In Frisco, Texas, Mother Jones reports:
- Michael Clauer is a captain in the Army Reserve who commanded over 100 soldiers in Iraq. But while he was fighting for his country, a different kind of battle was brewing on the home front. Last September, Michael returned to Frisco, Texas, to find that his homeowners' association had foreclosed on his $300,000 house—and sold it for $3,500. This story illustrates the type of legal quagmire that can get out of hand while soldiers are serving abroad and their families are dealing with the stress of their deployment. And fixing the mess isn't easy.
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- In Texas, homeowners' associations can foreclose on homes without a court order, no matter the size of the debt. In May 2008, the HOA sold the Clauers' home for a pittance—$3,500—although its appraisal value was $300,000, according to court documents. The buyer then resold the house to a third person. [...] In August 2009, the new owner sent the couple an eviction notice, according to court records filed in the case.
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- There are a bevy of laws that are supposed to protect servicemembers from losing their homes or jobs while they're on active duty, including the Servicemembers Civil Relief Act (SCRA). The homeowners' association's lawyer filed an affidavit wrongly claiming that neither of the Clauers was on active duty, says Barbara Hale, the couple's lawyer. Hale is seeking to have the court reverse the foreclosure and declare it "null and void," she says.(1)
- In the meantime, the Clauers have obtained an agreement allowing the family to stay in the home, Hale says. She's "confident that the courts will sort this out and do the right thing," but notes that the drawn-out legal process must be stressful for the Clauers. [...] "It's ridiculous how much this is costing us," he says. "I'll be taking out a mortgage on my house that was free and clear just to try to get my house back."
For more, see Soldier in Iraq Loses Home Over $800 Debt (Capt. Michael Clauer's homeowners' association foreclosed on his family's $300,000 house and sold it for $3,500).
See also, WFAA-TV: Back from Iraq, Frisco soldier finds home sold by HOA.
(1) One legal issue that this case could turn on is whether the false affidavit reportedly filed by the foreclosure attorney claiming that neither of the Clauers was on active duty is absolutely void (ie. void ab initio), or whether it is merely voidable.
If found to be absolutely void, an argument can be made that the foreclosure sale, which was based on the void afidavit, is also absolutely void, meaning that the foreclosure sale and the subsequent sale of the property to a third party could conceivably be wiped out.
If the false affidavit is found to be merely voidable, however, the foreclosure sale and subsequent sale to the 3rd party purchaser will also be considered voidable (as opposed to absolutely void). In that event, successfully wiping out these interests could turn on whether the foreclosure purchaser and subsequent purchaser are entitled to the protection of the recording statutes as bona fide purchasers. Since it appears that neither Captain Clauer nor his wife relinquished possession of the home throughout the process, and Mrs. Clauer remained in continuous physical possession thereof, this possession could arguably create, under Texas law, a legal duty on the purchasers to ascertain the rights of the third-party possessor. If a court finds that such an inquiry would have lead to the discovery of the fact that Captain Clauer was on active military duty during the relevant period, the purchasers could be found to be on constructive notice that the foreclosure sale may have been conducted in violation of the Servicemembers Civil Relief Act, which generally prohibits a foreclosure sale of a servicemember's home while on active duty. See Madison v. Gordon, 39 S.W.3d 604; 2001 Tex. LEXIS 5; 44 Tex. Sup. J. 410, (Tex. 2001):
- One purchasing land may be charged with constructive notice of an occupant's claims. This implied-notice doctrine applies if a court determines that the purchaser has a duty to ascertain the rights of a third-party possessor. See Collum v. Sanger Bros., 98 Tex. 162, 82 S.W. 459, 460 (Tex. 1904); American Surety Co., 82 S.W.2d at 183. When this duty arises, the purchaser is charged with notice of all the occupant's claims the purchaser might have reasonably discovered on proper inquiry. Dixon v. Cargill, 104 S.W.2d 101, 102 (Tex. Civ. App.--Eastland 1937, writ ref'd); see also Flack, 226 S.W.2d at 632. The duty arises, however, only if the possession is visible, open, exclusive, and unequivocal. See Strong v. Strong, 128 Tex. 470, 98 S.W.2d 346, 350 (Tex. 1936).
See footnote 2 in this post for more on the effect of possession by one other than the seller on imputing constructive notice on a purchaser of real estate under Texas law. For other states, see Bona Fide Purchaser Doctrine, Possession Of Property By Occupants Other Than The Vendor & The Duty To Inquire.
Among other legal issues that could impact on the Clauers' ability to get back their home are:
- Was there a violation of the Federal Servicemembers Civil Relief Act in carrying out the foreclosure sale and, if so, does said violation make the foreclosure sale and any subsequent conveyances absolutely void, or merely voidable?
- Was the foreclosure sale price so low (home with equity of $300K sold for $3,500) so as to "shock the conscience," and, if so, does this fact make the foreclosure sale and any subsequent conveyances absolutely void, or merely voidable? (In this regard, there is a general rule in the foreclosure law of some states that says that where the price realized at a foreclosure sale is so inadequate as to shock the conscience, it may itself raise a presumption of fraud, trickery, unfairness, exploitation, overreaching, or culpable mismanagement, and therefore be sufficient ground for setting the sale aside. See, for example, Berry v. Deutsche Bank National Trust Company, No. 2080840 (Ala. Civ. App., May 14, 2010)).
- In this story, there is only a brief mention that a certified letter was mailed. No mention on whether the homeowners actually received it and, if not, what other steps the HOA took to notify them. The issue here would be whether the notice of the foreclosure action given to the homeowners was "notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections." Jones v. Flowers, 547 U.S. 220, 126 S. Ct. 1708 (2006) (quoting Mullane v. Central Hanover Bank & Trust Co., 339 U. S. 306, 314 (1950) "An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections. [citations omitted].")
If the notice of sale is found by a court to be absolutely void, the foreclosure sale likewise would be found void. (Go here for the links to the transcript of the oral argument, and the various briefs filed in Jones v. Flowers, referenced above, filed by the Public Citizen Litigation Group attorneys who successfully represented, in the U.S. Supreme Court, a homeowner in connection with the lousy method used to give notice of a pending action that led to the loss of his home in a tax sale.)
