The right to foreclose on a residential property
evokes emotionally charged sentiments. Banks or credit agencies
perform the chore as part of their routine duties, but when a
homeowners association resorts to foreclosure, tempers often
flare.
Too often, property owners regard homeowner associations
more as loosely-knit groups of disparate neighbors than the nonprofit
business corporations they really are. The vast majority of volunteer
board members of homeowners associations conscientiously comply
with their governing documents and try, to the very best of their
ability, to adhere to all local, state, and federal laws and
regulations that involve deed restricted, mandatory membership
communities. In fact, most board members compassionately try
to resolve conflict and confusion among homeowners with informal
discussions, communications and surveys. Referring a recalcitrant
homeowner to an attorney is a decision of last resort, after
all efforts at resolution have failed.
The issue of foreclosure proceedings on delinquent
assessments is especially sensitive because it involves a family's
home. While some challenge even the fundamental right of homeowner
associations to take someone's home for nonpayment of maintenance
fees, more on point should be the number of homes that were actually
sold by homeowner associations. An association may post a home
for foreclosure, but very few foreclosure sales actually occur
because the delinquency is most often paid or settled. Homeowner
associations really don't want to take someone's home; they want
the maintenance fees paid so the association can meet its financial
obligations.
There are two types of foreclosure available to
homeowner associations in many states -- judicial and nonjudicial.
Judicial foreclosure involves filing a lawsuit against a homeowner
who has not responded to the homeowner association's requests
for payment of delinquent assessments. The process can be prolonged
and expensive for both the association and the homeowner, a financial
quandary for which neither usually has the financial resources
to pay.
Nonjudicial foreclosure, on the other hand, requires
less time and money, as the process entails an attorney: 1) advising
the homeowner of the association's intent to foreclose if payment
is not received or payment arrangements not made within a specified
statutory time period, and, following this period, 2) posting
the home's address at the courthouse, where at a designated date
either the association's attorney or other trustee conducts the
foreclosure sale. In most instances, the homeowner association
has made every effort to collect the past due funds before referring
the account to its attorney, and the attorney has sent several
communications to the homeowner before filing the foreclosure
documents.
In both nonjudicial and judicial foreclosure, the
homeowner can usually halt the proceedings at any time, including
up to the moment of foreclosure, by either paying the total accrued
delinquency or reaching a payment agreement plan with the association.
There is a third type of foreclosure available
in some states, although currently it is usually permitted only
in home equity default situations. “Expedited Foreclosure” is
a process that incorporates aspects of both judicial and nonjudicial
foreclosure, minimizing legal fees while providing a court hearing
for the homeowner. Upcoming state legislative sessions across
the country may consider this third alternative as a means to
resolve concerns about a homeowner's right to appear before a
judge before forfeiting his home for nonpayment of his homeowner
association's fees.
The right to foreclose is a harsh remedy, but one
that is absolutely necessary if homeowner associations are to
provide the services for which they were created. In the Inwood
North Homeowners Association vs. Harris case, the Texas Supreme
Court stated, “The remedy of foreclosure is an inherent characteristic
of the property right. It is generally the only method by which
other owners will not be forced to pay more than their fair share
or be forced to accept reduced services.” Prior to that decision,
cash-strapped homeowner associations in the state of Texas had
to stop providing the services required by their bylaws and covenants
because there was no effective way to collect the maintenance
fees from those owners who refused to pay. As a result, in many
cases trash went uncollected, street lights were turned off,
pools closed and deed restrictions were allowed to lapse. Property
values plummeted in those communities.
Homeowner associations are created to manage the
common areas of a community and provide for necessary services
from which all property owners benefit. The volunteer boards
who step up to leadership in preserving our communities must
retain an enforcement process to ensure compliance. As community
association managers, we must train these boards to act fairly
for all of the property owners, using the valuable right to foreclose
only when all other options fail.
