Judicial Foreclosure TX

Hello all,

Live in a 84-unit townhouse community in Houston, Texas. We have one resident that hasn't paid dues since October 2022. Our management company wants to file a judicial foreclosure. I'm not on board with that over $3,000. I do not know what mgt company has done to get this money. Just got on the board in early June so I've not had a chance to know what communication has been had. All I know is that mgt company is telling us the lawyer wants to file a judicial foreclosure.

Is it a good idea for our president to reach out to the resident, or one of the board members? What have others done in this situation?

Any advice is appreciated.

Trista

I feel your math is off. The Declaration and/or bylaws usually say the delinquent owner has to pay not only the assessments, late fees and interest owed, but all the money the HOA spent trying to collect this. It's not like the HOA is going to go to court and not get back what it pays the attorney to go to court.

Sometimes a letter from the HOA attorney that says pay up, or we file in court next week, is all it takes to shake the money loose.

I know there are hardship situations. However your duty is to the corporation and its membership as a whole. What this one owner does not pay has to be paid by the other owners. Is this fair to them? Especially given what the covenants say?

Our HOA established a policy. 6 months behind we lien. 1 year behind we CONSIDER foreclosure. We paid dues monthly. We allowed a payment program to catch up to avoid a lien if they tried to make atleast 1/2 the monthly payment. We may even forgive the late fees and interest if pay what you owe at 6 month period. Of course you NEVER foreclose on a house that is in a bank foreclosure. The HOA is doing the work for the bank then. The bank gets paid first and foremost even if the HOA files for the foreclosure.

A foreclosure ONLY stops the bleeding. It does NOT make a profit. It just fills in the debt they already owe if they pay up. Otherwise, it lets the HOA get rid of a bad payer with hopes of getting a new member/owner that pays their dues. Mind you in many states there is a "Right of redemption". Meaning the owner can get their property back up to a year IF they pay back everything they owe in the foreclosure.

So your PM or Lawyer itching to file a foreclosure is a warning sign to me. I would say they don't understand or care about the process. My first step is always to send a certified letter to the owner. Use the HOA Address and if they live somewhere else. If they do not respond, then do NOT open the letter. Save it as evidence they were served and rejected the notice.

A simple letter may let them know they owe dues. It may be they are just ignorant about the dues. They may be protesting paying. Maybe they are financially in trouble. The reasons should reveal themselves once you notify them.

Thank you, Terry! I was looking for a kinder response than to take his home. I don't care if it's a corporation or not, I'm not on board with taking a home over $3000 dollars. I don't know exact figures as the PM has not disclosed this, to my knowledge. I just got on the board in June and the PM hates me and won't ever respond to any of my e-mails, but that's a whole other issue.

I want to know if anyone has ever tried to talk to the homeowner directly? If so, how did that go? I have been at a dinner party with him before given by another neighbor, so I sort of know him. The other four board members don't know him at all. Should the president try to talk to him? Should it be me? If so, how do you bring up the topic? I'm rather blunt, never meaning to be rude, just blunt and don't do small talk very well.

If people want to reply that we should take his home, no. Just please don't respond. We are looking for a better way to communicate with said homeowner Not one board member is comfortable with taking someone's home over $2,740.00 in dues and whatever late fee the PM has attached to it. Just because we can, doesn't mean we should.

Again, I don't know what the PM has sent to owner regarding this. Surely they have followed Texas law, I would have to assume.

Again, I'm looking advice on talking to said owner.

Trista,
I am not trying to be argumentative just trying to state the facts as I know them. Speaking to this owner is not really going to do much because you are only 20% of the board. If 3 of the other 4 members decide to move forward with the process, you will have given false hope at best and maybe caused the board some legal issues. As someone who has been on boards for 14 years, I would never have a conversation regarding a legal matter without another board member present as a witness. It is very easy for someone to say you made promise the board would do X. Owners tend to think if "A" board member speaks "The" board speaks. Trying to be a nice person may have got you elected but can also get you in trouble. Usually by this point in the process if they are in collections, it is already out of the board's hands.

