Foreclosures in Texas can be tricky. The Texas Property Code has very specific requirements that must be strictly adhered to if a condominium or subdivision property owners association intends to exercise its authority to foreclose on a property under its jurisdiction. For example, the association should only foreclose on amounts secured by the association’s lien, but this remedy largely depends on the association’s dedicatory instruments and Texas law. This article addresses some distinctions between condominium associations (which refer to associations with residential and commercial condominiums) and subdivision property owners associations (which refer to associations with single-family residential homes and townhomes) and their respective methods of foreclosure.
Authority to Foreclose
Chapter 82 of the Texas Property Code applies to condominiums for which the declaration was filed on or after January 1, 1994. Chapter 82 is also known as the Texas Uniform Condominium Act (TUCA). However, some provisions of Chapter 82 are retroactive and apply also to condominiums created before January 1, 1994. Condominiums created before January 1, 1994, are regulated by Chapter 81 of the Texas Property Code, and obviously any provisions of Chapter 82 which are retroactive.
Chapter 209 of the Texas Property Code applies to residential subdivisions subject to restrictions or provisions in a declaration that authorizes the property owners association to collect regular or special assessments on an owner’s lot and requires mandatory membership in the association. Chapter 209 contains various sections regulating a subdivision property owners association’s authority to foreclose.
Alternatively, a subdivision property owners association (POA) can foreclose using the expedited foreclosure process if the POA’s declaration contains power of sale language. There are limited circumstances where a POA can nonjudicially foreclose.
Availability of the Foreclosure Remedy
A condominium association may foreclose judicially or nonjudicially, except in instances where the condominium was created before January 1, 1994, and is limited by its declaration to judicial foreclosure only. There are, however, limitations on a condominium association’s right to foreclose. First, the association cannot foreclose its lien for assessments consisting solely of fines. Second, the condominium’s declaration may impose additional limitations on the type of foreclosure remedy available.
On the other hand, POAs generally have the authority to foreclose their assessment liens non-judicially, by expedited foreclosure (if the declaration contains power of sale language), or by judicial foreclosure. However, there are limitations on a POA’s ability to foreclose. First, a POA must determine if the homestead exemption impacts its ability to foreclose. A POA may foreclose despite the homestead exemption if a POA’s assessment lien attaches on or before the homeowner took title to the lot. In general, the assessment lien attaches when the document describing the lien is recorded in the real property records. Unfortunately, the specific language in a declaration can create issues with lien priority and ultimately affect a POA’s ability to foreclose due to the homestead exemption.
Second, like condominium associations, POAs cannot foreclose unpaid debts that consist solely of fines and attorney’s fees incurred by the POA solely associated with the fines.
Notice
Non-judicial foreclosures for condominium associations are governed by Chapter 51 of the Texas Property Code and the condominium’s declaration. Typically, a condominium association can foreclose after sending the homeowner notice at least 21 days before the date of the sale. The condominium declaration may dictate any other types of notices that may be necessary prior to foreclosing.
Section 209.0064 of the Texas Property Code requires notice by certified mail before a POA can hold an owner liable for the fees of a collection agent to initiate a judicial foreclosure. The notice must: (1) itemize the amount due to make the account current; (2) give the owner an opportunity to enter into a payment plan agreement, subject to a few exceptions; and, following the 2021 legislative session, (3) give the owner 45 days to cure the delinquency before any further collection action is taken.
In addition, a POA must provide 61 days’ notice of the total amount of the delinquency and opportunity to cure by certified mail, return receipt requested to any lienholders whose lien is inferior or subordinate to the POA’s lien, before it can commence an expedited or judicial foreclosure.
Foreclosure Process
The nonjudicial foreclosure process for a condominium association is governed by Chapter 51 of the Texas Property Code and the condominium’s declaration. The process consists of: (1) appointing a trustee to represent the association in the sale, (2) providing timely notice of the foreclosure sale; and (3) having the trustee conduct the foreclosure sale. The association’s attorney typically is appointed as the trustee and conducts the sale on the association’s behalf.
The judicial foreclosure process, as it relates to a POA, consists of two parts: (1) obtaining a judgment for judicial foreclosure authorizing an order of sale to be issued, and (2) having a county official (a sheriff or constable) conduct a judicial foreclosure sale. Before the sale, the sheriff or constable must give the homeowner a written notice of foreclosure sale by personal delivery or mail and must publish the notice in a newspaper.
If a POA decides to use the expedited foreclosure process to foreclose, the POA must first obtain a court order giving it authority to non-judicially foreclose its lien. Once the court order is obtained, the POA must foreclose its lien using the non-judicial foreclosure process outlined in Chapter 51, which is the same process used by condominium associations to non-judicially foreclose.
Redemption
A condominium unit owner may redeem his or her foreclosed unit within 90 days after foreclosure. If the association purchases the property at the foreclosure auction, the unit owner must repay the association all amounts due to the association at the time of the foreclosure sale, plus interest, reasonable attorney’s fees and costs, reasonable costs incurred by the association, and any assessments levied after the foreclosure sale. During the 90-day redemption period, the person or entity that purchased the unit at the foreclosure sale may not transfer ownership of the unit to anyone other than the redeeming lot owner.
Following a POA foreclosure sale, the former owner of the foreclosed lot, or a lienholder of the foreclosed lot, may redeem the property. The owner has 180 days from the date the association mails the post-foreclosure notice of redemption to the owner. If the owner does not redeem the lot within 90 days after the POA mails the notice, a lienholder of record may redeem the foreclosed property after the first 90 days but before the expiration of the 180-day redemption period. During this 180-day period, the person or entity that purchased the lot at the foreclosure sale may not transfer ownership of the lot to anyone other than a redeeming lot owner.
Both Chapter 82 and Chapter 209 of the Texas Property Code contain numerous provisions impacting an association’s ability to foreclosure. As always, condominium associations and POAs should work closely with their legal counsel to ensure proper compliance with foreclosure statutes in order to avoid litigation involving a claim for wrongful foreclosure.
To learn more about the foreclosure and collections process, join RMWBH for the next series of 101 and 201 webinars – Collections 101 and 201. Learn more and register for the webinars on our education page today!
