Foreclosure moratorium does not apply to homeowner associations
The family that rented a condominium from Dana Peterson for nine years was among those who lost work to the novel coronavirus.
When they began missing rent payments in March, Peterson said she understood. They had never missed a payment before, and she had heard that, during a period of historic unemployment, government policies protected renters from eviction and homeowners from foreclosure.
So she couldn't believe it when the family called at the end of April, saying they had received notice at the condo that their home was being foreclosed on and felt forced to move out.
"I was shocked," she said. "Because I thought there was a moratorium."
There is, but only under specific circumstances. Homeowners who have been impacted financially by the pandemic have largely been given the option to reduce or pause monthly mortgage payments for up to a year. Those who had been delinquent on Harris County property taxes were given a three-month extension to see them through the shutdown.
But community associations, which have the authority to levy assessments and foreclose on homes if they are not paid, have continued to take homeowners to court and initiate foreclosures during the economic crisis.
"The CARES Act put a moratorium on (foreclosing on) federally-backed mortgages," said Amir Befroui, managing attorney of the Foreclosure Prevention Project at Lone Star Legal Aid. "It doesn't touch anything else. It doesn't affect property owners associations; it doesn't affect taxes."
That's what Peterson soon learned after a series of frantic phone calls. Now, she says she's scrambling to find a way to cover roughly $3,000 in condominium owners association assessments and legal fees so she can keep the condo she has owned for 16 years. Peterson said she is talking to her mortgage servicer in the hopes that they can help cover the fees until she finds a new renter. Otherwise, she said, "I guess I'm going to lose my condo."
Her association directed questions to its lawyer, who did not respond to requests for comment.
Peterson is one of hundreds of homeowners faced with suits over assessments and legal fees during the pandemic. In April, 233 lawsuits were filed by associations against their members in Harris County, a 9 percent increase from the year before. The number of Harris County houses and condominiums posted for the April foreclosure auction by associations increased 20 percent from the year before, according to data collected by the Foreclosure Information & Listing Service.
Since then, the number of homes posted for foreclosure by community associations has dipped, a sign that more associations are working with homeowners who have missed payments. But foreclosure starts remain substantial; 58 homes had foreclosures scheduled by their associations for June's auction, compared to 91 for April's.
Dawn Bauman, senior vice president at the Community Associations Institute, a national organization of homeowners and condominium owners associations, called the court actions a "balancing act" for associations.
During the Great Recession, when the percentage of residents struggling to pay assessments reached the double digits in more than a third of community associations, those associations had severe budget crunches, she said. Associations, strapped for cash, cut maintenance projects and capital improvements such as roof repairs.
"Typically, the only source of revenue for the community associations is the assessments paid by the homeowners," Bauman said. "So what was happening is when 10 percent of the people are not paying their assessments, the other 90 percent of the people have to make up that money."
The Community Associations Institute has begun surveying its members to determine whether a similar budget crunch, this time caused by the novel coronavirus, lies on the horizon. In May, 21 percent of associations said they had seen an increase in homeowner requests for assessment payment plans of forbearance as a result of the COVID-19 pandemic.
Associations are looking for ways to prepare for that wave, Bauman said.
"If there are judgments or court actions to collect delinquent assessments that are pre-COVID-19, those associations will pursue those assessments in order to be flexible with others who have specific COVID-19 crises," she said.
But for many, those proceedings, which can add hundreds or thousands of dollars in legal fees to the amount a homeowner owes, came at a time when incomes had disappeared.
Arlen Abizhanov, who ran a luxury car rental company which let customers sport a Lamborghini or Ferrari for roughly $500 a day, saw customers disappear the second half of March.
In April, already financially strained from a divorce and with no business in sight, he liquidated the company and tried to start anew. He launched a distribution company called Arlen Global Supply, which aims to meet the demand for personal protective equipment, among other goods. But he said on May 6, before his new business picked up steam, he received a notice from his Galleria-area condominium association: He would have to pay roughly $7,000 to cover delinquent assessments, which he began missing in January, legal fees and interest by May 22 or lose his home, which he had paid off in full.
"Think of this," Abizhanov said of the timing of the notice. "I am the Ferrari guy that went broke because of the coronavirus." He ended up borrowing the money from a friend to pay the association.
The association, Sage Street Condominiums, did not respond to repeated requests for comment.
Abizhanov was, in some ways, fortunate. Two Houstonians whose condominiums sold in June's auctions said they did not even realize what had happened until contacted by a Chronicle reporter.
"How can that be? I thought we had a little extra time because of COVID," said one, who asked his name not be used. To keep his home, he'll now have to repay not only the delinquent fees but also the $24,000 a bidder paid at auction, all while on diminished training pay for a new job.
While both homeowners associations and condominium owners associations are able to foreclose on homes, Lone Star Legal Aid's Befroui warned that condominium owners associations are able to do so more quickly because they are not required to file a suit. Instead, after notifying an owner of the default via certified mail, they can tell the owner the home has been scheduled for foreclosure.
"So those letters in theory could've been sent out in mid-April to someone with a condo. And they could be scheduled to be foreclosed upon (in June)," Befroui said.
He encouraged those who are being foreclosed on for nonpayment of assessments to reach out to his organization or directly to their association boards, which he said tend to be more sympathetic than property management companies.
Marc Markel, an attorney who specializes in property owners association law at Roberts Markel Weinberg Butler & Hailey, also recommended reaching out to the board.
"If you're not able to pay, just call," he said.
Markel said that all of the community associations he works with have created "compassionate payment plan agreements" in response the pandemic. The expectation is that such plans will tide homeowners over until the economy recovers.
But some of the hundreds of Houstonians being sued or foreclosed upon hoped for a little more compassion.
"The timing, with businesses shut down, put us in a difficult situation," said Jerry Travioli, a real estate agent who was sued by his homeowners association in April. "The COVID-19 shutdown just made it worse. It hampered homeowners' ability to take recourse, to do anything."