ElleN who is much better at the legal stuff can correct me if I am wrong on this.

There are a few recon things you can do first. First go to your county recorders website and look up the property.
Check to see if there are any liens, bank foreclosures, it it is a HUD home.

Has the person about to be foreclosed exhausted all methods of collections i.e. payment plan, collection agency etc? If so it is
your fiduciary duty as an elected officer of the HOA to execute the CC&R's as written and proceed with the foreclosure.

To some it sounds ridiculous to foreclose on a small debt to percentage of mortgage and or property value.
The purpose of the foreclose is to stop the financial bleeding. The end result is to divide that units monthly assessments, add
the money in arrears and divide that figure by the number of paying units in your HOA and let the other members carry the debt.

For $3,000., one goes to small claims court. Can you equate small claims to your neighbor’s home? No.

Shelia, I have never been late paying assessments. The illegal ones I paid “under protest” and was reimbursed. ALL the board’s liens have been illegal. I sued so they would stop recording void liens. As an owner I could do that.

It should be strongly noted that filing a lawsuit in court to collect back dues is NOT the best option. It is probably the worst. A lawsuit is only for the amount owed at time the lawsuit was filed. Considering it can take months to go to court, those months while waiting are NOT part of the lawsuit. Plus if the HOA wins a Lawsuit judgement, it is NOT a guaranteed to be paid. The person can simply sell their house and move. Typically the HOA only has 7 years to try to collect before having to go through it again. Who is going to pursue this especially if you change boards every year to two years? Plus a HOA has NO right to one's social security number. That means kind of limited on how it can collect. It's harder not having social security number because credit reports or wage garnishment often request that number.

A lien continues on the property till ALL the money owed is paid. They can NOT sell their home till the lien is paid. Holding their feet to the ground. Can't walk away as readily. A foreclosure stops the bleeding. It allows a HOA to get rid of a non-paying member in hopes of getting a new member/owner that does pay their dues. I won't say that a HOA will see their money back with a foreclosure but it does stop the bloodsucker living off other's dues.

$3,000. is a Small Claims case. Usually a case must be heard within so many days, here it's 70 max. And you can add interest so the amount owed is accurate when the court rules. Once you get a judgment, it's good for 10 yrs and is renewable. If member pays by check, you can attach bank account. If you know where they work, you can attach wages. You can have the sheriff tow their car and sell it. If they sell their house, you are going to get paid anyway. The 7 years wouldn't apply if you had a judgment. It costs very little to go to Small Claims court which helps everyone.

And, again, this shows why HOAs are undesirable because some boards view neighbors, not as neighbors, but as a commodity: "it allows a HOA to get rid of a non-paying member in hopes of getting a new member/owner that does pay their dues." Foreclosure is very short-sighted.

-- I support trying to arrange a payment plan. Late fees and interest must still apply, per the covenants.

-- I counsel heavily against using small claims court. If anyone wants to know why, ask.I do not support this. I think MarkM19 explained well why this is a very bad idea and very bad practice, as follows:

And if the board ever decided to pursue judicial foreclosure, without my lawsuits, the assessments would have been uncollectible.
Avoiding the predatory lawyers and collection agencies is healthy for the membership.

I posted this case previously but maybe Trista didn't see it. A good consideration for those contemplating nonjudicial foreclosure. 5th and 8th amendments to the U.S. constitution.
https://www.supremecourt.gov/opinions/22pdf/22-166_8n59.pdf

Again you did not win. I believe they were someone else's lawsuits you helped them in. The facts of which won the case. Which were that you can not file a lien other than for unpaid dues. Your HOA messed up by not understanding that fact. So the court simply closed the case due to the facts the lines were not filed correctly. No matter what wind you blew the courts way, the facts still remain. The court looked at the paperwork filed not what was said.

You said you were defending elderly people whom the HOA was treating badly. Now you admit these were your filed cases this whole time? Oh and again the evidence was the HOA used charges they were not supposed to do. Well that wins a case every time without much arguing. Plus was it you who filed against them? Not much of a win imo.

