Enforcing Restrictive Covenants

I don't live in Texas, but from reading the statute (and you'll need an attorney to make sure this is interperted properly), it appears this would address an issue where someone was found to be in violation of the covanents and failed to fix it, and so he/she/they were sued. If found guilty, the court could make them pay $200 a day for every day the covanent was violated in addition to the HOA's legal fees incurred in going after the homeonwer.

That would be different from failing to enforce the covanents, in which case you might consider going after the board itself for failure to meet its fidicuary duty - part of their job is to ensure the covanents are enforced.

That said, suing the board is equal to suing the HOA, which is equal to suing yourself and your neighbors (as MelissaP1, a frequent participant on this site, often says). The board might resort to using the directors and officers coverage on the Association's master insurance policy (if you have one) and depending on how it ends, the policy premiums might increase drastically or your association gets dropped altogether. Than you have to get another policy, which isn't easy and pay more money.

So, if your board isn't doing what they should be doing, why haven't the rest of the association members (you and your neighbors) voted them out and brought in people who will? It may not necessarily be easy, but I would think it would be cheaper than going to court.

This is a very complicated situation. First you have to understand that this is an HOA of vacation rental properties in a condominium. The non-profit HOA has had a separate corporation as a for profit property management operation to rent the units and provide other related services. These were two separate corporations filing separate tax returns and registered with the Texas SOS. For over twenty years they have failed to get audits as required by the governing documents and the Texas Property Code. The HOA has taken out loans from a local bank and provided the proceeds to the rental operation to cover the variability of cash flow that occurs in rental seasonality. These loans have no interest rate, term or repayment terms. Sometimes they get paid back and some times they get written off against other services. This all started because I don't rent and it was my feeling that the HOA was subsidizing the rental with assessments and I don't use the rental operation. Those that do rent probably don't care as the money would come from one place or another. Those that don't rent see a portion of their assessments being used to subsidize the rental.

There is much more at stake than worrying about suing myself as an owner. Trust me, if we are correct, the dollars justify the actions to stop the subsidization. It is a lot of money.

As for the business judgement rule, they are a defense unless the acts are ultra vires, basically meaning beyond the scope of the powers and duties of the corporation. It is our opinion that loaning money to third party companies and ignoring state law and governing documents by not performing audits is way beyond the scope of the powers and duties of those charged with managing the affairs of the corporation.

I would really like to hear from anyone that has had experience with Texas Property Code Chapter 202 and what the results were. If we are correct, the multiplication for 202 of $200 a day works out to over $3,000,000 of damages based on a four year statute of limitation.

Thanks for your comments!