Griffin Parc Residential Association, Inc. v. John C. King ( 2019 )

In the
Court of Appeals
Second Appellate District of Texas
at Fort Worth
___________________________
No. 02-18-00357-CV
___________________________
GRIFFIN PARC RESIDENTIAL ASSOCIATION, INC., Appellant
V.
JOHN C. KING, Appellee
On Appeal from the 158th District Court
Denton County, Texas
Trial Court No. 17-3380-158
Before Sudderth, C.J.; Pittman and Bassel, JJ.
Memorandum Opinion by Justice Bassel
MEMORANDUM OPINION
I. Introduction
Appellant Griffin Parc Residential Association, Inc. (the HOA) raises one issue
challenging a summary judgment obtained by Appellee John C. King (Owner).
Owner owns a lot in the Griffin Parc subdivision administered by the HOA. The trial
court rendered judgment that the HOA acted in violation of the Bankruptcy Code’s
automatic stay when it sent Owner notice of the amount of the HOA’s annual
maintenance assessment. The trial court found that the notice was a part of the
collection process for unpaid assessments, that the notice was a necessary act to create
an assessment lien against Owner’s property, and that the bankruptcy stay in effect
when the notice was sent made the notice void because it was a part of the lien-
creation process.
We disagree. Both the lien and the debt that obligated Owner to pay the
assessment existed long before the notice was sent. The notice merely quantified the
debt that Owner was previously obligated to pay as a result of his ownership of a lot
in the subdivision administered by the HOA. Thus, the notice did not create or
enforce a lien and did not violate the automatic stay. We reverse the judgment of the
trial court and render judgment in favor of the HOA.
II. Procedural Background
The HOA filed an “Application for Expedited Foreclosure Proceeding
Pursuant to Rule 736 of the Texas Rules of Civil Procedure” in which it sought to
2
foreclose its lien on a lot in the subdivision that the HOA administered. See Tex.
Prop. Code Ann. § 209.0092; Tex. R. Civ. P. 736.1. Owner resided on the lot. The
lien that the HOA sought to foreclose allegedly was defaulted after Owner failed to
pay the HOA’s 2016 maintenance assessment.
Owner responded to the HOA’s foreclosure action by filing a suit for
declaratory judgment. That suit stayed the foreclosure action because it “put[] in issue
. . . [the] enforcement of the . . . lien” that was the basis of the HOA’s suit. See Tex.
R. Civ. P. 736.11. Owner alleged that he had filed a bankruptcy proceeding under
Chapter 7 of the United States Bankruptcy Code before the HOA sent notice of the
2016 annual maintenance assessment. Though Owner conceded that the lien that the
HOA sought to foreclose had its origins in the Declaration governing the subdivision
filed in 2001, he contended that the notice was “necessary” to enforce the lien that the
HOA sought to foreclose. Specifically, Owner alleged that
the 2001 lien, while forming a basis for Griffin Parc’s claim of its lien rights,
and without which it could not, fifteen years later, claim a right of foreclosure,
was merely necessary but not sufficient to enforce an assessment. Other things
had to take place, namely: Assessment of the amount due for 2016, notice of
the . . . annual assessment, non-payment on or before the due date, the
assessment lien which arose on the delinquency date, and later a notice of
assessment lien.
Allegedly, “[these] additional, necessary steps [were required] to make the 2001 lien
effective [but] were void ab initio” because the Bankruptcy Code stayed the ability of
any creditor to create a lien against property that was part of a bankruptcy estate. See
11 U.S.C.A. § 362(a) (West 2015).
3
The parties filed cross-motions for summary judgment. The trial court granted
Owner’s motion for summary judgment and denied the HOA’s. The summary-
judgment order included a finding that the HOA had sent notice of the assessment
that was the basis for its foreclosure claim during the time that a creditor’s actions
were stayed by the Bankruptcy Code. For this reason, the judgment decreed that the
notice “was ineffective notice, necessary to create an assessment lien which
assessment lien was essential to [the HOA’s] enforcement action.” Owner nonsuited
other claims made in his declaratory-judgment action, making the trial court’s
summary-judgment order a final judgment. The HOA appealed.
III. Factual Background
The legal effect of the notice sent by the HOA to Owner and the nature of the
HOA’s lien are hotly contested, and we will deal with the factual details of the notice
and lien during our discussion of the document in which they have their origin. But
this appeal also turns on the timing of certain events because they establish the
framework of the two underlying questions that we must resolve: (1) when did the
HOA’s lien and the debt to pay the assessment come into existence, and (2) during
what period did the provisions of the Bankruptcy Code impact the HOA’s actions.
The timing of the four pivotal events in this case’s chronology is undisputed.
First, in 2001, the developer of the subdivision that included the lot at issue filed in
the appropriate deed records a “Declaration Of Covenants, Conditions[,] And
Restrictions For Griffin Parc” (the Declaration) that created covenants to establish
4
the rules and regulation of the HOA. Second, Owner purchased his lot in the
subdivision in 2004. Third, Owner filed his Chapter 7 bankruptcy proceeding on
November 3, 2015. Fourth, sometime in late December 2015 or early January 2016,
the HOA sent Owner a notice of the 2016 annual maintenance assessment due the
HOA. 1
All agree that the notice was sent during the time that the Bankruptcy Code
stayed the ability of a creditor to create or enforce a lien. Other acts relating to the
assessment lien, such as filing notice of the lien in the relevant deed records and the
suit to foreclose the lien, occurred after Owner was discharged from bankruptcy and
after the stay no longer was in effect.
IV. The Standard of Review Governing Cross-Motions for Summary Judgment
We apply a de novo standard of review to summary judgments. Travelers Ins.
