Property Management and the Challenges it brings

I'll bet most people think Property Management can be a cake walk. All you do is collect rent right? Wrong. The issues that arise can be quite challenging and sometimes require a good amount of time, research and intelligent thought.

This week's challenge for me and a couple owner's was HOA foreclosures. Yes folks, here in the great state of Texas the HOA (home owners association) can foreclose on your property for non-payment of HOA dues. Its actually a pretty good racket if you are the HOA and attorney representing the HOA. Here's what happens:

Each year the HOA dues are due before Jan 31 for the upcoming year. If you fail to pay the dues, late fees are assessed, interest is accrued and eventually the HOA hands over your delinquency to an attorney who tacks on a bunch of fees ($1000 or more) and files for a non-judicial foreclosure for money owed. Sounds great huh? Now lets plug in some numbers and see how ridiculous this can really be:

Lets say you bought a house a couple of years ago for $150,000. You have a mortgage on the home and the house is located in a subdivision that has an HOA. Yearly HOA fees are $200. When you bought the house, the HOA fees for that year were paid at closing. By the end of that year a bill is sent from the HOA to the property for next year's dues. You never received the bill. Why? You do not live there, a tenant does. The tenant throws the mail addressed to you away thinking its junk mail. Makes sense right? How much crap to you get in the mail when you by a new home. Tons. I'd trash everything too.

Well the new year is rolling along and the HOA is continuing to send bills to the property address. The tenant continues to trash them. Your HOA dues are not getting paid. Now lets say this has gone on for over a year and now you owe the HOA for two years worth of dues and some late charges and interest. Your total bill is now $800. Lets repeat this, your bill is now $800. Not $8000, $800. Ok.

The HOA hires an attorney who's job is to collect the dues owed to the HOA. The attorney starts sending letters to the house. The tenant trashes them. Now attorney's are SUPPOSED to be smart right? Well a smart person might think, "let's look at the tax records to see if mailing address for the tax bill is different from the property address". Smart right? 1 min later and a visit to one of the Online tax offices and the attorney could have the answer. But no. The Attorney does not do that. Instead the attorney continues to send mail, and accumulate fees.

Now your bill is growing. There is no limit to what the attorney can charge, as long as its "reasonable". Yah lets see the definition of a "reasonable" amount for attorney's fees. The HOA and the attorney now decide that since their efforts are not yielding the results they are looking for (or maybe they are depending on the attorney and HOA), its now time to file for non-judicial foreclosure for the past due fees. Hey why not? The HOA could own your $150,000 property for two years worth of HOA dues. Thats a hell of an investment!

Foreclosure is filed and now your house is up for sale at the 1st Tuesday of the next month. The amount? $2500. Wow. For $2500 someone could own your house and your equity. How can that be? That's TX law. I could go to the foreclosure auction at the county courthouse and buy your house for $2500. Now I own the home subject to your existing liens (your mortgage), but man you were a good buyer and plopped down 20% when you bought your house and have been timely in paying your mortgage and taxes. Your mortgage payoff is $119,000 and your house is worth $155,000. That's pretty easy math in my book. $2500 for $36,000 in equity. Yah ok, i'll take that.

But wait, isn't there a right of redemption period? Yes there is. You have 180 days from the time a notice is mailed to you from the HOA notifying you that the property has been sold. You can payoff the new owner, plus 25% interest and any expenses incurred by the owner for the property. Oh no big deal right? Wrong. The notice was again mailed to the property address and the tenant again throws it away. So all this has happened without your knowledge. Now I'm loving life. I have $2500 invested in your property, $36000 in equity, and a mortgage I never had to apply for that is not even in my name or on my credit. Nice!

If you are the owner, you are hating life. If you are the HOA you got your money. If you are the attorney you got your money. If you are the new owner, you got a house and equity.

Something is wrong with this scenario. But that's my opinion. I welcome yours.