Condominium Foreclosures
A condominium association is a specific type of property owners’ association that oversees the operation of a condominium development subject to Texas Property Code chapter 81, the Texas Condominium Act, or chapter 82, the Texas Uniform Condominium Act. A condominium development is created by recordation of a declaration or other restrictive covenant that subjects real property to the authority under one of two Texas statutes governing condominiums. In a property owners’ association that is subject to and governed by Texas Property Code chapter 209 and not the condominium statutes, each owner separately owns his house/residence along with the land or lot on which the house is located. Conversely, in a condominium, there are two distinct types of property interests—units and common elements. All owners collectively own a percentage interest in the common elements (the building and the land on which it is located), and each owner owns fee simple title to his individual unit.
The size and arrangement of condominium developments varies widely. While some condominiums fit the typical image of a mid- or high-rise development with multiple floors and units stacked on top of one another, some condominium developments are not so obvious. Townhome developments with a shared or party wall between residences may sometimes, but not always, be subjected to the condominium statutes. To determine if a development is a condominium, a good preliminary indicator is the legal description for an owner’s separate property in the development. Property owned in a condominium is usually described by unit and building numbers, whereas other property is described by lot and block numbers in a property owners’ association. In order to officially establish a development as a condominium, the property must be subjected to the condominium form of ownership under the condominium statutes. The declaration of condominium will typically reference either the old Texas Condominium Act or the Texas Uniform Condominium Act. Without a specific reference to a condominium regime or one of the condominium statutes, the development is likely not a condominium.
Besides the obvious differences in land ownership, condominium associations also differ from other types of property owners’ associations in their rights and obligations. Condominium associations not only maintain the common recreational amenities like other property owners’ associations, but they also typically maintain the land on which the condominium is located, the condominium building itself, and even the pipes, ducts, and other conduits that supply utilities to the individual units. Because of the much greater importance and broader scope of maintenance provided by condominium associations, the Texas legislature has apparently determined that it is extremely important that condominium associations have access to adequate funds in order to maintain the condominium. For this reason, the Texas legislature has given condominium associations special rights and protections through the Texas Property Code in order to effectuate swift collection of unpaid assessments.
Condominium associations whose declarations were recorded before January 1, 1994, are governed by the Texas Condominium Act contained in chapter 81 of the Texas Property Code. Those condominiums with declarations recorded on or after January 1, 1994, are governed by the Texas Uniform Condominium Act (TUCA) contained in chapter 82 of the Texas Property Code. However, pursuant to section 82.002(c), certain sections of TUCA apply retroactively to all condominium associations, including section 82.113, which contains most of TUCA’s lien and foreclosure provisions. See Tex. Prop. Code §§ 82.002(c); 82.113. Despite this language in section 82.002(c), TUCA further states that these retroactive provisions do not apply if such application would invalidate an existing provision in a declaration recorded before January 1, 1994. Section 209.003(d) of the Texas Property Code expressly provides that chapter 209 of the Property Code does not apply to condominium associations that are subject to either chapter 81 or 82 of the Texas Property Code.
Most condominium declarations will contain language that establishes a continuing lien against the units in the condominium to secure the payment of assessments, interest, late charges, and costs of collection. Section 82.113(a) of TUCA states that condominium assessments are secured by a statutory lien against the unit and any rents or insurance proceeds received in connection with the unit. See Tex. Prop. Code § 82.113(a). Therefore, even those associations where the declaration fails to expressly create a lien have a statutory lien securing this obligation pursuant to section 82.113(a).
The lien created by section 82.113(a) defines “assessments” to include not only regular and special assessments but also dues, fees, charges, interest, late fees, fines, collection costs, attorney’s fees, and any other amounts either levied by the association against the unit or owed to the association by the unit owner, unless the declaration provides otherwise. See Tex. Prop. Code § 82.113(a). As such, the assessment lien secures the payment of virtually all legitimate amounts levied against an owner by the condominium association. This would arguably also include any amounts owed to the association by the unit owner for property damage to the condominium, costs associated with any self-help undertaken by the association, and even fees established for services by the association, such as fees to use particular amenities.
