No homeowners’ association (HOA) wants to seek foreclosure on someone’s home to recover dues, assessments and other debts. This is a last resort. It can be costly, time-consuming and upsetting to other homeowners.
An HOA can take multiple steps before foreclosure to attempt to collect on unpaid balances, including:
- Late charges and interest
- Suspension of access to community amenities
- Turning the account over to a collection agency
- Filing a lien against the property
The association’s covenants, conditions, and restrictions (CC&Rs) should outline the steps that can be taken to recover overdue payments along with interest and fees.
If none of these work and foreclosure is the only step left, it’s important to choose the appropriate type. Again, acting within the rights granted to the HOA by the CC&Rs is critical.
Texas law allows two potential types of foreclosure processes for HOAs. Let’s take a brief look at those.
Judicial foreclosure
A judicial foreclosure begins with the HOA filing a lawsuit against the homeowner. If the court sides with the HOA, the property is then sold in a public auction, overseen by the court.
The proceeds of the sale go to the HOA to cover the amount it is owed. The rest go to the homeowner’s other creditors. Any remainder goes to the homeowner.
Nonjudicial Foreclosure
Not all HOA governing documents allow nonjudicial (expedited) foreclosure. If they do allow “power of sale” to the HOA, it can sell the property itself at public auction. While a court order isn’t necessary, the court still must give permission unless the homeowner is agreeable to proceeding without it.
If a homeowner whose property has been foreclosed is able to repay the full amount they owe the HOA within 180 days of the foreclosure, they have the option to do so and get their home back. This is called “right of redemption” under Texas law.
Homeowners and HOAs are both under increased economic stress
During times of rising prices and other economic stressors, HOAs have to deal with an increasing number of homeowners who can’t keep up with their dues. This is especially true when HOAs have to raise dues to keep up with their costs and have special assessments to cover things like large repairs after storms and needed upgrades to common areas.
It’s crucial to have detailed CC&Rs that can be invoked as needed and to take the appropriate legal steps to seek payment of late and unpaid homeowner bills. Having an experienced legal team is critical for any well-run HOA.