Co. v. Joachim, 315 S.W.3d 860, 862 (Tex. 2010). “When competing summary-
judgment motions are filed, ‘each party bears the burden of establishing that it is
entitled to judgment as a matter of law.’” Tarr v. Timberwood Park Owners Ass’n, Inc.,
556 S.W.3d 274, 278 (Tex. 2018) (quoting City of Garland v. Dallas Morning News, 22
S.W.3d 351, 356 (Tex. 2000)). “[I]f ‘the trial court grants one motion and denies the
other, the reviewing court should determine all questions presented’ and ‘render the
1
At oral argument, the HOA acknowledged that a copy of the notice is not a
part of the record because the HOA could not locate it in its records.
5
judgment that the trial court should have rendered.’” Id. (quoting City of Garland, 22
S.W.3d at 356).
V. Discussion
A. How the provisions of the Bankruptcy Code overlay this appeal
The Bankruptcy Code creates distinctions that frame this appeal. The
distinctions begin with the principle that a creditor may have the right to pursue a
debtor in bankruptcy personally and that a discharge in bankruptcy may not free the
debtor from ongoing personal liability on the debt. But a complication arises if the
creditor chooses the wrong time in the process to create a lien to secure the debt.
The creditor may find that the Bankruptcy Code voids that attempt even though that
creditor could otherwise pursue the debtor to collect the debt.
Owner relies on these distinctions to argue that no matter whether he might
have been personally liable for the 2016 annual maintenance assessment or whether
the HOA might have pursued a judgment for the assessment, the HOA’s attempt to
create or to enforce a lien to secure that debt during the bankruptcy stay was void.
His premise is that the notice created the lien because it was a precondition to the
enforcement of the lien securing payment of the assessment and that the HOA sent
the notice during the automatic bankruptcy stay that made its act void because the
Bankruptcy Code stayed that action. This argument creates our starting point to
describe the bankruptcy principles and the terms that govern here when we as a state
court apply federal bankruptcy law to resolve a state-court foreclosure suit.
6
The filing of a bankruptcy petition “operates as a stay” of certain actions,
mostly of creditors against debtors who have filed bankruptcy. See 11 U.S.C.A.
§ 362(a). Whether the stay stops a creditor from taking an action against a debtor
often turns on the time that the debt arises. Debts that arise after the filing of a
bankruptcy petition, termed post-petition debts, may often be pursued and collected
from a bankruptcy debtor. In re Zamora, No. 11-52138C, 2012 WL 4501680, at *1–2
(Bankr. W.D. Tex. Sept. 28, 2012) (mem. op.). The HOA and Owner agree that the
annual maintenance assessment in this case was a post-petition debt because it
became due after the filing of Owner’s bankruptcy petition.2
Though the stay does not prohibit collection efforts for a post-petition debt
against the debtor personally, that does not mean the creditor may also take actions
impacting property held by the bankruptcy estate. Once a bankruptcy is filed, the
debtor and the bankruptcy estate exist in two separate entities. The bankruptcy estate
usually consists of property owned by the debtor when he or she files bankruptcy. See
11 U.S.C.A. § 541(a)(1) (West 2016); R. Hassell Builders, Inc. v. Texan Floor Serv., Ltd.,
546 S.W.3d 816, 827 (Tex. App.—Houston [1st Dist.] 2018, pet. denied) (“The
2
Not all federal courts conclude that assessments billed after the filing of
bankruptcy constitute a post-petition debt. See, e.g., Goudelock v. Sixty-01 Ass’n of
Apartment Owners, 895 F.3d 633, 638 (9th Cir. 2018) (stating that owner’s personal
obligation to pay the condo association assessments “was not the result of a separate,
post-petition transaction but was created when she took title to the condominium
unit. As a result, the debt for the assessments arose pre-petition and is dischargeable
under Section 1328(a), unless the Bankruptcy Code provides an exception to
discharge”). In this appeal, Owner does not argue the assessment is a pre-petition
debt.
7
Bankruptcy Code defines ‘property of the estate’ broadly to include ‘all legal or
equitable interests of the debtor in property as of the commencement of the
[bankruptcy] case.’” (quoting Houston Pipeline Co. v. Bank of Am., N.A., 213 S.W.3d
418, 424 (Tex. App.—Houston [1st Dist.] 2006, no pet.))). 3 Some property, such as
the lot that was Owner’s homestead, can pass out of the bankruptcy estate while the
bankruptcy case is pending. 4
The automatic stay prevents a creditor from taking certain actions against the
property of the estate, even though the creditor is pursuing a post-petition debt. See
Zamora, 2012 WL 4501680, at *2 (“However, ‘the right to undertake collection
activity, including filing a lawsuit, to collect a post-petition debt does not allow all
As one author explained,
3
Commencement of a bankruptcy case creates in effect an “estate” by
operation of law. The estate consists of the various types of property
described in 11 U.S.C.A. § 541 “wherever located and by whomever
held.” 11 U.S.C.A. § 541(a); Texas-Ohio Gas, Inc. v. Mecom, 28 S.W.3d 129,
[143–44] (Tex. App.—Texarkana 2000, no pet.). With limited
exceptions[,] the debtor’s bankruptcy “estate” is comprised of all the
debtor’s legal or equitable interests in property as of the commencement
of the bankruptcy action . . . .
2 Robin Russell et al., Texas Practice Guide: Creditor’s Rights § 7:62 (Nov. 2018).
Property that the debtor claims to be exempt from creditor’s claims, such as a
4
homestead, can cease being property of the estate even before the bankruptcy
concludes. If an interested party does not challenge the debtor’s claim that property is
exempt, the property passes out of the estate thirty days after the first meeting of
creditors. 15 W. Mike Baggett, Texas Practice Series: Texas Foreclosure: Law and Practice
§ 16.02 (Apr. 2018). No one contends that the lot at issue—though Owner’s
homestead—passed out of the bankruptcy estate before the HOA’s actions that
Owner contends improperly attempted to create or enforce a lien against the lot.
