbrance existing against property cannot be affected by the
subsequent impression of the homestead exception on the land.
Farmer v. Simpson, 6 Tex. 303, 310 (1851). As said by this court
many years ago, “[A] previously acquired lien, whether general or
special, voluntary or involuntary, cannot be subsequently defeated by
the voluntary act of a debtor in attempting to make property his
homestead.” Gage v. Neblett, 57 Tex. 374, 378 (1882).
Id. at 635. The court “reaftinn[ed] that when the property has not become a homestead at the
execution of the mortgage, deed of trust or other lien, the homestead protections have no application
even if the property later becomes a homestead.” Id. For this reason, the homeowners’ rights
depended on when the lien attached to the property:
If it occurred simultaneously to or after the homeowners took title,
there is authority which would deem the homestead right superior.
See Freiberg Y. Walzem, 85 Tex. 264,20 S.W. 60,61(1892). On the
other hand, if the lien attached prior to the claimed homestead right
and the lien is an obligation that would run with the land, there would
be a right to foreclose.
Id. The court noted that in Texas, “a covenant runs with the land when it touches and concerns the
land; relates to a thing in existence or specifically binds the parties and their assigns; is intended by
the original parties to run with the land; and when the successor to the burden has notice.” Id.
(citations omitted).
The court found that the covenants to pay assessments satisfied each of these criteria, and the
homeowners’ deeds made specific reference to the assessments. Id. “Because the restrictions were
placed on the land before it became the homestead of the parties, and because the restrictions contain
valid contractual liens which run with the land,” the court concluded that “the homeowners were
subject to the liens in question and an order of foreclosure would have been proper.” Id. at 635-36.
Importantly, the Znwood court also held that a second theory supported its holding-the idea
that “[a] homestead right in real property cannot rise any higher than the right, title or interest
acquired by the homestead claimant.” Id. at 636. The court articulated the rule that although a
homestead may attach to an interest less than an unqualified fee simple title, the homestead “will not
operate to circumvent an inherent characteristic of the property acquired.” Id.
The Honorable Eugene D. Taylor - Page 6 (GA-0237)
Finally, we note that the court recently held that foreclosure is not an appropriate remedy to
enforce homeowners’ association late fees that were not included in the deed restrictions. See
Brooksv. Northglen Ass’n, 47Tex. Sup. Ct. J. 719,2004WL 1439643, *ll (June25,2004) (“[T]he
restrictions did not provide any notice that a late fee would be imposed in addition to the interest
charge. As a result, the property owners did not have notice of the late charge. Therefore, in light
of Inwood’s notice requirement, foreclosure is not an appropriate remedy for a failure to pay the late
charge.“) (citing Tex. Att’y Gen. LO-97-019 with approval). Thus, when enforcing a lien that
predates a homestead, foreclosure is available only for amounts that are within the lien’s scope. See
id.; see also Tex. Att’y Gen. LO-97-019, at 4 (‘Whether a property owners’ association may
foreclose on a homestead to collect the costs will depend upon whether the lien for those costs
(i) attached to the property prior to the homestead right and (ii) is the result of a restriction that runs
with the land. . [T]he determination whether a lien for costs incurred by a property owners’
association relating to violations of the subdivision’s restrictions or the property owners’
association’s bylaws and rules preexisted a homestead right will depend upon the terms of the
applicable restrictions and whether the assessment of these costs is contemplated by an existing lien
under the restrictions or creates a new lien.“).
Your question involves a statutory lien created by section 372.018 of the Local Government
Code as opposed to a developer’s contractual lien. Section 372.018 provides that “[a]n assessment
or reassessment, with interest, the expense of collection, and reasonable attorney’s fees, if incurred,
is afirst andprior lien against the property assessed, superior to all other liens and claims except
liens or claims for state, county, school district, or municipality ad valorem taxes.” TEX.LDC.GOV’T
CODEANN. $j372.018(b) (Vernon Supp. 2004) (emphasis added). The lien “maybe enforced by the
governing body in the same manner that an ad valorem tax lien against real property may be enforced
by the governing body.” Id.
Your specific question is whether “liens assessed by a public improvement district against
property that was not [a] homestead at the time of the assessment [may be enforced by
foreclosure even though the property has become a homestead] between the date of the assessment
and the date of the enforcement action.” Request Letter, supra note 1, at 1. A municipality or
county may enforce a section 372.018 lien against a homestead by foreclosure if the lien attached
to the property before it became a homestead and was therefore “an inherent characteristic of the
property acquired.” Inwood, 736 S.W.2d at 636. Because a lien created by section 372.018 “is
effective from thedate of the ordinance or order levying the assessment,” TEX.Lot. GOV’T CODE
ANN. 8 372.018(b) (Vernon Supp. 2004), the date of the ordinance or order must predate the
homestead’s creation. The amounts to be collected must fall within the lien’s scope. See Brooks,
2004 WL 1439643, *1 1; Tex. Att’y Gen. LO-97-019, at 4. Whether an assessment on a particular
homestead may be enforced by foreclosure will ultimately depend upon the facts of the particular
case and would be beyond the purview of an attorney general opinion. See Tex. Att’y Gen. LO-97-
019, at 4 (determinations whether “a lien for those costs (i) attached to the property prior to the
homestead right and (ii) is the result of a restriction that runs with the land . will ultimately
depend upon the facts of the particular case and are beyond the purview of an attorney general
opinion”); see also Tex. Att’y Gen. Op. Nos. GA-0128 (2003) at 5 (question requiring resolution of
The Honorable Eugene D. Taylor - Page 7 (GA-0237)
particular facts is “not one in which this office ordinarily engages in the opinion process”); GA-0106
(2003) at 7 (“This oftice cannot find facts or resolve fact questions in an attorney general opinion.“).
Attorney General Opinion JC-0386 did not address foreclosure of a homestead to enforce a
contractual or statutory lien for assessments predating a homestead and is not inconsistent with this
opinion. Moreover, nothing in this opinion affects the conclusion in Attorney General Opinion
JC-0386 that chapter 372 assessments are not taxes for purposes of article XVI, section 50(a)(2) of
the Texas Constitution.
The Honorable Eugene D. Taylor - Page 8 (GA-0237)
SUMMARY
A public improvement district assessment may be enforced by
foreclosure of a homestead provided that the statutory lien created by
section 372.018(b) of the Local Government Code predates the date
the propertybecame a homestead and the amounts to be collected fall
within the lien’s scope.
BARRY R. MCBEE
First Assistant Attorney General
DON R. WILLETT
Deputy Attorney General for Legal Counsel
NANCY S. FULLER
Chair, Opinion Committee
Mary R. Crouter
Assistant Attorney General, Opinion Committee