Inwood North Homeowners' Ass'n v. Harris

736 S.W.2d 628

• Court: Texas Supreme Court
• Decided: July 15, 1987
• Docket: Nos. C-5283, C-5285
• Status: Published

Opinions

ROBERTSON, Justice.

This case involves a suit between a homeowners’ association and homeowners who are delinquent in their payment of neighborhood assessments. The issue before this court is whether the homestead laws of Texas protect the homeowners against foreclosure for their failure to pay the assessments.

The trial court granted a default judgment against the several homeowners in the amounts they were in arrears, but refused to allow the homeowners’ association to foreclose on the homes to collect the sums due. The court of appeals affirmed, 707 S.W.2d 127. We reverse the judgment of the court of appeals.

In December 1980, Inwood North Associates filed a declaration of covenants and restrictions for the Inwood North subdivision in the Harris County real property records. The declaration provided that all the lots within the subdivision were impressed with certain covenants and restrictions and that such would run with the land and be binding upon all parties acquiring rights to any of the property therein. The declaration thereafter created Inwood North Homeowners’ Association, a nonprofit corporation, to enforce the various restrictive covenants and to ensure the preservation of the uniform development plan. Under Article IV of the declaration, each person receiving a deed for a lot in the subdivision “is deemed to covenant and agree to pay the Association the following: (a) annual assessment or charges; and (b) special assessments for capital improvements.” These assessments, plus interest and costs of collection, were designated to be “a charge on the land and shall be secured by a continuing Vendor’s Lien upon the Lot against which such assessments or charges are made.”

Many lots in the subdivision were bought between 1981-83, and the respondents here were among the purchasers. The deeds given to the various homeowners contained specific references to the maintenance charges, or in some cases to the property records where the declaration was filed. When some of the homeowners became lax in the payment of their assessment charges, the Association brought suit to recover the amounts due and sought to foreclose on the “Vendor’s Lien” contained in the declaration. While many of the delinquent sums were subsequently received, several homeowners failed to settle their accounts. When these homeowners failed to appear at trial after being properly served, the trial court rendered a default judgment against them.

In upholding the trial court’s refusal to order foreclosure, the court of appeals held that no proper vendor’s lien was formed by the declarations, thus holding the homestead laws of this State precluded foreclosure. While we recognize that no vendor’s lien was present, we disagree with the result reached by the court of appeals.

It is unquestioned that an owner of land may contract with respect to their property as they see fit, provided the contracts do not contravene public policy. Goodstein v. Huffman, 222 S.W.2d 259, 260 (Tex.Civ.App. — Dallas 1949, writ ref’d). Therefore, the developer of the subdivision, as owner of all land subject to the declaration, is entitled to create liens on his land to secure the payment of assessments. Cf. Hodges v. Roberts, 74 Tex. 517, 519-20, 12 S.W. 222, 223 (1889). The declarations in question provided that the assessments “shall be secured by a continuing vendor’s lien.” It does not seem likely that a true vendor’s lien exists in the present case because the assessment charges were not part of the purchase price of the property. Furthermore, there is no deed of trust which would have acknowledged the prior lien. Ufemark Corp. v. Merritt, 655 S.W.2d 310, 313 (Tex.App. — Houston [14th Dist.] 1983, writ ref’d n.r.e.). Much more probable is its existence as a contractual lien, as several older decisions hold that a contractual lien will be enforced regardless of the fact that it was improperly designated as a “vendor’s lien.” E.g. Maryland Casualty Co. v. Willig, 10 S.W.2d 415, 419 (Tex.Civ.App. — Waco 1928, writ ref’d).