Hi Trista,

We have the exact same issue here (in Houston as well). I had our attorney draft a letter that was then sent certified mail to the owner stating they had to get current or face a lien on their property and possible foreclosure. The owners came to me within a week and we made a payment plan with them so they will not lose their home. The owners have been paying as they said they would for 3 months now.
I think it is possible to work with someone but that being said, some people will not pay and they may have to face foreclosure to get anything done.

Hi Trista,

We have the exact same issue here (in Houston as well). I had our attorney draft a letter that was then sent certified mail to the owner stating they had to get current or face a lien on their property and possible foreclosure. The owners came to me within a week and we made a payment plan with them so they will not lose their home. The owners have been paying as they said they would for 3 months now.
I think it is possible to work with someone but that being said, some people will not pay and they may have to face foreclosure to get anything done.

No, I am not the reason lawyers are fed.
I chose small claims court where lawyers are not allowed.
If a lien is valid, it has teeth; if a lien is void, it is worthless. A lawsuit that demonstrates these facts (necessary since our board is deaf and dumb) is beneficial to the membership. If you recorded invalid liens on your members as our board has been doing for years, you could and should be sued when the member can't get a loan because of it.

Trista, it looks like you are new to the board and unfamiliar with the collection procedures of your association. If you are using a PM, then they know what the Texas statues say for collections. It would be really beneficial for you to discuss 1) what attempts have been made to collect this debt and 2) why they want to go to foreclosure instead of simply putting a lien on the property.

Does your PM do the billing and accounts for your assessments (monthly or quarterly)? Because if they do, I guarantee that each month (or quarter) that has not been paid the homeowner gets a billing statement with a late fee and maybe other charges (interest and letter charges). So it's not like the homeowner is not getting regular communication or is unaware of the debt. There are reasons they may not be aware - if the PM changed banks and the owner had their payment on auto pay, or if the owner deleted an auto pay, etc. However, in most cases the person is aware. Find out what correspondence has been sent to the owner and review all of it before you have any meeting. Most people will claim they never got anything, but usually that's not true. A reasonable person will have contacted the PM or one of the board to say they can't afford it or give a reason. But people in debt like this are not always reasonable and don't reach out.

Our law in Florida allows us to put a lien on a property if the amount becomes $1000 or higher for any reason. It looks like they have changed that law and starting in October the $1000 amount can only be for assessments and fees and not for fines. But anyway, we use a collections agency for accounts that go over $1000. However, by the time we get to $1000 the owner has had letters, including certified letters, letting them know of the debt. Our statute is very specific on time frames that we have to follow before we can put a lien on the property. When the collections agency takes over the debt, they send a certified demand letter. The demand letter always has the option of a payment plan. We give everyone an opportunity to make it right before we file a lien.

I think it's fine if you and a board member want to speak to the owner, but I don't think we have all the facts about this since you haven't told us what the PM has done to get to foreclosure on this property.

Our community has two houses currently with liens and one that has just been sent a demand letter. The first one owed us over $7000 in assessments and fines. He simply didn't want to pay. He had the money but he was mentally ill and just didn't pay bills (stiffed his attorneys also). He lost the house in an estate lawsuit, it's been sold, and now we are collecting the money. If we didn't have that lien on the property, we may not have been paid. Liens protect the association. The other lien we have is for a house in foreclosure from the bank. We will get our funds eventually on that one too. The newest case is a strange one - long-time owner who simply stopped paying and won't respond to any communication. He has over $200k of cars sitting in his driveway at a house worth over $800k and he's a cardiologist with a successful practice - so I don't think it's money.

Last point - Terri from CA has strong opinions on foreclosure. They talk a lot about boards and fiduciary duty. Terri, you can't have it both ways. My fiduciary duty is to the association. When an owner stops paying and gets a debt, it is my fiduciary duty to collect that debt. I can't decide that negotiating contracts is a fiduciary duty that I like but debt collection is one I don't like (or think is immoral) and just not do it. Then I am not fulfilling my fiduciary duty. I agree that some associations are very aggressive in their collections, but you can't pick and choose what you want to do to fulfill that duty. Yes, you have to be sympathetic to each situation and try and make arrangements, but if someone can't pay their assessments, I have to do what is necessary to collect that debt in the fairest way possible.

