J. Patrick Sutton Cases & Issues Blog

HOA's, the CAI, and Gaming the System

Under Texas HOA law, the one sure winner in every dispute is the lawyers. One particular provision of the Texas Real Estate Code is particularly pernicious in driving HOA's and homeowners into litigation. Say it ain't so, Texas Legislature!
This is another in a series of blog postings detailing the ways lobbyists and lawyers game the system to enrich the legal profession.

A thriving section of my legal practice is HOA (homeowners' association) work. On principle, I represent homeowners and HOA's fighting the ever-escalating complexity and onerousness of the laws and governing documents relating to HOA's (and condo associations, COA's).  Wherever possible, I help clients revise, reduce, and gut shamefully overbearing restrictions on homeowner rights.

It ain't easy. Consider this fee-shifting law in the Texas Property Code:

(a) In an action based on breach of a restrictive covenant pertaining to real property, the court shall allow to a prevailing party
who asserted the action reasonable attorney's fees  in addition to the party's costs and claim.

Though I thankfully have not gotten burned by this law, I know lawyers who have. What it says, in essence, is that
first party to the courthouse gets to collect its attorneys fees from the loser. In the vast majority of HOA cases, it's the HOA (by its well-paid attorneys and property managers) that files suit. In such cases, even if the homeowner beats the HOA in the litigation, the homeowner can't collect her attorney's fees from the losing HOA.

This is literally what the statute says. The decided cases -- rather few -- aren't entirely clear on whether this law will, in the end, hold up. Nevertheless, other lawyers have told me their personal experiences defending homeowners and being blocked from collecting attorney's fees because of § 5.006. It does appear that lower-level courts in Texas accept HOA arguments that whoever wins the race to the courthouse gets to collect attorney's fees.

So, HOA's have strong incentive to run to court against their
own homeowners for negligible matters. In fact, homeowners already get socked with paying attorney's fees for the HOA's pre-suit efforts to collect because of Rules & Regs. that the HOA-Industrial Complex has implemented to keep lawyers and property managers well fed.

But it's really more insidious than that. The lawyers and property managers that form the backbone of the CAI (Community Associations Institute) don't get hurt in cases where homeowners win the race to the courthouse. Why? Because the CAI folks have organized the race in the first instance. Everyone has to buy a ticket to play. If a homeowner files a suit to pre-empt the HOA, and if the homeowner wins and gets to collect attorney's fees,
the homeowner still pays attorney's fees -- as that homeowner's proportionate share of what the losing HOA paid the HOA lawyers.

God, it's beautiful, isn't it? Clients ask me what to do, and I have to advise them that the way the system is rigged,
someone has to escalate the dispute and get a lawsuit filed ASAP. Thus, even as a lawyer anti-CAI and sympathetic to homeowner rights, I am all but forced to apprise clients of the need to race to the courthouse if there's even a small chance that the HOA might try to get there first.

What can I say, CAI, but: Bravo!

FYI, there's a fee-shifting law in the Texas Uniform Condominium Act, but it doesn't (yet) have the one-way gate that the general real estate fee-shifting provision has. Instead, it merely states that "the prevailing party" gets to collect attorney's fees. This is a relief to my condo HOA clients, but I wonder, given the legislative clout of the CAI, how long this exemption will last.
J. Patrick Sutton Cases & Issues Blog