8
collection activities.’” (quoting Montclair Prop. Owners Ass’n v. Reynard (In re Reynard),
250 B.R. 241, 245 (Bankr. E.D. Va. 2000))). The aspect of the automatic stay at issue
in this case prevents “any act to create, perfect, or enforce any lien against property of
the estate.” See 11 U.S.C.A. § 362(a)(4). In other words, the stay may not impede a
creditor from pursuing a debtor personally on a post-petition debt, but it may prevent
the creditor from creating, perfecting, or enforcing a lien on property of the
bankruptcy estate to secure that debt.5 And if the attempt to create or enforce the
lien occurs while the stay is in effect, that act has no effect; the Texas Supreme Court
is clear that acts in violation of the stay are not merely voidable but void. See York v.
State, 373 S.W.3d 32, 38 (Tex. 2012); Cont’l Casing Corp. v. Samedan Oil Corp., 751
S.W.2d 499, 501 (Tex. 1988).
5
Reynard summarized the distinction as follows:
The right to undertake collection activity, including filing a lawsuit, to
collect a post-petition debt does not allow all collection activities. The
automatic stay prevents any act to create, perfect, or enforce any lien
against property of the estate, and any act to obtain possession of
property of the estate or of property from the estate or to exercise
control over property of the estate. [11 U.S.C.A.] §§ 362(a)(4) and (a)(3),
respectively. Consequently, a post-petition creditor who has the right to
initiate a suit against a debtor and [to] obtain a judgment for a post-
petition debt without violating the automatic stay may not have recourse
to execute on all assets that would have been, but for the filing of a
chapter 13 petition, property of the debtor. Recourse is limited to
property that is not property of the estate.
250 B.R. at 244–45.
9
Further, not every debt is discharged in bankruptcy. One debt excepted from
discharge in a Chapter 7 proceeding (such as Owner filed) is
for a fee or assessment that becomes due and payable after the order for
relief to a membership association with respect to the debtor’s interest in
. . . a lot in a homeowners[’] association, for as long as the debtor or the
trustee has a legal, equitable, or possessory ownership interest in . . . such
lot . . . .
11 U.S.C.A. § 523(a)(16) (West 2016). Thus, Owner’s discharge—the relief that
bankruptcy gives for liability on the debt—did not include the debt for the post-
petition assessment that began this controversy.
The status of the debt and the fact that Owner did not receive a discharge from
it has no impact on the question we face. Our question focuses on whether sending
the notice of the assessment during the period the stay was in place “created” or
“enforced” the lien that the HOA sought to foreclose. See id. § 362(a)(4). In its most
general terms, the question is whether sending notice of the assessment created the
lien because it was some type of precondition to the HOA’s ability to claim a lien
against the lot and whether the attempt to perform that precondition during the
period of the stay effectively rendered the attempt void. This question is not
impacted because Owner was not discharged for the underlying debt. As we have
described, the bankruptcy scheme creates situations where even if the debt survives
the process, a lien created during the period of time the stay is in place is void.
As another point of clarification, the issue before us deals only with whether a
lien secured the 2016 assessment. We do not deal with whether the owner of a lot
10
would be liable for the assessments occurring after the discharge and whether the lot
would stand as security for that debt.6
B. A determination of the effect of the bankruptcy stay requires an
examination of when the HOA’s assessment lien came into existence.
The outlined bankruptcy principles that mark a temporal boundary during
which a lien cannot be created or enforced cause a quandary when applied to the lien
at issue in this appeal—the lien the HOA sought to foreclose because Owner failed to
pay the 2016 annual maintenance assessment. We must decide whether that lien was
created when the Declaration governing the HOA was filed, more than fifteen years
before the bankruptcy stay went into effect, or whether the lien is not fully created
and enforceable until the HOA’s notice was sent during the period the stay was in
place. In other words, does the lien circle over the lot like the development’s Griffin
6
We note a distinction created by the Bankruptcy Code that is not relevant to
our disposition because Owner filed a Chapter 7 petition. The discharge exception in
in section 523(a)(16) may not apply to the discharge received by a Chapter 13 debtor.
See In re Wiley, 581 B.R. 441, 450 (Bankr. D. Md. 2018) (refusing to adopt “the
position advocated by the Condominium” that essentially asked the bankruptcy court
“to rewrite the Bankruptcy Code to insert the § 523(a)(16) discharge exception into
§ 1328(a)”). Wiley lifted the stay to permit the condo association to reduce its claim to
judgment because a discharge had not been entered. Id. at 451–52. But Wiley also
noted that “a Chapter 13 debtor’s obligation to pay post-petition condominium
assessments continues up to the time of entry of a discharge under § 1328(a) of the
Bankruptcy Code, at which time the condominium’s in rem remedies survive, but the
in personam obligations of the debtor are discharged.” Id. at 447. We reference Wiley
simply to note that our opinion is not a one-size-fits-all opinion in its application of
bankruptcy law to assessments for commonly-owned property.
11
namesake, waiting to pounce if the assessment is not paid, or does it rise like a
phoenix each year if a lot owner does not pay the annual maintenance assessment?7
It is not clear from Owner’s argument whether he is arguing that the acts of the
HOA created or enforced a lien in violation of section 362(a)(4). We interpret his
argument and the recitations in the trial court’s judgment to mean that the notice
created the debt to pay the assessment and that without that debt, the lien did not
exist.
