HOA foreclosures and unclean hands

I’ve come across a few cases involving the markedly low HOA auction price as compared to the market value of the home. Previously, I compared this situation to the US Supreme Court’s finding that punitive awards more than 10 times the damages violates the 8th Amendment and constitutes cruel and unusual punishment. (See State Farm v. Campbell, 538 U.S. 408 (2003)). But other decisions pertaining directly to foreclosures, which did not address the 8th Amendment, are also to be considered.

In the 1984 Tennessee Supreme Court non-HOA case, Holt v. Citizens Central Bank (688 S.W.2d 414), the court reversed long standing doctrine regarding foreclosure sales.  The view that “a price of ten percent of the fair market value would probably shock the conscience of any court” and “that inadequacy of consideration so great as to shock the conscience of the court, standing alone, was sufficient to warrant voiding the sale” was thrown out.  In place, the court held, along with decisions in Texas and North Carolina, that

If a foreclosure sale is legally held, conducted and consummated, there must be some evidence of irregularity, misconduct, fraud, or unfairness on the part of the trustee or the mortgagee that caused or contributed to an inadequate price, for a court of equity to set aside the sale.

The question for homeowners in foreclosure is whether or not the HOA comes with unclean hands[i]?  Are there elements of “irregularity, misconduct, fraud, or unfairness” on the part of the HOA?

In the Tennessee 2011 appellate case, Brooks v. Rivertown (No. W2011-00326-COA-R3-CV memorandum decision[ii]), the court upheld the denial of an HOA foreclosure because the HOA could not specify an exact amount owed. It upheld the Holt decision since it found irregularities in the HOA’s bookkeeping; and the HOA also failed to follow its required 30-day notice in non-judicial foreclosure, amounting to unclean hands.

For those in foreclosure, you need to ask for an accounting by the HOA, which must show your legitimate challenges to the HOA’s recordkeeping, like I paid but the HOA ignored me, etc.

Notes

[i] “The principle that a party cannot seek equitable relief or assert an equitable defense if that party has violated an equitable principle, such as good faith.” Black’s Law Dictionary, 7th Ed.

[ii] A memorandum decision means that no new law was made, and that just old law was applied.  Consequentially, there is no reason for binding precedent status.

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Published in: on October 4, 2014 at 8:24 am  Comments (2)  
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2 CommentsLeave a comment

  1. I have a theory, that the powers that can, try to put properties into foreclosure so they can buy them up at bargain prices. Any truth to that?

    • Is that legal?


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