What Mark said.

Not to mention that it's totally inappropriate for a single board member to have discussions offline with a homeowner about anything, let alone when there is a legal process in play. It's inappropriate even for an experienced director who knows what's going on, never mind one who doesn't. This kind of behavior can get you censured or maybe even sued, and it can make it difficult for the association to collect the delinquent assessments. (A former board president in my community resigned abruptly over what were called "liability issues".) You have a duty to act in the best interest of the association, not in the interest of a particular homeowner.

A new board member who hasn't done this before should be spending much of their first year in a mild panic as they discover how little they know. They should not assume they know more than the experienced board members. That said, many newbies can have a hard time with collections and foreclosure, it sort of goes with the territory. But your bylaws probably require it. And dealing with delinquent homeowners with attitudes will change your mind about this pretty quick. Payment plans are great and can work for homeowners who have financial difficulties. They're mostly useless for owners with attitude problems except for demonstrating that the board has bent over backwards to work with the owner and that the lack of payment is totally the owner's choice.

Your neighbors in a HOA or not are just homeowners. The difference of living in a HOA is your a member of a club that you all agree to paying for common needs and enforcement of rules you all decided you wanted.

Why is it everywhere else in the world if someone owes money you are allowed to collect by lien or foreclosure but in a HOA it is considered cruelty?

HOA stands for "HOMEOWNER'S ASSOCIATION". It is pretty much the definition of a "club". A club of owners whom share the cost of operational expenses. The CC&R/By-laws are the RULES of which this association set up it's rules and regulations. They are living and breathing documents that can be changed by the owners. The entire process of making the changes are IN these documents. Articles of Incorporation makes it so it can legally collect the money for it's operational expenses.

So I am not sure what land or bubble your living in. The reality is that a HOA is not unlike any other club that takes in dues and has rules. You just live in it.

Homeowners in an HOA are not just neighbors: they're legal and financial partners who jointly own property (or a financial interest in property) and who *voluntarily* assume the obligations that go along with this.

Yes, it's voluntary, because nobody held a gun to your head and forced you to sign the closing documents on your home. The large majority of HOAs require disclosure of the nature of your purchase prior to closing - nobody tries to hide it. You could have bought a home outside of an HOA, where the only thing you own is your house and (probably) the land it sits on. It's true that very few understand exactly what they're getting into when they buy in an HOA, at least not in the beginning, but that's a different discussion.

Mr. Roger's Neighborhood it ain't. And concentrating on the neighborhood aspect obscures the underlying legal and financial realities, which won't go away no matter how earnestly people want them to. You're business partners, like it or not, with all of the problems that implies. HOAs don't exist to provide a satisfying experience for owners. They benefit developers, the real estate industry, and local municipalities that can offload some of their responsibilities onto private citizens, and they provide attractive targets for the professional investors. The amenities and warm, fuzzy feelings of neighborliness are just "sweeteners" to keep the marks docile.

("Why CathyA3, aren't WE feeling cynical this morning?!" "Yes, yes we are.")

TristaJ - this sort of thing has come up here before. And, in fact, there’s a long and somewhat painful thread out there at

https://www.hoatalk.com/Forum/tabid/55/forumid/1/postid/335442/view/topic/Default.aspx

where the gang here helps me walk through it. You may find it interesting reading.

In looking for the thread and re-reading it just now, I noticed that I didn’t come back and tell what happened in the end. I’ll do that, but also I’ll just say it here: filing foreclosure “got their attention”. They paid the money they owed, and now it’s a seldom-visited memory.

Good luck with this.

Bill

To get back on subject... I see nothing wrong with the HOA board choosing to send a notification to the person behind in dues. They should do it. Do not let the PM or the lawyer lead you by the nose hairs. Simply send a certified letter detailing how much they owe and the consequences for not paying. Offer a payment plan. Once you see how they respond then can adjust your responses to that. Which can vary from anger to ignorance.