Archives for category: Foreclosure

foreclosure3Many residential properties are subject to mandatory property owners associations which may have the power to impose regular and special assessments against owners and properties within the subdivision. In response to some real or perceived injustices on the part of property owners associations, the Texas legislature enacted the Texas Residential Property Owners Protection Act (the “Act”) in 2001. The Act became effective on January 1, 2002. The Act may be found in Chapter 209 of the Texas Property Code.

The purpose of the Act is to provide guidelines for the operation of property owners associations and specific protections for the homeowners residing in these communities. The Act only applies to mandatory membership in a property owners association in a residential subdivision that is subject to restrictions or other provisions authorizing the collection of regular or special assessments on all or a majority of the subdivision property.

While the Act contains important protections for property owners, it also mandates certain restrictions and procedural requirements for the foreclosure of a property association‘s lien for assessments. For example, foreclosure is not available for a lien solely comprised of fines, attorney’s fees, or amounts added for costs of producing association records. Foreclosure of an assessment lien may only be obtained by court order through an expedited process. Notice of the date and time of a conducted foreclosure sale must be sent to the owner and each lienholder of record within 30 days following the sale. The notice must be sent by certified mail and must inform the owner and record lienholder of their right to redeem the property. Within 30 days after the association sends the prior notice, it must record an affidavit in the county real property records stating the date on which the notice was sent and a legal description of the property which was foreclosed.

The owner or any record lienholder may redeem the foreclosed property from a purchaser at the sale within 180 days after the date the association mails written notice of the sale to the owner and record lienholder. An owner or lienholder may extend the redemption period by sending by certified mail a written request to redeem the property to the purchaser on or before the last day of the redemption period. The extended period lasts for 10 days after the purchaser provides the owner or lienholder written notice of the redemption amounts. A record lienholder may not redeem the property prior to 90 days after the date the association mailed the notice, and only if the owner has not redeemed the property. The purchaser of the property at a foreclosure sale may not transfer the property to anyone other than the lot owner during the redemption period.

To redeem the property, the owner or lienholder must first pay to the purchaser applicable items required by statute, including all amounts due the association through and after the date of sale, interest, costs, attorney’s fees, mortgage payments, maintenance and leasing costs, ad valorem taxes, recording fees, costs of eviction, and the acquisition price of the property (less any applicable credits). If the owner timely redeems the property, the purchaser must execute and deliver to the owner or lienholder a deed transferring the property. If the purchaser refuses to execute or deliver the deed after a proper redemption, the owner or lienholder may bring an action against the purchaser and may recover its reasonable attorney’s fees for the successful prosecution of such action. Property that is redeemed continues to be subject to all liens and encumbrances which existed prior to the foreclosure.

Where an owner or lienholder fails to timely redeem the property by filing the deed or recording an affidavit stating that the property has been redeemed, the right of redemption against a bona fide purchaser for value expires after the redemption period. Where an owner makes partial payment of the redemption amount to the association, but fails to pay all other amounts before the expiration of the redemption period, the association must refund the partial payments within 30 days thereafter.

It is not uncommon for the costs, expenses, interest, and attorney’s fees portions of the redemption amounts to far exceed the original assessments upon which payment is sought. As an owner, immediate action should be taken to address any claims for past due assessments. Certified mail should be accepted, opened, read, and immediately addressed. Service of process of any lawsuit should always be immediately reviewed and appropriately handled by qualified legal counsel.

R. Scott Alagood is board certified by the Texas Board of Legal Specialization in Commercial and Residential Real Estate Law. Scott can be reached at alagood@dentonlaw.com and http://www.dentonlaw.com.<

Foreclosure Rates

Buying Property at Foreclosure Sales: a Deal or a Dud?