Owner’s brief states the issue as follows:
If there were no notice of assessment, there would be no due date, no delinquency date,
no continuing debt, no lien, no notice of lien, and no foreclosure. [The HOA]
would have us engage in a form of time travel, that in July of 2001
[Owner’s] unpaid assessment, from fifteen years later, had already
created an [enforceable] lien. It might have been a lien, but it lacked a piece to
its effectiveness: the unpaid amount on the delinquency date. Notice and demand for
payment, and the delinquency date, had not happened yet. [Emphasis added,
citation omitted.]
The theme that the notice created the debt—and thus, the lien—is carried forward
into the trial court’s finding that the notice “was ineffective notice, necessary to create an
assessment lien which assessment lien was essential to [the HOA’s] enforcement action
against” Owner. [Emphasis added.]
These statements still leave us grasping for the answer as to why Owner and
the trial court contend that the notice served “to create an assessment lien.” As we
The nature of the lien is one we determine under Texas law. See Douglas v.
7
Delp, 987 S.W.2d 879, 883 (Tex. 1999) (“Courts look to state law to characterize the
‘property rights in the assets of a bankrupt’s estate.’” (quoting Butner v. United States,
440 U.S. 48, 54–55, 99 S. Ct. 914, 918 (1979))).
12
note below, the Declaration established every aspect of the obligation to pay the
assessment and the lien to secure that obligation, including the fact that the
assessment became delinquent the day following its due date. The Declaration does
provide that the amount of the assessment is set annually; it states that the Board of
the HOA shall “fix the date of the commencement and the amount of the annual
maintenance assessment against each Lot.” The Declaration then provides for written
notice of the assessment. In this scheme, the notice serves the function of
communicating to a lot owner the Board’s decision about the date the assessment is
due and its amount. Thus, we conclude that the question we must answer is whether
quantifying the amount of the assessment created the lien even though the
Declaration states that it impressed upon the lot a lien for the payment of future
assessments from the date it was filed and established a continuing debt to pay the
assessment.
We hold that the lien was created by the filing of the Declaration in 2001 and
not the issuance of the notice in 2015 or 2016. If the covenants creating a declaration
governing a subdivision are appropriately drafted, the Texas Supreme Court holds
that a lien to secure the payment of assessments exists from the time of filing the
declaration. Inwood N. Homeowners’ Ass’n, Inc. v. Harris, 736 S.W.2d 632, 633–37 (Tex.
1987). The declaration also creates an obligation to pay assessments that is “an
inherent part” of a lot owner’s property interest. Id. at 636. In this way, the
13
underlying debt and the lien to secure its payment exist from the date of the filing of
the declaration and are not created by notice of the assessment.
In this case, the Declaration that governs the lot at issue creates a lien against
the lot that attached at the time it was filed. That Declaration also created the debt to
pay the assessment and made that obligation a charge on the ownership of the lot.
Thus, the lien that the HOA sought to enforce was created long before the
bankruptcy stay went into effect, and the stay did not affect its existence.
C. The Texas Supreme Court holds that a lien to secure the payment of HOA
assessments may come into existence and attach when the declaration creating
covenants governing the property is filed.
In Inwood, the Texas Supreme Court dealt with the priority of an assessment
lien versus a lot owner’s homestead rights. Id. at 633. In Inwood, a developer of a
subdivision had filed a declaration of covenants and restrictions years before
homeowners purchased lots in the subdivision. Id. at 633–34. Specifically, the
question before the supreme court was whether the contractual lien described in the
declaration existed before the homeowners took title to their lots. Id. at 635.8
8
The usual scheme of a subdivision as a common-interest development is as
follows:
Subdivision Developments are Common-Interest Developments that
consist of parcels of land, usually called “Lots,” that are subject to
separate conveyance and exclusive ownership. In most cases,
Subdivision Developments arise where a large tract of land is owned by a
real estate developer who divides the tract into separate, individually-
owned Lots by filing a subdivision plat with the local governmental
entity. The subdivision plat must be approved by such local government
14
The answer to this question turned on when a lien for assessments attached.
The date of attachment answered the question of whether the lien was superior to the
the homestead right in the lots because “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.
Inwood held that 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. The opinion concluded that “[t]he covenant
to pay maintenance assessments [created by the declaration that governed the
subdivision] for the purpose of repairing and improving the common areas and
recreational facilities of Inwood North touches and concerns the land.” Id.
entity and will typically divide the parcel of land into . . . (1) residential
Lots that are to be separately owned by homeowners; (2) “Common
Areas” that are to be owned by a Homeowners Association made up of
and for the benefit of the Lot owners; and (3) streets to provide access
by the owners to their Lots. The key distinguishing element of this type
of development is that each Lot is a separate, exclusively-owned parcel
of real property and [that] the Common Areas of land are owned by the
Homeowners Association for the benefit of the Lot owners.
Gregory S. Cagle, HOA Assessment Liens: Everything You Need to Know to Figure Out Your
Head From Your Assessment Lien, State Bar of Tex. Prof. Dev. Program, 34th Annual
Advanced Real Estate Law Course 14, 8 (2012), https://ssjmlaw.com/wp-
content/uploads/2012/05/2010-Advanced-Real-Estate-Law-Article-HOA-Assessment
-Lien-Foreclosure.pdf.
15
Most important to our resolution of this appeal, the supreme court held that
the lien existed prior to the time the owners took title to their lots:
The record discloses that the liens were contracted for several years
before the homeowners took possession of their houses. Because the
restrictions were placed on the land before it became the homestead of
the parties, and because the restrictions contain valid contractual liens
[that] run with the land, the homeowners were subject to the liens in
question[,] and an order of foreclosure would have been proper.
