The Homeowners Association –appreciated by many, reviled by some. When a homeowner makes the investment for the purchase of a house, generally the desire is that the house and neighborhood selected will not deteriorate, be it aesthetically or monetarily. The primary purpose of the Homeowners Association ("HOA") is for such upkeep, maintenance and preservation of a neighborhood. News reports about HOAs often do not reflect their beneficial attributes, particularly when foreclosure of a person's home is involved.
This was certainly the case in the recent local articles on the foreclosure of the Dallas-area home of one Texas soldier while he was on active duty. While all of the specific facts of this case are unknown at this time, there can be no argument that the situation is more than unfortunate. For both homeowners and HOAs, avoiding unpleasant scenarios, like this one, starts with understanding the processes, pitfalls, and protections of assessments and HOA foreclosure of assessment liens, particularly on a service member's home.
Creation of Assessment Lien
The Texas Supreme Court has addressed HOA assessment liens in Inwood N. Homeowners' Assoc.v. Harris, 736 S.W.2d 632 (Tex. 1987). Generally, assessments, their corresponding liens, and foreclosure thereof, are an inherent characteristic of the property right – the only method by which other owners won't be forced to pay more than their fair share or be forced to accept reduced services. In Inwood, the Texas Supreme Court recited that the creation of a contractual HOA lien is accomplished when the developer records a declaration of covenants, conditions & restrictions ("CC&Rs") in the county where the land is located.
The CC&Rs run with the land and are binding on all parties acquiring rights to any property in the subdivision. Typically included in the CC&Rs are covenants—i.e., promises—by the homeowners to pay the annual, special, or other stated assessments as specified in the CC&Rs. Additionally, the CC&Rs often state that these assessments are a charge on the land and shall be secured with a contractual lien upon the lot against which such assessments or charges are made which may be foreclosed. The /mood Court recognized the harshness of foreclosure, especially when a relatively small amount of money is owed compared to the value of a home. Texas law, however, requires enforcement of agreements entered into concerning the payment of assessments. Whether developing a neighborhood or governing an existing one, it is paramount to have CC&Rs drafted which provide for the necessary assessments to sustain a neighborhood that also explain the utilization and procedural aspects of such assessments for use and understanding by the residents.
Steps to Foreclosure
Texas Property Code §51.001, et seq. addresses the non-judicial foreclosure process in Texas. First, unless there is an agreement that states otherwise, an HOA must serve a homeowner in default with written notice by certified mail stating that the homeowner is in default under the CC&Rs assessment lien provisions and give the debtor at least 20 days to cure the default before notice of sale can be given. Service by certified mail is complete when notice is deposited in the U.S.mail, postage prepaid and addressed to the homeowner at his last known address.
Second, a notice of sale must be provided to the homeowner at least 21 days before the date of the sale, and it must include a statement of the earliest time at which the sale will begin. This notice includes: (I) posting at the courthouse door of each county in which the property is located a written notice designating the county in which the property will be sold; (2) filing in the county clerk's office of each county in which the property is located a copy of the notice posted on the courthouse door; and (3) serving written notice of the sale by certified mail on each debtor who, according the HOA's records, is obligated to pay the debt.
Finally, the sale must occur on the first Tuesday of the month within any three-hour period between 10:00 a.m. and 4:00 p.m. at the county courthouse in any county where the house is located, unless otherwise stated by the county. One item to remember is Texas Property Code §209.009 mandates that an HOA cannot foreclose an assessment lien if the debt securing the lien consists solely of (1) fines assessed by the HOA, or (2) attorney's fees incurred by the HOA solely associated with fines assessed by the HOA.
Notice to Homeowner after Foreclosure Sale
Texas Property Code §§209.010 and 209.011 require certain post-foreclosure actions by the HOA of non-condominium property. No later than 30 days after the foreclosure sale, the HOA must send the homeowner and each lienholder of record written notice stating the date and time the sale occurred and informing the homeowner and lienholders of the right to redeem the property. Such notice must be sent by certified mail, return receipt requested, to the homeowner, each lienholder of record, and each transferee or assignee of a deed of trust that has notified the HOA of such assignment or transfer. No later than 30 days after sending the notice, the HOA must record an affidavit in the real property records of the county, stating the date the notice was sent and a legal description of the lot.