The lien created by section 82.113(a) is not only imposed against the unit itself; it is also a continuing lien against “rents and insurance proceeds received by the unit owner and relating to the owner’s unit.” See Tex. Prop. Code § 82.113(a). However, TUCA gives no express guidance as to how to enforce or foreclose this lien on rents and insurance proceeds, which acts like a garnishment by attaching the rent or insurance proceeds once actually received by the unit owner. In some instances, condominium associations have been successful by demanding that the unit owner turn over such proceeds, and some associations have even successfully relied on section 82.113(a) to convince the unit owner’s tenant to make rental payments directly to the association. At present, there are no reported cases giving procedural guidance on how to enforce TUCA’s lien on rents and insurance proceeds.
Section 82.113(b) of TUCA establishes the priority of a condominium association’s assessment lien over other liens recorded against an owner’s unit. It states that the association’s lien is superior to all other liens with the exception of—
(i)a lien for real property taxes;
(ii)a lien recorded before the declaration was recorded;
(iii)a “first vendor’s lien or first deed of trust lien” recorded before the owner became delinquent in the payment of assessments; and
(iv)unless otherwise provided by the declaration, a lien for construction of improvements to the unit or an assignment of the right to insurance proceeds if such lien was recorded before the owner became delinquent in the payment of assessments.
Although the language in section 82.113(b) regarding lien superiority appears relatively straightforward, there have been some recent challenges to lien priority, specifically in connection with home equity loans. In Riner v. Neumann, 353 S.W.3d 312 (Tex. App.—Dallas 2011, no pet.), the purchaser of a condominium unit at an association’s foreclosure argued that a home equity lien did not fall within any of the enumerated superior liens expressly listed in section 82.113(b), making it inferior to the association’s assessment lien. The condominium declaration at issue in Riner contained its own lien superiority provisions and stated that the association’s assessment lien did not attach to the unit until the unit owner became delinquent in the payment of assessments, and such assessment lien was not superior to any prior recorded deed of trust. Riner, 353 S.W.3d at 316. The Dallas court of appeals found that the lien priority provisions contained in section 82.113(b) did not apply retroactively because such provisions would invalidate existing provisions of the declaration, in violation of section 82.002(c) of TUCA. Riner, 353 S.W.3d at 316–17.
In dicta, the Riner court noted that the home equity lien was a “prior recorded deed of trust” under the terms of the declaration. Riner, 353 S.W.3d at 320. However, the historical timeline underlying TUCA and home equity loans was not at issue before the court. It is important to note that TUCA became effective January 1, 1994. At the time of its adoption, home equity loans did not exist in Texas. It was not until 1997 that the Texas legislature amended the Texas Constitution to permit home equity loans. There is an argument that the Texas legislature could not have intended to include home equity liens within the phrase “first deed of trust” as referenced in section 82.113(b), as such liens did not exist until three years after the adoption of TUCA.
§ 27.2:3No Lien Recordation Necessary
Pursuant to section 82.113(c) of TUCA, the association’s assessment lien is created when the condominium declaration is recorded. See Tex. Prop. Code § 82.113(c). If an owner subsequently becomes delinquent in the payment of assessment, no additional recorded notice of lien is necessary unless the declaration requires otherwise. However, in practice, some condominium associations do record a notice of lien once an owner is delinquent in order to place the owner and future owners on record notice of the delinquency. Owners, potential purchasers, lenders, and the general public are accustomed to finding a recorded notice of lien in the deed records when an owner is delinquent, so recording a notice of lien for a condominium is sometimes performed by some legal practitioners.
In Aghili v. Banks, 63 S.W.3d 812 (Tex. App.—Houston [14th Dist.] 2001, pet. denied), a former owner of a condominium unit sued to set aside the nonjudicial foreclosure of the owner’s unit on the basis that the condominium association failed to record a notice of lien before foreclosure. The declaration at issue in Aghili expressly stated that the association may, but is not required, to file a notice of lien in the deed records when an owner becomes delinquent. Aghili, 63 S.W.3d at 816. However, the declaration further stated that the association could foreclose its lien “upon the recording of notice of claim thereof.” Aghili, 63 S.W.3d at 816. In summarily disposing of this point of error, the court held that restrictive covenants must be liberally construed to give effect to their full purpose and intent, and if the association had to record a lien in order to foreclose, it would render meaningless the language giving the association express permission, without obligation, to record a lien. Aghili, 63 S.W.3d at 817. As such, the association had no obligation to record a notice of lien because the statutorily created continuing lien secured the lien created by recordation of the declaration.
