Texas Commercial Law Firm

Several months after foreclosure, the lender received a demand letter from counsel for the original obligor making demands under the Texas Deceptive Trade Practices Act (the “DTPA”), and common law fraud among other causes of action. Upon review of their files, the lender found the side agreement. The lender had clearly erred in not providing notice of default and intent to accelerate to the original obligor as required in the agreement. The lender reimbursed the VA to the full extent of the deficiency (approximately $60,000) and reimbursed the original obligor for his attorney's fees in the amount of $2,000. This example should clearly illustrate the need to review files for side agreements prior to foreclosure. Similarly, it serves as an example for why right to cure notices should be sent to all obligors regardless of whether they are currently in title. B. Notice of Right to Cure and Intent to Accelerate It is generally a prequisite to foreclose that the debt secured by the real estate must have matured by its own terms or by acceleration. Acceleration usually occurs after a default in payment although it may result from any non-monetary default under the terms of the note or deed of trust. Failing to properly accelerate the debt is probably the most common foreclosure defect and will serve to void a foreclosure sale.

1. When is notice of right to cure necessary? To properly accelerate a debt there must first be a default under the terms of the loan documents. While the most common default is failure to make payments, non-payment of property taxes, failure to maintain the condition of the property or to maintain insurance, for example, are usually also defaults under the loan documents. Chapa v. Herbster, 653 S.W.2d 594 (Tex. Ct. App.--Tyler 1983, no writ); Sluskey v. Coley, 668 S.W.2d 930 (Tex. Civ. App.--Houston [14th Dist.] 1984, no writ).

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