Id. As support for its holding, the supreme court relied on an opinion from the
Florida Supreme Court that even more explicitly held that an appropriately drafted
declaration created a lien that related back to the time of its filing:
[T]he creation of the lien by acceptance of the deed relates back to the
time of the filing of the declaration of restrictions. Thus, with regard to
the time of attachment of the lien, this case is to be treated as if the
respondents (homeowners) had taken title subject to a valid pre-existing
lien. Since the acquisition of homestead status does not defeat prior
liens . . . the lienor’s right prevails over the respondent’s homestead
right.
Id. at 636 n.1 (quoting Bessemer v. Gersten, 381 So. 2d 1344, 1348 (Fla. 1980) (op. on
re’g)).9
9
As a bankruptcy court dealing with a condominium plan described the duties
created by the covenants governing the common interest, the covenant is not a
contract by which a homeowners’ association provides services to condo owners but
is instead a burden on an owner’s interest in the common areas to maintain the
property in which the owner holds an interest:
The covenants made in the [d]eclaration serve to benefit not a discrete
third party . . . but rather all the owners in common, imposing a burden
on each owner for the benefit of all owners. The homeowners’
association is nothing more than a mechanism by which this covenant is
enforced . . . and can best be appreciated as an agent for all the owners
in common. Each condominium owner finds her estate both
burdened by the assessment obligation and benefited by the function
16
Thus, the declarations in Inwood created not a potential lien but one that existed
from the time of the declaration’s filing.
D. The obligation to pay an assessment is also created by the Declaration.
We also read Inwood to hold that the continuing debt to pay an assessment is
sufficient to underlay the lien and that the lien is not recreated each time an
assessment is quantified. The debt that underlays the lien—the obligation to pay an
assessment—is an equitable servitude that attaches to the property from the time of
filing the declaration. As with other kind of debts, the precise amount of the debt
relies on subsequent events. But that contingency does not mean that there is not a
sufficient debt to support the existence of the lien from the time of filing the
declaration.
The supreme court in Inwood described the obligation that attaches to a lot in a
subdivision where covenants govern the ownership and management of the
subdivision’s common areas. Specifically, “[t]he purchase of a lot in Inwood Homes
carries with the purchase, as an inherent part of the property interest, the obligation to pay association
fees for maintenance and ownership of common facilities and services. The remedy of foreclosure
that the assessments serve (namely, the maintenance and preservation of
the common areas, in which the debtor has an undivided interest
inseparable from her interest in the condominium unit itself).
Beeter v. Tri-City Prop. Mgmt. Servs., Inc. (In re Beeter), 173 B.R. 108, 114–15 (Bankr. W.D.
Tex. 1994) (bold emphasis added).
17
is an inherent characteristic of the property right.” Id. at 636 (emphasis added). In
addition to the theory that the declarations created a contractual lien, Inwood also
viewed this mutual and reciprocal obligation of property owners in a development to
pay assessments as an “an inherent property interest possessed by each [lot]
purchaser.” Id.
Inwood cited and appears to have rejected an argument that raised a variation of
the argument Owner makes—that no lien exists to pay an assessment because the
debt creating the obligation to pay did not arise until the assessment became due. The
issue arose through Inwood’s citation of Johnson v. First Southern Properties, Inc., 687
S.W.2d 399 (Tex. App.—Houston [14th Dist.] 1985, writ ref’d n.r.e.). Id. Inwood cited
Johnson for the proposition that principles governing a condominium scheme should
apply equally to “pro rata common ownership in an association, mandated by the
declaration.” Id. Johnson held that in the context of a condominium scheme, “the
assessment lien constituted a valid pre-existing debt which would overcome the
homestead claim.” 687 S.W.2d at 402. In a footnote, Inwood refenced an analysis of
Johnson contained in a law review article. Inwood, 736 S.W.2d at 636 n.2 (citing Craig
Florence, Note, Johnson v. First Southern Properties Inc: The Texas Homestead and
Condominium Assessments, 38 Baylor L. Rev. 987 (1986)).
The cited law review article criticized Johnson’s holding that a preexisting debt,
and thus a lien, burdens the property because the assessment lien should not owe its
existence to the filing of the declaration rather than to the issuance of an assessment.
18
The criticism turned on the fact that a lien must be underlaid by a debt, and that no
debt underlays any lien until an assessment is made; thus, the assessment lien did not
preexist but rose as the phoenix each time the debt arose:
The question is reduced to whether the contract created a prior debt and
lien. Although the court necessarily assumed the existence of a valid
pre-existing debt, this conclusion is suspect. To have a security interest
in the property, there must be a debt. In Johnson, there was no liability
for future assessments until the assessments were determined by the
homeowner’s council. Even when the assessments were made, they
could be changed later. Therefore, there was not a debt for such
assessments until after Johnson established his homestead in the
condominium apartment. The court held that Johnson took [“]the
apartment subject to the declaration, which declaration designated that the
homeowner[s’] . . . council had an assessment lien.[”] It would appear,
however, that since the assessment fee was not due until after Johnson
established his homestead, then a valid lien did not arise until after the
[homestead] was established. In that case, because the lien was not for
purchase money, improvements, or taxes, it would be void.
38 Baylor L. Rev. at 995–96 (footnotes omitted).
The supreme court in Inwood held a homeowners’ association lien and the debt
to pay an assessment existed from the time of filing the covenants and declaration in
the face of the Note’s criticism of Johnson that no lien could exist without an
underlying debt. The supreme court was obviously aware of this conceptual challenge
to its holding on the existence of a preexisting debt because it cited the article that
contained the criticism. The Note’s criticism that no debt existed to underlie the lien
established in the declaration did not deter the supreme court from its holding.