Condominium associations should exercise caution in recording a lien where the declaration does not require or make it optional to record a notice of lien. An owner could argue that the filing of an “unnecessary” lien is nothing more than an attempt to drive up fees and increase profits on behalf of the association and/or its legal counsel. Such owner’s argument may not be particularly strong, as the reason for recording the lien is to place the owner and world on record notice of the delinquency, but a disgruntled owner may try to make such a claim in an attempt to offset some or all of the owner’s delinquency. Also, any release of a secondary notice of lien must be carefully crafted such that it only releases or rescinds the notice of lien filed pursuant to the owner’s delinquency and does not release the continuing lien created by the declaration itself. Form 27-1 provides an example of a “Notice of Payment” used to release a recorded notice of lien without releasing the continuing lien itself. Form 27-2 is an example of a “Notice of Sale” to be used where the association has not recorded an additional notice of lien and is simply relying on the continuing lien created by TUCA and the association’s declaration.
Before pursuing collections and foreclosure of a condominium association’s assessment lien, the authority for each type of charge levied against the delinquent owner should be verified. If special assessments are part of the delinquency, the association should confirm that the special assessments were properly levied, including any required owner approval. Unless prohibited by the declaration, condominium associations are authorized to levy late charges and interest on unpaid assessments and impose charges for returned checks pursuant to section 82.102(a)(12) of TUCA, which is also retroactive. See Tex. Prop. Code § 82.102(a)(12).
§ 27.3:2Late Charges Are Not Subject to Usury Restrictions
In Tygrett v. University Gardens Homeowners’ Ass’n, 687 S.W.2d 481 (Tex. App.—Dallas 1985, writ ref’d n.r.e.), a unit owner alleged that the late fees charged by the condominium association were actually usurious interest prohibited by law. The court of appeals held that the condominium association was not a lender, and there was no use or detention of funds loaned by the association, nor a forbearance agreement on the part of the association. Tygrett, 687 S.W.2d at 483. The association was more properly characterized as an agent of the owners and a conduit for the owners’ funds to maintain the condominium, making the usury laws inapplicable here. Tygrett, 687 S.W.2d at 483.
Section 51.002 of the Texas Property Code imposes certain requirements on the notices sent to a debtor/owner in connection with the foreclosure of a contract lien such as a condominium assessment lien. Section 51.002(i) of the Texas Property Code provides that, in addition to containing the name and address of the association, correspondence to an owner regarding a foreclosure of the owner’s unit must include the following statement in boldface or underlined type:
Assert and protect your rights as a member of the armed forces of the United States. If you are or your spouse is serving on active military duty, including active military duty as a member of the Texas National Guard or the National Guard of another state or as a member of a reserve component of the armed forces of the United States, please send written notice of the active duty military service to the sender of this notice immediately.
§ 27.3:4Limitations on Foreclosure—No Foreclosure for Debt Consisting Solely of Fines
There are some limitations on the types of charges that may provide the basis for foreclosure. Despite popular allegations by unit owners, there is no prohibition on a condominium association’s foreclosure when the delinquency is made up of collection costs or collection-related attorney’s fees. However, section 82.113(e) of TUCA prohibits foreclosure where the debt consists solely of fines. See Tex. Prop. Code § 82.113(e). If an owner is delinquent in the payment of both assessments and fines, the condominium association may include the fines and foreclose based on the entire debt owed. Although TUCA does not prohibit foreclosure where the debt consists of attorney’s fees in connection with a fine, associations should exercise caution in foreclosing if no other amounts are owed as this is likely to draw a lawsuit since other types of property owners’ associations are expressly prohibited from foreclosing when the debt contains only fines and attorney’s fees.
§ 27.3:5Appointment of Substitute Trustee
If the foreclosure sale will be conducted by anyone other than a board member of the condominium association, such as an officer, agent, trustee, or attorney, section 82.113(d) of TUCA requires that the board appoint such individual by written resolution. See Tex. Prop. Code § 82.113(d). Form 27-3 in this chapter contains a sample board resolution in which the board appoints one or more substitute trustees to conduct foreclosure sales on behalf of the association. While section 202.006(a) of the Texas Property Code requires that a property owners’ association must record all dedicatory instruments in the county’s real property records, a written resolution appointing a substitute trustee is not a dedicatory instrument as defined by section 202.001(1). See Tex. Prop. Code §§ 202.001(1), 202.006(a). Accordingly, the resolution does not need to be recorded.
