When you buy a single-family home, townhome, or condominium that's part of a planned community with covenants, you'll most likely pay fees and assessments, often collectively called "assessments," to a homeowners' association (HOA) or condominium owners' association (COA). If you fall behind in the assessments, the association will likely first try to collect the debt using traditional methods. For instance, the association will probably call you and send letters. But if those tactics don't get you to pay up, the association will probably try other ways to collect from you. The association might take away your privileges to use the common facilities or file a lawsuit to get a money judgment against you. Most HOAs and COAs also have the power to get a lien on your property if you become delinquent in assessments. Not only will an assessments lien cloud the title to the property, which hinders your ability to sell or refinance the home, but the property can also be foreclosed to force a sale to a new owner—even if the property has a mortgage.
Different sets of state laws often govern HOAs in subdivision communities and COAs. The Texas Residential Property Owners Protection Act (Title 11, Chapter 209 of the Texas Property Code) covers HOA activities in the state, while the Uniform Condominium Act (Title 7, Chapter 82 of the Texas Property Code) governs condominiums created after January 1, 1994. The provisions of the Uniform Condominium Act discussed in this article also apply to condominiums created before 1994. (Tex. Prop. Code Ann. § 82.002). The two sets of laws are similar, but with some differences.
If your home is part of an HOA or COA and you fall behind in assessments in Texas:
If the HOA or COA initiates a foreclosure, you might have a defense to the action, or you might be able to negotiate a way to get caught up on the overdue amounts and save your home.
Based on the association's Covenants, Conditions, and Restrictions (CC&Rs) and state law, an HOA or COA can usually get a lien on your home if you're delinquent in paying the assessments. In some cases, the association will record its lien with the county recorder to provide public notice that the lien exists, regardless of whether state law requires recording.
In Texas, an HOA gets the authority to collect assessments and place a lien on your home primarily from its governing documents, such as the CC&Rs. COAs, on the other hand, get this right from state law. (Tex. Prop. Code Ann. § 82.102(a)(2), § 82.113). (A COA will also often include a provision in its governing documents about its right to collect assessments and place a lien on the condo if the owner falls behind in payments, just to cover all bases.)
State law provides that a COA lien is automatically created when the condominium declaration (the instrument that created the condominium) is recorded. (Tex. Prop. Code Ann. § 82.113(c)). This action constitutes record notice and perfection of the lien. Unless the declaration provides otherwise, no other recordation of a lien or notice of lien is required.
Texas doesn't have a comparable law for HOAs. So, an HOA declaration will often state that a lien is automatically created when the declaration is recorded. Many HOAs record notices of assessments lien in the county records as well.
Texas law sets out the types of charges that a COA may include in the assessments lien. Unless the association's governing documents provide otherwise, the lien may consist of:
To find out which charges an HOA may include in its lien, review the association's governing documents.
State laws often place particular due process requirements on HOAs and COAs regarding how and when an association can foreclose an assessments lien. For instance, Texas law doesn't permit an HOA or COA to foreclose a lien that consists of just fines.
A COA may foreclose its lien judicially or nonjudicially, except that the association may not foreclose a lien that consists solely of fines. (Tex. Prop. Code Ann. § 82.113(e)). Nonjudicial foreclosures are governed by Chapter 51 of the Texas Property Code. But the declaration might limit the association to judicial foreclosures only.
An HOA in Texas may foreclose its assessments lien:
Also, the declaration might restrict the type of foreclosure process. And an HOA may not foreclose a lien for assessments that consists solely of:
Texas law provides homeowners with a redemption period following an HOA or COA foreclosure.
If an HOA forecloses, the former owner may redeem the home within 180 days from the date the HOA mails the homeowner a post-foreclosure notice of redemption rights. (Tex. Prop. Code Ann. § 209.011(b)).
If a COA forecloses, the former owner may redeem the unit within 90 days after the date of the foreclosure sale. (Tex. Prop. Code Ann. § 82.113(g)).
To redeem the property if the HOA or COA purchases the property at the foreclosure sale, you must pay:
A common misconception is that the association can't foreclose if you're current with your mortgage payments. But an association's right to foreclose isn't dependent on whether you're current on your mortgage payments. Instead, lien priority determines what happens in a foreclosure.
The priority of liens establishes who gets paid first following a foreclosure sale and often determines whether a lienholder will get paid at all. Liens generally follow the "first in time, first in right" rule, which says that whichever lien is recorded first in the land records has higher priority than later recorded liens. A first-lien has a higher priority than other liens and gets the first crack at the foreclosure sale proceeds. If any proceeds are left after the first lien is paid in full, the excess proceeds go to the second lienholder until that lien is paid off. And so on. A lien with a low priority might get nothing from a foreclosure sale.
But state law or an association's governing documents might adjust lien priority.
A COA lien for unpaid assessments has priority over all other liens except:
To find out the priority of an HOA lien, check the association's governing documents. Most Texas HOA documents state that state tax liens and certain mortgages, like first mortgages, have priority over an assessments lien.
So, a foreclosure by an HOA or COA usually won't eliminate a first mortgage because the association's lien is normally lower in priority.
Texas laws covering HOA and COA foreclosures are complicated and extensive. If you're facing an HOA or COA foreclosure in Texas, consider consulting with a foreclosure attorney to discuss all legal options available in your particular circumstances.