ATTORNEY GENERAL OF TEXAS I. Legal Backwound A. Statutory

ATTORNEY

GENERAL OF

TEXAS

GREG ABBOTT

August 25,2004

The Honorable Eugene D. Taylor

Williamson County Attorney

Williamson County Courthouse Annex

Second Floor

405 Martin Luther Ring, Box 7

Georgetown, Texas 78626

Opinion No. GA-0237

Re: Whether liens for public improvement district

assessments levied against property that was not a

homestead at the time ofassessment maybe enforced

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].

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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. CODE ANN. § 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.

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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.

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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.

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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

CODE ANN. $j 372.018(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

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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.

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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