Creation of a contractual lien depends only on evidence apparent from the language of the agreement that the parties intended to create a lien. Dabney v. Schutze, 228 S.W. 176, 177 (Tex.Comm’n App.1921, judgmt adopted). Furthermore, under Moore v. Smith, 443 S.W.2d 552 (Tex.1969), this court must consider the assessment provisions and lien as a whole and must not overthrow the clear and explicit intentions of the parties. See Cartwright v. Trueblood, 90 Tex. 535, 39 S.W. 930, 932 (1897). It seems clear from the language used in the agreement that the owner intended to provide for such liens, and we would be remiss in not conforming this decision to such an intent. With this decision made we turn to the crux of this case; the effect of Texas homestead law on the lien in question.

As a general rule, a homestead is protected against all debts of those who live in that homestead. The only debts which may be collected by foreclosure on the homestead are delineated in Article XVI, § 50 of the Texas Constitution. That section provides:

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 the purchase money, the taxes due thereon, or for work and material used in constructing improvements thereon, and in this last case, only when the work and material are contracted for in writing.... No mortgage, trust deed or other lien on the homestead shall ever be valid, except for the purchase money therefor, or improvements made thereon, as hereinbefore provided, whether such mortgage, or trust deed, or other lien, shall have been created by the owner alone, or together with his or her spouse....

TEX. CONST. Art. XVI, § 50 (1845, amended 1973).

Since the early days of Texas jurisprudence, it has been expressed that the

homestead exemption was founded on principles of soundest policy ... Its design was not only to protect citizens and their families from destitution, but also to cherish and support in bosoms of individuals, those feelings of sublime independence which are so essential to maintenance of free institutions.

Franklin v. Coffee, 18 Tex. 413, 416 (1857). This court has often said that interpretation of the homestead laws are to be made liberally. E.g. Cocke v. Conquest, 120 Tex. 43, 35 S.W.2d 673, 678 (1931). Homestead rights, however, may not be construed so as to avoid or destroy pre-existing rights. Minnehoma Financial Co. v. 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). Thus, we reaffirm 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.

Thus, this case revolves around when the lien attached on 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 v. 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.

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. Westland Oil Devel. Corp. v. Gulf Oil Corp., 637 S.W.2d 903, 910-11 (Tex.1982); Williams, Restrictions on the Use of Land; Covenants Running with the Land at Law, 27 Tex.L. Rev. 419, 423 (1949). The covenant to pay maintenance assessments for the purpose of repairing and improving the common areas and recreational facilities of Inwood North touches and concerns the land. See 5 R. POWELL, THE LAW OF REAL PROPERTY § 673[2] at 60-46 (15th ed. 1986) (a covenant to pay for the maintenance of subdivision facilities both benefits and burdens the property of each individual landowner, thus, it runs with the land); see also RESTATEMENT OF PROPERTY § 537 at 3224 (1944). The Declaration of Covenants evidences the intent of the original parties that the covenant run with the land, and the covenant specifically binds the parties, their successors and assigns. Because the property in question was conveyed in a succession of fee simple estates, the requirement of privity is satisfied. Westland Oil, 637 S.W.2d at 910-11. Consequently, the covenant in question satisfies the requirements of a covenant running with the land. Furthermore, the deeds signed by each of the homeowners made reference to the assessments that would be due, thus each of the homeowners had notice of what their obligations were, and a purchaser with constructive notice of restrictive covenants becomes bound by them. Selected Lands Corp. v. Speich, 702 S.W.2d 197, 199-200 (Tex.App. — Houston [1st Dist.] 1985, writ ref’d n.r.e.). Moreover, a purchaser is bound by the terms of instruments in his chain of title. Cooksey v. Sinder, 682 S.W.2d 252, 253 (Tex.1984). Therefore, as the homeowners had constructive notice of the lien and foreclosure provisions in the declarations, they are bound by them.