The article’s theory that no debt underlies the lien also revealed a
misconception of the obligation to pay an assessment. Though sometimes described
19
as a contract, the assessment obligation arises not as a result of an annual agreement
for the owner to pay the fee to maintain the common areas but as an equitable
servitude on the lot:
The homeowners’ association is not a discrete party performing
maintenance services for a fee. It is merely the agent of each and every
owner, a mechanism created as part and parcel of the equitable servitude
[that] burdens the estate of each owner, functioning to assure that each
owner receives the benefits that the equitable servitude was intended to
confer. There need be no “contract” to impose this servitude on the
property. It was imposed on the property when the estate in land was
created pursuant to the documents that created the condominium
regime, pursuant to state law. No consideration passed, no meeting of
the minds took place (or needed to take place), incident to the creation
of this equitable servitude imposed on the estate. The owners could not
have avoided the terms of the equitable servitude when they purchased
the property, even had they wanted to.
Beeter, 173 B.R. at 115. Thus, the ownership of the lot in the subdivision carries with
it the obligation to pay the annual maintenance assessment, and that servitude creates
both the lien and the obligation to pay the assessments as they become due.
In accordance with Inwood, we hold that the assessment lien exists from the
time of the filing of a declaration rather than the time that an assessment was made.
And the ownership of the lot carries the ever-present obligation to pay the
assessments. Though we agree that the dollar amount of the annual maintenance
assessment is not set in the Declaration, that fact does not undermine the obligation
to pay the assessment as a covenant running with the land. Indeed, it appears
impractical for the Declaration to set the amount of an assessment that would
respond to the need of the subdivision fourteen years after its filing. But that does
20
not mean the obligation to pay the debt as it arose did not exist upon the filing of the
Declaration.
Also, it is hardly unusual for a lien to secure a debt that has not yet been
quantified or is contingent on a future event. For example, a lien may secure the
payment of future taxes by the mortgagee on behalf of the mortgagor. See, e.g., Smart
v. Tower Land & Inv. Co., 597 S.W.2d 333, 336 (Tex. 1980) (“Many Texas cases have
held that if a mortgagor fails to pay taxes he has promised to pay, the mortgagee may
treat the amount owed for taxes as part of the mortgage debt.”); Vista Dev. Joint
Venture II v. Pac. Mut. Life Ins. Co., 822 S.W.2d 305, 307–08 (Tex. App.—Houston [1st
Dist.] 1992, writ denied) (holding that liability for unpaid taxes accruing on property
may be secured by both a lien and a personal liability of maker of note). Further, a
lien may contain a dragnet clause that secures future but not yet quantified advances
of debt. 2 James N. Johnson, Texas Practice Guide: Real Estate Transactions § 10:21
(Sept. 2018) (“A ‘dragnet’ clause in a mortgage or deed of trust refers to a provision
creating a lien securing all indebtedness of the mortgagor to the mortgagee, whether
past or future, prior to discharge of the lien.”).10
10
In fact, the court of appeals’ opinion in Inwood recognized that “[a]n owner of
real property may, by executing a written instrument, create a lien on his property to secure
payment of future advances.” Inwood N. Homeowners’ Ass’n, Inc. v. Pamilar, 707 S.W.2d
125, 126 (Tex. App.—Houston [1st Dist.] 1986) (op. on reh’g) (citing First Nat’l Bank
of Corsicana v. Zarafonetis, 15 S.W.2d 155, 158 (Tex. App.—Waco 1929, writ ref’d)),
rev’d, 736 S.W.2d 632 (Tex. 1987). The court of appeals held the covenants governing
the property did not create a lien but only an unsecured obligation to pay the
21
And one court interpreting the Bankruptcy Code reasoned that a contingent,
unmatured obligation to pay an assessment constituted a debt as defined by
bankruptcy law (though it described the obligation as a contract and dealt with
whether the debt was a pre- or post-petition debt):
Under those broad definitions of claim and debt, the Rostecks had a
debt for future condominium assessments when they filed their
bankruptcy petition. It is true that the Rostecks did not actually owe money to
Old Willow for assessments beyond those Old Willow had assessed before their
bankruptcy. But the condominium declaration is a contract, and by entering that
contract[,] the Rostecks agreed to pay Old Willow any assessments it might levy.
Whether and how much the Rostecks would have to pay in the future
were uncertain, depending upon, among other things, whether the
Rostecks continued to own the condominium and whether Old Willow
actually levied assessments. But, as we have seen, contingent,
unmatured, unliquidated, and unfixed debts are still debts. “Contingent”
means: “‘Possible but not assured; doubtful or uncertain; conditioned
upon some future event which is itself uncertain or questionable . . . .
[I]t implies that no present interest exists, and that whether such interest
or right will ever exist depends upon a future uncertain event.’” This
definition describes perfectly the Rostecks’ obligation for future assessments: they
agreed to make payments, but whether and how much they actually had to pay
depended on future uncertain events. The Rostecks thus had a debt for the future
assessments under the Bankruptcy Code’s broad definition of debt.
Matter of Rosteck, 899 F.2d 694, 696–97 (7th Cir. 1990) (emphasis added).
Thus, the Texas Supreme Court, general principles of mortgage law, and
bankruptcy courts agree that a contingent debt may be sufficient to support the
general existence of a lien and to secure the specific payment of a homeowners’
association’s assessments. We now answer the question that we began with. Both the
assessments. Id. The supreme court obviously rejected the holding that no lien could
secure the obligation to pay future advances.
22
obligation to pay the assessment and the lien to secure the ever-present obligation to
pay it do circle over the property rather than spring into existence each year. Contrary
to Owner’s argument, an assessment is a debt that exists before the amount of the
assessment is set, and the existence of the lien to secure that debt is not dependent on
the amount of the assessment being set by the Board.
E. The Declaration creates both the obligation to pay assessments and the lien
to secure that obligation.