By accepting a deed to unit, each owner grants a power of sale to the association in connection with the assessment lien pursuant to section 82.113(d) of TUCA, which authorizes the association to foreclose on the unit in the event the owner defaults in his assessment obligations. See Tex. Prop. Code § 82.113(d). Section 82.113(e) further provides that a condominium association may foreclose either judicially, through a court-ordered sale, or nonjudicially pursuant to section 51.002 of the Texas Property Code. See Tex. Prop. Code § 82.113(e). However, this foreclosure authority cannot conflict with an existing provision of the declaration for a pre-1994 condominium.
The Dallas court of appeals addressed this issue in Holly Park Condominium Homeowners’ Association, Inc. v. Lowery, 310 S.W.3d 144 (Tex. App.—Dallas 2010, pet. denied). In Holly Park, the unit owner filed a wrongful foreclosure suit where the association conducted a nonjudicial foreclosure of the owner’s unit for nonpayment of assessments. The declaration was recorded before January 1, 1994, and expressly stated that enforcement of the assessment lien shall be by judicial foreclosure. Holly Park, 310 S.W.3d at 145–46. The association foreclosed nonjudicially pursuant to the authority contained in section 82.113(e) of TUCA. In ruling in favor of the unit owner, the court of appeals held that the application of section 82.113(e) is limited by section 82.002(c) in that a provision of TUCA cannot be applied if it will invalidate an existing provision of the declaration. Holly Park, 310 S.W.3d at 149. Since the condominium association’s declaration expressly required judicial foreclosure, the association could not rely on TUCA for the authority to foreclose nonjudicially.
In Dickerson v. DeBarbieris, 964 S.W.2d 680, 682 (Tex. App.—Houston [14th Dist.] 1998, no pet.), the declaration simply stated that the assessment lien “may be foreclosed in the same manner as foreclosure of a mortgage or deed of trust on real property.” The declaration failed to specify any procedures relating to nonjudicial foreclosure of the lien. Rather than amending the declaration, which required approval of 75 percent of the record owners, the condominium association amended the bylaws, with approval of a simple majority of the owners. The amendment specifically stated that the lien could be nonjudicially foreclosed in accordance with section 51.002 of the Texas Property Code. Dickerson argued that an amendment to the declaration was necessary in order to grant a power of sale to the association. The court of appeals found that not only is there no requirement that a condominium declaration specify a foreclosure remedy, but there is also no statutory prohibition against the bylaws addressing such matters. Dickerson, 964 S.W.2d at 684–85. As such, the court upheld the condominium association’s authority to use nonjudicial foreclosure.
§ 27.3:7Additional Considerations
An owner’s right to redeem the unit after the association has foreclosed its lien is more limited with a condominium than with a noncondominium property owners’ association lien. See section 30.5 in this manual for additional discussion. As such, condominium associations should proceed more carefully before foreclosing for nonpayment of assessments. Although not required by statute, condominium associations should consider whether the owner has received actual notice of the association’s collection efforts by reviewing whether there has been any communications received from the owner and whether the owner has actually signed for any certified letters regarding the debt. If there is no identifiable contact with the unit owner, in addition to sending by certified mail, return receipt requested, the condominium association may want to consider sending a copy of its final communication before foreclosure via hand delivery to the unit, or by affixing a copy of the correspondence in an envelope on the door to the unit, or, at a minimum, attempt to locate an alternate address for the owner.
However, a lack of actual notice to the unit owner does not necessarily defeat the sale, especially where the association has been diligent in attempting to locate the owner. In Onwuteaka v. Cohen, 846 S.W.2d 889 (Tex. App.—Houston [1st Dist.] 1993, writ denied), the condominium association sent all collections and foreclosure notices to the unit address, which was shown as the owner’s address on the recorded deed to the owner. All certified mail to the unit address came back as undeliverable, but the association could not locate another address for the owner even via a “skip search” through a credit service. After the foreclosure sale, the owner alleged the association had conducted a wrongful foreclosure, as the owner did not receive notice of the foreclosure sale. The court held that, in order for the owner to demonstrate that the association violated the service requirements for the notice of sale contained in Texas Property Code section 51.002, the owner had to prove that the association had in its records the actual address of the owner and failed to send notice to such address. Onwuteaka, 846 S.W.2d at 892–93. As the owner in Onwuteaka admitted he had never provided his actual address to the association, the court of appeals upheld the lower court’s ruling that the foreclosure was proper. Onwuteaka, 846 S.W.2d at 893.
