The HOA Foreclosure
Henry had dreamed of supplementing his income with real estate investments for as long as he could remember. But it was hard. His current house, the one in which he and Ginny lived in Frisco, Texas, with their two children, had twenty years remaining on the mortgage. They had two car payments and two credit cards. His wife giggled at his periodic exuberance for the idea.
Henry often checked the foreclosure lists posted on the websites of the Denton County Clerk and Collin County Clerk. However, a friend, Abe, who had recently started purchasing foreclosed real estate, told him about a different foreclosure list. Abe said, “You’ve been looking at the wrong foreclosure list. There’s another one. A better one. It’s almost secret. The sheriff’s sales.”
Confused, Henry asked, “What sheriff’s sales?”
Abe explained that the county clerk foreclosure notices that Henry always reviewed were only for deed of trust sales, the foreclosures of homes for people that could not pay their mortgages. “The sheriff’s sales are for those people that could not pay their property taxes or HOA assessments.”
“How is it better?” Henry queried.
Abe answered, “They come with mortgages intact. So, you may be able to buy a $350,000 house for $20,000 if it is a property tax foreclosure. Or maybe $3,000 if it is an HOA foreclosure.” Henry was skeptical, but Abe persisted. “I have bought three houses in the last three months. The three homes are worth a combined $700,000. I bought them for $65,000.”
On Sunday night, Henry went online to the area county websites, Denton County, Collin County, Tarrant County, and Dallas County. He reviewed the sheriff’s sales. “I can’t believe it,” he said aloud to himself while laughing. “We can do this.” Henry put a plan together. He searched the public records on all the properties being sold the following month. He focused on the HOA sales. “Why would anybody buy the property tax foreclosures if they could buy the HOA foreclosures?” he asked himself. He narrowed his options to three properties.
On Tuesday evening, after the children had gone to bed, Henry called Ginny to the study. He showed her three properties and explained how the homes were for sale through an HOA foreclosure. Ginny humored her husband as she scanned the details. She considered the square footage and subdivisions. She even commented about the school districts. Henry was excited that she was not simply dismissing his idea or joking about it. Finally she settled on a house in Little Elm, Texas. “It’s in Little Elm, but it has Frisco schools,” she explained. “And it’s bigger than the others, and it is less expensive.”
His wife’s choice excited Henry. “It’s my favorite, too!” he exclaimed.
Henry and Ginny attended the Denton County sheriff’s sale the first Tuesday of the following month. They were prepared to bid up to $7,500 for the house. The first houses sold for far more than the minimum bid, and they became nervous. Finally, the house on which Ginny and Henry had placed their financial hopes and dreams was called. Henry’s heart raced. He worried that he would not be able to speak because of the dryness in his mouth. Ginny grabbed Henry’s sweaty hand.
The opening bid started at $5,500 and Henry raised his hand to bid. He cleared his throat after his feeble utterance of “$5,500.” The auctioneer called for $6,000. Nobody answered. The offer of $5,750 was returned with silence. “$5,600” the auctioneer asked. Nothing. After a few seconds the auctioneer screamed, “Sold for $5,500!”
Henry and Ginny were ecstatic! Henry provided a cashier’s check in the amount of $5,500, and the sale was recorded. They received a receipt and were told that the deed would be mailed in a few days.
After returning to the car, Henry and Ginny questioned each other about whether something was wrong with the house because of the nonexistence of competing bids. After dismissing all possible problematic alternatives, they decided that it was divine intervention. They had driven by the house multiple times, and the yard was exquisite. The people seemed normal enough on social media. The homeowners were a young family with two children, well-dressed. They even drove nice cars, nicer than Henry and Ginny. Nobody else would have been allowed to enter the home so it was unlikely that anyone had any additional knowledge about its condition. No, it had to be divine intervention.
Henry called Abe and informed him of his fortune. Abe offered an excited congratulations and provided Henry with some forms that needed to be provided to the prior homeowners. Henry thanked Abe, glad that he was around. Henry did not know that he had to send a notice. It was good to have a friend, even a mentor of sorts. Abe also gave him the name of his real estate attorney based in Frisco.
Henry reviewed the forms. He noticed the word redemption on the form. He noticed the code section and reviewed it. “The homeowner has the right to redeem the property within 180 days?” he asked himself. He continued reading. “I can’t even sell the house during the redemption period?” Henry’s stomach sank like a submarine. “I don’t even get to profit if the homeowner redeems the property?” Henry’s jaw dropped. Abe had mentioned none of this previously.
I am Robert Newton of The Law Office of Robert Newton, P.C., and I am the author of this series entitled The Impact of Law, in addition to being a real estate, business, and estate planning attorney in Frisco, Texas. While the characters and the circumstances are fictional, they represent a very realistic scenario. If you are prosecuting or defending a foreclosure by a homeowner association, please contact an attorney. None of the information contained within the story represents legal advice. Actually, in many cases, it would be very bad legal advice. So, seek the advice of a real attorney. And, stay tuned for the next chapter.