If you ever watch late night television, then you have seen those infomercials touting the ability to make you an overnight millionaire by purchasing financially distressed real estate.  There are many individuals and companies who have built successful lives and businesses through the acquisition of financially distressed real estate.  However, unless the process is fully understood and the risks are knowingly accepted, the purchase of financially distressed property at a foreclosure sale is not necessarily for the cash rich novice.  The following legal and practical issues should be considered prior to acquiring property at a non-judicial foreclosure sale held under a Texas deed of trust.[1]

A deed of trust is the document that a borrower gives to a lender to secure the repayment of a loan with real estate.  In a typical Texas mortgage, the parties involved are the borrower, the lender, the trustee, and the owner of the real estate pledged as collateral (“mortgagor”).  The borrower is the party responsible for the repayment of the loan.  The lender is the party who funded the loan and is the beneficiary of the pledged real estate.  In Texas, a trustee performs the duties and responsibilities contained in the deed of trust when the borrower defaults on the loan.  The mortgagor is the party pledging the property as collateral for the loan.[2]

It should be noted that non-judicial foreclosures in Texas are generally governed by (i) Chapter 51 of the Texas Property Code, and (ii) the documented agreements between the lender and borrower [3] contained within the loan documents.  Certain publicly filed documents which should be reviewed are the deed of trust, renewals/ extensions of the deed of trust, Notice of Trustee’s/Substitute Trustee’s Sale, and any other document affecting title to a mortgaged property (such as easements, leases, liens, restrictions, covenants, estates, and mineral interests, just to mention a few).  Unless a purchaser is adept at researching property titles, it is advisable to purchase an abstractor’s certificate from a title company.

There may be other issues which will affect title to the property being foreclosed which do not appear in the public real property records.  Some of these issues include encroachments, protrusions, overlapping improvements, set-backs, zoning, platting, building ordinances, flood zones, drainage, utilities, bankruptcy filings, lawsuits, and probate records.  Issues which are located on the ground can be addressed by ordering a current survey of the property.  However, permission from the current owner must be obtained before legally entering the property to conduct a survey.  This can be very difficult, if not impossible.  Other issues may be addressed through inquiries of public officials and employees.   While information obtained through governmental offices can be valuable, such information may not be completely reliable, and the persons supplying it are typically not liable for inaccuracies.

Except for warranties of title contained in the foreclosure Deed (from the mortgagor not the Trustee/Substitute Trustee), property purchased at a foreclosure sale is sold “AS IS” without any other warranties and at the purchaser’s own risk.  The purchaser will acquire the property subject to all physical and title conditions which exist on the date of the foreclosure.  Any tenants or occupants of the property on the date of the foreclosure sale may also have rights as parties in possession of the property.  Even if the purchaser acquires a meaningful warranty in the foreclosure Deed, enforcing such warranty may be impractical since the mortgagor is usually in dire financial straits.

A foreclosure sale may be set aside for various reasons within four years of the date of the sale under state law and within two years under federal bankruptcy law.  Any title insurance policy acquired by the purchaser will usually exclude any defects associated with the foreclosure process and any liens or encumbrances which were not removed by the foreclosure sale.  A purchaser at a foreclosure sale is also not a “consumer” relating to the protections afforded by the Texas Deceptive Trade Practices – Consumer Protection Act.

A purchaser should identify these issues, determine acceptability or cost to resolve, and calculate a  purchase price accordingly.  Resolving an unidentified issue post-purchase may cost tens of thousands of dollars.[4]

Purchasing distressed property at foreclosure typically requires a high degree of risk tolerance.  Anyone willing to accept those risks may also want to consider going to Vegas.  At least in Vegas, the drinks are free.


[1] As opposed to foreclosure sales by Court order or for unpaid ad valorem taxes which may have different considerations.

[2] While the borrower and the mortgagor are typically the same party, it is not necessary that they are the same.

[3] The third-party mortgagor’s agreements should also be considered, where the borrower and mortgagor are not the same.

[4] Legal fees necessary to clear up a contested title matter can sometimes exceed $100,000.00.

Scott Alagood is Board Certified in Commercial and Residential Real Estate Law by the Texas Board of Legal Specialization and may be reached at alagood@dentonlaw.com or www.dentonlaw.com
 

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