A condominium association may also want to calculate a rough estimate of the amount of any equity the owner has in the unit. Notwithstanding a properly handled foreclosure, lost equity could spur an owner to file suit for wrongful foreclosure simply because of the financial loss. Estimating the equity in the unit will allow the association to evaluate its exposure to risk in proceeding with foreclosure. If a title search reveals one or more recent liens with a combined value greatly in excess of the value of the unit as estimated by the county appraisal district, the owner is likely “upside down” in the unit and owes more than the unit is worth, leaving no equity in the unit. If, however, the total amount of the recorded liens against the unit is substantially less than the estimated value of the unit, the owner likely has significant equity in the unit, and it is unlikely that the unit owner is knowingly relinquishing this equity through a possible foreclosure. Ultimately, whether to proceed with foreclosure will be a judgment call for the board based on the unit value, the total amount of the liens against the unit, and communications with the owner, if any.
Frequently, an owner may allege that his unit is shielded from forced sale through foreclosure because the unit is the owner’s homestead and is entitled to protection under the homestead exemption. Section 41.001 of the Texas Property Code, which applies to condominiums, provides that an owner’s homestead is exempt from seizure to satisfy debt owed to creditors except for encumbrances properly fixed against homestead property. See Tex. Prop. Code § 41.001. A condominium association’s assessment lien does not expressly fall within any of the enumerated categories of encumbrances that may be properly fixed against homestead property.
In Johnson v. First Southern Properties, Inc., 687 S.W.2d 399 (Tex. App.—Houston [14th Dist.] 1985, writ ref’d n.r.e.), the fourteenth district court of appeals evaluated such a claim with respect to a condominium unit. There, the declaration created a lien to secure the payment of assessments and provided for nonjudicial foreclosure of the association’s lien. The owner challenged the association’s foreclosure of its assessment lien, claiming the unit was protected by the homestead exemption. In denying the owner’s point of error, the court held that a right, such as a lien, may prevail over a homestead claim if such right exists before the land becomes a homestead. Johnson, 687 S.W.2d at 401. Here, by accepting a deed to the unit, the owner accepted title to the unit subject to the terms of the condominium declaration, including the declaration’s assessment lien provisions. The owner’s acceptance of the deed subject to the declaration’s lien and foreclosure terms was a prior relinquishment of the owner’s homestead claim, defeating any homestead protection against foreclosure of the assessment lien. Johnson, 687 S.W.2d at 402.
Two years later, the Texas Supreme Court also weighed in on this issue in Inwood North Homeowners’ Ass’n, Inc. v. Harris, 736 S.W.2d 632 (Tex. 1987). Although Inwood North relates to a single-family development and not a condominium, its general rule is applicable in the condominium context as well. There, the declaration stated that assessments and related costs were a charge on the land and were secured by a continuing lien upon the lot. The lower courts had refused to permit foreclosure of the association’s assessment lien where the lot had been designated the owner’s homestead. In overturning the lower courts, the Texas Supreme Court noted that at the time the developer was the owner of all lots in the subdivision, it created assessment liens against each lot. A properly affixed encumbrance against property cannot be affected by the subsequent impression of the homestead exception upon the property. Since the assessment lien attached pursuant to recordation of the declaration before any property was designated a homestead, the property could not be protected from foreclosure of the assessment lien when the property later became the owner’s homestead. Inwood North, 736 S.W.2d 634–35.
§ 27.4:1Rescission of Foreclosure Sales
A trustee may rescind a nonjudicial foreclosure sale within fifteen days after the sale in the event there was a defect in the foreclosure. See Tex. Prop. Code § 51.016(b). Such defects include, but are not limited to, the failure to comply with the statutory requirements for the sale, the owner cured the delinquency before the sale, or the owner filed bankruptcy before the sale, and a court-ordered or automatic stay was in effect at the time of the sale. To rescind the sale, the trustee must serve notice by certified mail to the purchaser and the owner of the rescission, and such notice must give the reason for the rescission and provide the recording information for the affected deed. Tex. Prop. Code § 51.016(c)(1), (d). This notice of rescission must also be recorded in the county’s real property records. Tex. Prop. Code § 51.016(c)(2). Within five days after giving such notice, the trustee must return the purchase price to the purchaser. Tex. Prop. Code § 51.016(e). The trustee must also record an affidavit stating that the bid amount was returned and include the certified mail number, wire transfer information, or courier service tracking information for the return of the purchase price to the purchaser. Tex. Prop. Code § 51.016(f). Any challenge to a rescission must be brought within thirty days after the recordation of the notice of rescission. Tex. Prop. Code § 51.016(j).