We see nothing in the Declaration to suggest that it does not create the
preexisting lien and continuing obligation to pay assessments described in Inwood. The
Declaration uses the present-tense to state that the lien it creates exists from the time
of its filing. Nor do we see the notice that is the linchpin of Owner’s suit as
performing any other function than meeting the practical need of informing a
homeowner of the amount of the annual maintenance assessment. Also, many of the
other events that Owner suggests are preconditions to the effectiveness of the lien are
established by the terms of the Declaration and are not contingent on the terms of the
notice. These include when an assessment becomes delinquent.
Obviously, different declarations may have different terms, and whether a
declaration creates a contractual lien from the time of its filing depends on its specific
provisions. See Kenneth D. Eichner, P.C. v. Dominguez, No. 14-16-00192-CV, 2017 WL
2561334, at *6 (Tex. App.—Houston [14th Dist.] June 13, 2017, no pet.) (mem. op.)
(“[W]e must look to the Association’s declaration in the instant case to determine
23
whether the assessment lien attached when the declaration was filed in 1978 or when
Dominguez defaulted on the monthly assessments.”); Red Rock Props. 2005, Ltd. v.
Chase Home Fin., L.L.C., No. 14-08-00352-CV, 2009 WL 1795037, at *3 (Tex. App.—
Houston [14th Dist.] June 25, 2009, no pet.) (mem. op.) (“[W]e look to the
condominium declaration in the instant case to determine whether the assessment lien
attached when the Declaration was filed in 1984 or when the Barbours defaulted on
the monthly assessments in November 2004.”).
The provisions that we outline next demonstrate that the Declaration at issue
provides for a lien that had its inception at the time the Declaration was filed and
continued as a charge on the land. And our interpretive task is limited to a review of
the Declaration’s terms because Owner concedes that he took title to his lot burdened
with the Declaration’s covenants and because the deed to his lot demonstrates that he
did.11 Further, the parties have cited no statutory provision that impacts the question
of whether and how the Declaration creates an assessment lien.12
11
The deed conveying the lot to Owner states: “This Deed is executed,
delivered[,] and accepted subject to all . . . covenants, restrictions common to the
platted subdivision in which said real property is located . . . .”
12
Unlike condominiums, homeowners’ associations do not have a statutory
framework. See Tex. Prop. Code Ann. §§ 82.001–.164 (Uniform Condominium Act).
Although there is a chapter in the Texas Property Code governing the conduct of a
homeowners’ association in some circumstances, none of the provisions of that
chapter provide instruction on how to interpret the provisions of the Declaration
here. See, e.g., Tex. Prop. Code Ann. § 209.003 (applicability of Texas Residential
Property Owners’ Protection Act), § 209.006 (requiring HOA notice before
enforcement), § 209.009 (prohibiting certain foreclosure sales based on certain
24
The Declaration creates the HOA for the purpose of “(i) maintaining and
administering the common properties and facilities, (ii) administering and enforcing
the covenants and restrictions contained herein, and (iii) collecting and disbursing the
assessments and charges hereinafter created.” The Declaration requires every owner
of a lot in the Griffin Parc subdivision to be a member of the HOA. Membership in
the HOA grants the owner “a non-exclusive right and easement of use and enjoyment
in and to” the common area of the development.13
Section 5.01 of the Declaration describes an owner’s liability to pay assessments
and how that debt is a charge on the land and “a continuing lien”:
Declarant, for each Lot owned by it, hereby covenants and agrees, and
each purchaser of any Lot by acceptance of a deed or other conveyance
document creating in such Owner the interest required to be deemed an
Owner, whether or not it shall be so expressed in any such deed or other
conveyance document, shall be deemed to covenant and agree . . . to pay
the Association . . . annual maintenance assessments or charges (as
specified in Section 5.04 hereof), such assessments to be fixed,
established[,] and collected from time to time as herein provided . . . .
The annual maintenance, special capital, and special individual assessments
described in this Section 5.01 (hereinafter, the “Assessment” or the
“Assessments,” together with interest thereon, attorneys’ fees, court
costs[,] and other costs of collection thereof, as herein provided, shall be a
charge on the land and shall be a continuing lien upon each Lot against which any
such Assessment is made. [Emphasis in italics added.]
The assessment pays for managing, improving, and maintaining the common areas.
assessments), § 209.0091 (providing owner an opportunity to cure), § 209.0092
(requiring judicial foreclosure).
13
No one disputes that the lot at issue is a “Lot” as defined in the Declaration
or that Owner is an “Owner” as defined in the Declaration.
25
Section 5.08 of the Declaration does require the HOA’s Board of Directors to
“fix the date of commencement and the amount of the annual maintenance
assessment against each Lot.” In turn, that section requires a “[w]ritten notice of all
assessments” to be sent to lot owners. But section 5.08 is also clear that the failure to
fix a new assessment does not relieve a lot owner of the obligation created by the
Declaration to pay assessments:
(c) The omission of the Board of Directors to fix the assessments within
the time period set forth above for any year shall not be deemed a waiver
or modification in any respect of the provisions of this Declaration, or a
release of any Owner from the obligation to pay the assessments, or any installment
thereof for that or any subsequent year, but the assessment fixed for the
preceding year shall continue until a new assessment is fixed. [Emphasis
added.]
The consequences of the failure to pay an assessment are established by section
5.09 of the Declaration. Section 5.09(a) sets the date that an assessment becomes
delinquent by stating that “[a]ny Assessment, or installment thereof, which is not paid
in full when due shall be delinquent on the day following the due date (herein
‘delinquency date’) as specified in the notice of such Assessment.”
