In the state of Texas, entities and individuals with liens on your property can foreclose on your home if you fail to settle the debt. In many parts of Texas, homeowners' associations have the right to foreclose on your home for nonpayment of association fees. An HOA can foreclose even if you have never missed a mortgage payment.
Homeowners' associations in Texas and elsewhere charge fees and the revenue created by these fees covers communal expenses, such as road maintenance, property insurance and landscaping costs. When a homeowner moves into a neighborhood with an HOA, the homeowner receives notice that the HOA agreement includes a power of sale clause. This clause gets recorded at the county courthouse and it gives the HOA the right to foreclose on the home if the homeowner defaults on association fee payments. Prior to foreclosure, HOAs typically assess penalty fees that cause the debt owed to increase beyond the basic HOA dues.
HOA fees are usually assessed once a year or on a monthly basis. You go into default if you fail to pay the dues, including any applicable late fees, within 30 days of the due date. At this point, the HOA can file a foreclosure motion at the courthouse. The HOA can arrange to have your home sold at auction within 27 days of filing for foreclosure. The HOA, as a nonprofit organization, can only sell your home for an amount equal to your outstanding HOA debt. Therefore, your home may sell at auction for just a few hundred dollars.
Texas, like many states, allows lien holders to conduct both judicial and nonjudicial foreclosures. In most instances, first-time home buyers are subject to judicial foreclosure if they fall behind on their mortgage payments. This means the lender must present a case to the judge and the homeowner has an opportunity to appeal the decision. Other mortgage liens usually contain the same power of sale clause that appears in your HOA agreement. The power of sale clause allows for nonjudicial foreclosures, which involve the lien holder being able to foreclose simply by filing the paperwork.
In 2011, the Texas senate passed an amendment that forces HOAs and other lien holders to comply with the federal Service Members Civil Relief Act. Under the Act, active duty members of the armed services are entitled to extra protections that make it harder for lien holders to foreclose while the active duty personnel are stationed overseas.
While Texas HOA foreclosures in theory are straightforward, HOA foreclosures are relatively uncommon due to complications caused by other liens. If you have a mortgage on your home, your HOA only gets any money as a result of a foreclosure sale if the sale raises enough money to satisfy the other liens. Therefore, some HOAs see foreclosures as a costly gamble.