An owner has a limited right to redeem a unit after an association’s foreclosure of its assessment lien.
Texas Property Code section 82.113(g), as amended in 2013, provides a ninety-day redemption period to the owner regardless of whether the association or a third party is the successful purchaser. The owner has through the ninetieth day after the date of the foreclosure sale to redeem the unit from the purchaser. If the association is the purchaser, the owner must pay to the association the following amounts in order to redeem the unit—
1.all amounts due to the association at the time of the foreclosure sale;
2.interest from the date of sale to the date of redemption at the rate designated by the declaration for delinquent assessments;
3.reasonable attorney’s fees and costs incurred by the association in connection with the foreclosure;
4.any assessments levied after the date of the sale; and
5.any reasonable costs incurred by the association as the owner of the unit, including any costs of maintenance and/or leasing.
If a third party is the successful purchaser, the redeeming owner must pay to the purchaser—
1.the amount bid at the sale;
2.interest on the bid amount from the date of the sale to the date of redemption at the rate of 6 percent;
3.any assessment paid by the purchaser to the association following the date of the sale; and
4.any reasonable costs incurred by the purchaser in connection with ownership of the unit, including maintenance and leasing costs.
In addition to these amounts, the owner must also pay to the association—
1.all assessments due and unpaid by the purchaser as of the date of the redemption; and
2.reasonable attorney’s fees incurred by the association in connection with its foreclosure of the lien.
See Tex. Prop. Code § 82.113(g).
If the unit is redeemed by the owner under section 82.113(g), it is subject to all liens and encumbrances that were in place against the unit before the foreclosure sale, such that, if the association’s foreclosure would have extinguished an inferior lien against the unit, the foreclosure is set aside and the inferior lien remains in place against the unit. The purchaser at a foreclosure of the association’s assessment lien is also prohibited from transferring the unit to any person other than the redeeming owner during any applicable redemption period. See Tex. Prop. Code § 82.113(g).
§ 27.4:3Renting during Redemption Period
While a purchaser at a condominium foreclosure sale cannot transfer title to the unit during the redemption period, the purchaser may lease the unit to tenants during such period. However, pursuant to section 82.113(g) of TUCA, while all rents and other income collected from the unit by the purchaser from the date of the foreclosure sale belong to the purchaser, these amounts must be credited against the redemption amount. See Tex. Prop. Code § 82.113(g). An interesting question arises if the amount of the rental income received by the purchaser meets or exceeds the amount to redeem the unit during any applicable redemption period. Can the former owner argue that the purchaser must reconvey the unit back to the original owner as though the owner has redeemed, even if the former owner has made no request to redeem the unit? As noted above, any costs incurred by the purchaser to make repairs or otherwise make the unit ready for occupancy, and any costs to market the unit for lease, must be paid by the owner in order to redeem the unit.
§ 27.5:1Lienholder Notification
Unlike other property owners’ associations, condominium associations are not required by statute to notify other lienholders of the association’s intent to foreclose its assessment lien. However, some condominium declarations do require certain lienholder notifications, but the governing documents themselves will determine what notice, if any, is required and to which categories of lienholders.
Section 82.113(h) of TUCA grants condominium associations permission to notify other lienholders of a unit owner’s delinquency, but generally does not obligate the association to do so. See Tex. Prop. Code § 82.113(h). Nonetheless, section 82.113(h) does require lienholder notification in certain limited circumstances. A condominium association is required to notify the holder of a recorded lien or perfected mechanic’s lien only if such lienholder has given a written request to the association for notification if the owner becomes delinquent and/or if the association intends to foreclose its lien against the unit. In practice, lienholders rarely provide such written requests.