If desired or necessary, the HOA or other person who buys occupied property at foreclosure sale must commence and prosecute a forcible entry and detainer action to recover possession of the property.
Homeowner's Right of Redemption after Foreclosure
Texas Property Code §209.01 1 also provides redemption rights following an 1-10A foreclosure of non-condominium property. The affected homeowner or any lien-holder of record can redeem the property from the foreclosure-sale purchaser no later than the 180th day after the HOA mails written notice of the sale. A lien-holder cannot redeem the property before 90 days after the date notice was sent, and only if the owner has not previously redeemed.
Generally, redemption will require payment to the HOA of all unpaid assessments as well as fees and costs incurred by the HOA for the foreclosure. If the property was purchased by a third party, redemption will also require the payment of the purchase price to the third party purchaser. If the property is redeemed, the purchaser must immediately execute and deliver to the redeeming party a deed transferring the property to the lot owner.
The purchaser at the foreclosure sale, or any person to whom he transferred the property, can presume conclusively that the homeowner or lienholder did not redeem the property unless the homeowner or lienholder files in the real property records of the county (l) a deed from the purchaser of the property at the foreclosure sale; or (2) an affidavit that states the property that has been redeemed, contains a legal description of the property, and includes the name and mailing address of the person who redeemed the property. Should the redemption period expire without redemption being properly executed, the HOA or third-party foreclosure purchaser is required to record an affidavit in the real property records of the county in which the property is located stating that the homeowner or a lienholder did not redeem the property during the redemption period.
Servicemembers Civil Relief Act
The Servicemembers Civil Relief Act ("SCRA"), 50 U.S.C.S. Appx. §50I, et seq., provides protection in scenarios like those described above for members of our armed forces. The purpose of the SCRA is to (I) provide for, strengthen, and expedite national defense through protection to service-members of the United States to enable such persons to devote their entire energy to the defense needs of the nation; and (2) to provide for the temporary suspension of judicial and administrative proceedings and transactions that may adversely affect the civil rights of service-members during their military service.
Under §533 of the SCRA, foreclosure of property for breach of an obligation is not valid if made during, or within 9 months after, the period of the servicemember's military service. Exceptions are a sale, foreclosure, or seizure which is made upon a court order granted before such sale, foreclosure, or seizure with a return made and approved by the court; or a sale, foreclosure, or seizure that is made pursuant to an agreement. This 9 month period only applies between July 30, 2008, and December 31, 2010. On January I, 2011, the statute returns to pre-amendment language, which still provides protection, but only 90 days instead of 9 months after the servicemember's military service.
Violation of the SCRA is a misdemeanor punishable by fines and/or imprisonment for not more than I year if a person knowingly makes or causes to be made a sale, foreclosure, or seizure of prohibited property, or knowingly attempts to do so. Section 533 of the SCRA applies to obligations on real or personal property owned by a servicemember that (I) originated before the period of the servicemember's military service and for which the service-member is still obligated; and (2) is secured by a mortgage, deed of trust, or other security in the nature of a mortgage. Typically, foreclosing entities will make a determination on the military status, if any, of their debtor to ascertain the applicability of the SCRA. One website to locate such information is https://
Effective June 19, 2009, Texas passed H.B. 3857, which was codified as Texas Property Code § 51.015, titled Sale of Certain Property Owned by Member of the Military_ This section generally follows the SCRA and should be consulted during any HOA foreclosure occurring after the effective date addressed above.
Foreclosure is typically an effort of last resort for HOAs to collect their assessments. There are risks and responsibilities for both sides involved in any foreclosure, and it is always advisable to have the assistance of experienced counsel to navigate the detailed and nuanced process. Likewise, when preparing or revising the CC&Rs for your community, it is always advisable to consult with an experienced attorney so efforts can be taken to minimize the perils involved with enforcing assessment liens.