Section 5.09(b) of the Declaration carries forward the theme that liability for
the assessment is a continuing debt and that the Declaration creates a lien to secure
that debt:
The unpaid amount of any Assessment not paid by the delinquency date
is and shall be, together with the interest thereon as provided in Section
5.09(a) hereof and the cost of collection thereof, including reasonable
attorneys’ fees, a continuing debt, secured by, and there is hereby impressed upon
26
and created against each Lot, a lien and charge on the Lot of the non-paying
Owner . . . .
To evidence any lien, the Association shall prepare a written
notice of lien setting forth [certain information]. [Emphasis in italics
added.]
There is no controversy that the word “hereby” is a reference to the Declaration.
Owner’s brief “concedes the point of grammar and verb usage, ‘there is hereby
impressed upon and created against each lot, a lien[]’ is present tense. ‘Present tense’
as in ‘2001.’ This shows that a lien did indeed arise seventeen years ago.”
Section 5.09(c) reiterates the theme that the Declaration causes a lien to attach
to each lot in the subdivision on the date of its recordation: “The lien securing the
payment of the Assessments shall attach to the Lot belonging to such non-paying
Owner upon recordation of this Declaration with the priority set forth in this
Section.”
Section 5.10 provides for the priority of the assessment lien relative to other
liens that may attach to lots in the subdivision after the filing of the Declaration:
The lien securing the payment of the Assessments shall be subordinate
and inferior to the lien of any bona fide first lien mortgage or deed of
trust now or hereafter recorded against any Lot; provided, however, that
such subordination shall apply only to the Assessments [that] have
become due and payable prior to a sale, whether public or private, of
such property pursuant to the terms and conditions of any such
mortgage or deed of trust. Such sale shall not relieve the new Owner of
such Lot from liability for the amount of any Assessment thereafter
becoming due nor from the lien securing the payment of any subsequent
assessment.
27
After a review of its terms, we interpret the Declaration to carry out the
standard practice of a declaration to establish and attach a lien to secure the payment
of future assessments and to establish an obligation to pay the assessment that runs
with the land. Certainly, the Declaration provides for notice. That notice only
quantifies the amount of the preexisting debt that runs with the land and to inform
the lot owners of that amount. It does not create the debt.
F. Because the Declaration, not the notice of the assessment amount, created
the lien and debt, the HOA did not create or enforce a lien in violation of
section 362(a)(4) by sending the notice of the 2016 annual maintenance
assessment.
Thus, we come full circle to the Bankruptcy Code and ask if the notice of the
amount of the annual maintenance assessment—sent while the Lot was property of
the Owner’s bankruptcy estate—created or enforced a lien and thereby violated
section 362(a)(4). The sending of the notice did not violate the stay.
The notice was not a precondition to the lien or the obligation to pay the
annual maintenance assessment. Both were created upon the filing of the
Declaration. Under Inwood, the lien “existed” from the time of the filing of the
Declaration. The supreme court did not hold that the lien came into existence with
each assessment but existed from the time of the filing of the declaration. And the
obligation to pay the annual maintenance assessment was not the result of the notice
but a continuing debt—or as some term it, an equitable servitude—that ran with the
land and was incident to the ownership of the lot. The notice of assessment sent by
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the HOA created neither the lien nor the debt. Nor did the notice set the date of
delinquency for the assessment; again, the Declaration set that date.
In the final analysis, a lien that already exists cannot be created in violation of
section 362(a)(4). One example that we gave earlier of a lien that secures a future
contingent debt was a future advance made under a dragnet clause, and federal courts
hold that adding debt to a lien that already exists does not create a lien in violation of
section 362(a)(4). See Beeler v. Jewell (In re Stanton), 303 F.3d 939, 942–43 (9th Cir. 2002)
(concluding that lender’s advance of funds pursuant to future advance clause did not
“create” new lien each time an advance was made). Further, performing an act that
continues the existence of a lien that is already in place does not create a lien. See
Jacobs v. Brain Power Am., Inc., Nos. 2:15-cv-00533-JAD, 2:15-cv-00911-JAD, 2:15-cv-
00912-JAD, 2017 WL 834978, at *3 (D. Nev. Mar. 2, 2017) (order) (“The automatic
stay is a creature of the bankruptcy code. It prevents a creditor from ‘creat[ing],
perfect[ing], or enforc[ing]’ a lien, and it prohibits a creditor from ‘enforcement’
efforts against the debtor. What is notably missing is a prohibition on renewing an
existing judgment.” (citation omitted)).
The trial court’s judgment also mentions one of the other prohibited acts of
section 362(a)(4), which is the enforcement of a lien. It does not find that the HOA
enforced its lien but rather that it had allegedly put itself in the position to enforce its
lien by giving notice that was “necessary to create an assessment lien which
assessment lien was essential to [the HOA’s] enforcement action.”
29
We agree that the action of the HOA by sending notice of the 2016 assessment
was not an act of enforcement under section 362(a)(4). The definition of the word
“enforcement” in section 362(a)(4) does not embrace the HOA’s setting and giving
notice of the assessment amount. See Houston Pipeline, 213 S.W.3d at 427 (“A lien ‘is
enforced by affirmative action such as filing lawsuits, foreclosing, and filing a notice
of lis pendens.’” (quoting Kocurek v. Arnold (In re Thurman), 163 B.R. 95, 100 (Bankr.
W.D. Tex. 1994))). The record establishes that the HOA did not file a notice of the
assessment lien or foreclose on that lien until after Owner received his discharge and
after the automatic stay was no longer in effect.
Accordingly, we sustain the HOA’s sole issue.
VI. Conclusion
Having sustained the HOA’s sole issue, we reverse the judgment of the trial
court and render judgment that the HOA’s sending of the notice of the 2016 annual
maintenance assessment did not violate the provisions of section 362(a)(4) of the
United States Bankruptcy Code.
/s/ Dabney Bassel
Dabney Bassel
Justice
Delivered: April 25, 2019
30