§ 27.5:2Communications with Lienholders
Although debt collection laws typically prevent creditors from communicating about a debt with anyone other than the debtor, section 82.113(m) of TUCA provides an exception to this restriction. Once a unit owner becomes delinquent in the payment of assessments, the association may request that any holder of a lien against the unit provide the association with information about debt secured by the lienholder’s lien and any other relevant information. Tex. Prop. Code § 82.113(m). Similarly, at the request of a lienholder, the association may provide the lienholder with information “about the condominium and the unit owner’s obligations to the association.” Tex. Prop. Code § 82.113(m). It is noteworthy that the information to be provided by the association to a lienholder upon request is apparently not limited as to whether the unit owner is delinquent at the time of the request. Also, although the quoted language is unclear as to whether the association may only provide general information about the owner’s obligations or may provide specific details about the owner’s delinquency, reading section 82.113(m) together with the permissive notification to lienholders regarding an owner’s delinquency permitted by section 82.113(h) would indicate that a condominium association may provide any information about the owner’s debt to the lienholder.
However, the case of McDermott v. Marcus, Errico, Emmer & Brooks, P.C., 911 F. Supp. 2d 1 (D. Mass. 2012) is important to review. The federal Fair Debt Collection Practices Act (FDCPA) prohibits, among other things, a debt collector communicating with any person other than the debtor regarding the collection of a debt without the permission of the debtor or a court order. See 15 U.S.C. § 1692c(b). Massachusetts state law required that associations send certain lienholder notifications before commencing a foreclosure action. The law firm of Marcus, Errico, Emmer & Brooks, P.C., sent communications to certain lienholders on units owned by McDermott in connection with foreclosure actions as prescribed by Massachusetts state law. The Massachusetts district court found that complying with state law did not constitute “express permission” of the debtor or a court, thus the communications the law firm sent to lienholders violated the FDCPA. McDermott, 911 F. Supp. 2d at 69–72. Although this ruling is not binding upon courts in Texas, debt collectors for condominium associations should keep this case in mind whenever a condominium association’s governing documents require or permit notice to lienholders or where a lienholder requests information regarding debts owed to the condominium association.
Before or in lieu of foreclosure, condominium associations may want to review other available remedies to encourage the payment of assessments by delinquent owners. Section 82.102(a)(18) of TUCA, which applies retroactively, states that a condominium association may suspend the rights of a unit owner to vote and use certain general common elements if the owner is more than thirty days delinquent in the payment of all assessments due, unless the declaration provides otherwise. See Tex. Prop. Code § 82.102(a)(18). Associations should still use caution before exercising either of these remedies. While an association may be able to terminate an owner’s right to use a common amenity like the association’s pool or assembly hall, the association cannot restrict a unit owner’s use of general common elements that would act to bar the owner from accessing or using his unit. Also, the Texas legislature has indicated that it disfavors revoking an owner’s voting rights and expressly prohibited suspending voting rights for any reason in an amendment to chapter 209 of the Texas Property Code that became effective in 2012, which is not applicable to condominiums. In a future legislative session, the legislature may amend TUCA to remove this right from condominium associations as well.
Section 82.102(a)(14) of TUCA, which is also a retroactive provision, grants the board of directors of a condominium association the right to adopt and amend rules that provide for termination of utilities to a unit if the owner is delinquent in the payment of an assessment that pays, in whole or in part, for such utilities, unless the declaration states otherwise. See Tex. Prop. Code § 82.113(a)(14). This is not an express grant of authority to terminate utilities—the board must first adopt rules regarding termination before the board can actually terminate an owner’s utilities for nonpayment. Also, associations may want to follow the utility termination procedures applicable to utility companies established by the Texas Utilities Code and the termination procedures applicable to landlords contained in Texas Property Code section 92.008, which impose certain additional restrictions such as providing the owner with notice before termination and limits termination in extremely hot or cold weather. Associations should also exercise caution when terminating utilities, especially where the association is aware of health issues afflicting the occupants that could be negatively impacted by a loss of air conditioning/heating, electricity, or water service.
Kendrick, John J., Jr., and Herbert S. Kendrick. Texas Transaction Guide: Legal Forms, vol. 21, §§ 88.51 (Association’s Lien for Assessments), 88.74 (Lien for Unpaid Council Assessments). New York: Matthew Bender & Co., 2013.
White, Richard J., Annual Survey of Texas Law: Real Property, 56 SMU L. Rev. 1925 (2003).