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 which run with the land, the homeowners were subject to the liens in question and an order of foreclosure would have been proper.¹

Furthermore, a second and equally important theory supports our holding today. A homestead right in real property cannot rise any higher than the right, title or interest acquired by the homestead claimant. Sayers v. Pyland, 139 Tex. 57, 161 S.W.2d 769, 773 (1942). A homestead may attach to an interest less than an unqualified fee simple title. A homestead may attach to any possessory interest, subject to the inherent characteristics and limitations of the right, title or interest in the property. Gann v. Montgomery, 210 S.W.2d 255, 258 (Tex.Civ.App. —Ft. Worth 1948, writ ref’d n.r.e.). The homestead, however, will not operate to circumvent an inherent characteristic of the property acquired. Sayers, 161 S.W.2d at 773. The concept of community association and mandatory membership is an inherent property interest. The declaration defines the rights and obligations of property ownership. The mutual and reciprocal obligation undertaken by all purchasers in Inwood Homes creates an inherent property interest possessed by each purchaser. The obligation to pay association dues and the corresponding right to demand that maximum services be provided within the association’s budget are characteristics of that property interest. Moreover, the right to require that all property owners pay assessment fees is an inherent property right. That no owner has to pay more than a pro rata share is an essential characteristic of the property interest.

We see no distinction in pro rata fee simple ownership of common elements and in pro rata common ownership in an association, mandated by the declaration, which owns the common elements. The function of the association, with its attendant responsibilities, is the same in Inwood North as in Johnson v. First Southern Properties, Inc., 687 S.W.2d 399 (Tex.App. — Houston [14th Dist.] 1985, writ ref’d n.r.e.)²

The 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 is an inherent characteristic of the property right. It is generally the only method by which other owners will not be forced to pay more than their fair share or be forced to accept reduced services. If we were not dealing with a homestead, no one would have a problem declaring that a lien exists to secure the payment of the Homeowners’ Association assessments. Our focus in this case has been on whether the lien is enforceable against a homestead claim. In making that determination, we have considered the debt, the lien, the homestead claim, and the property interest to which the homestead attached. In so doing, we have found the lien in the present case to be superior, and worthy of protection against the homestead claim.

In conclusion, we hold that under the facts in the present case, the Homeowners’ Association is entitled to the foreclosure of the contractual lien it has on the houses of delinquent owners. We recognize the harshness of the remedy of foreclosure, particularly when such a small sum is compared with the immeasurable value of a homestead. Under the laws of this state, however, we are bound to enforce the agreements into which the homeowners entered concerning the payment of assessments. Thus, the judgments of the trial court and court of appeals are reversed and we remand this cause to the trial court so that it may issue an order of foreclosure consistent with this opinion.

MAUZY, J., dissents in an opinion joined by GONZALEZ, J.

1 . In reaching this decision we are mindful of the decisions of several other states which have chosen to uphold homeowners’ associations’ rights to foreclose for delinquent assessments. While we recognize that the decisions of these other jurisdictions are arguably distinguishable for one reason or another, we note that no reported case in any jurisdiction has reached anything other than the result we announce today. See Boyle v. Lake Forest Property Owners Ass’n, Inc., 538 F.Supp. 765, 769 (S.D.Ala.1982); Bessemer v. Gersten, 381 So.2d 1344, 1348 (Fla. 1980); Kell v. Bella Vista Village Property Owners Ass’n, 258 Ark. 757, 528 S.W.2d 651, 653 (1975); William H. Bond, Jr. & Assoc., Inc. v. Lake O'The Hills Maintenance Ass’n, 381 So.2d 1043, 1044 (Miss.1980). Of particular importance is Bessemer, as it involved very similar facts to the present case. In Bessemer, the Florida Supreme Court held that the homeowners "in accepting the deed with actual or constructive notice of the lien provisions of the declaration of restrictions, manifests the intent to let the real property stand as security for the debt." Bessemer at 1348. The court thereafter allowed foreclosure, saying

[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.

Bessemer at 1348.

2 . For an analysis of Johnson and applicable homestead principles, see Note, The Texas Homestead and Condominium Assessments, 38 Baylor L.Rev. 987 (1986).