Texas Commercial Law Firm

g. Senior lienholder. Unlike some states, Texas law does not require that prior lienholders or owners of the property (if other than the deed of trust lien grantor) be given notice of foreclosure. Canfield v. Foxworth, 545 S.W.2d 583 (Tex. Civ. App.--Tyler 1976, writ ref'd n.r.e.); Mortgage & Trust, Inc. v. Banner & Co., 572 S.W.2d 344 (Tex. Civ. App.--Corpus Christi 1978, writ ref'd n.r.e.). Consider for example the case of a developer who subdivides a tract subject to a deed of trust lien and sells individual lots on a contract for deed basis. Each individual owner would take his property subject to the “master” deed of trust against the entire subdivision. Regardless of whether the lot owners are current in their payments under the terms of their contracts for deed, they would lose their rights in the property without notice in the event the developer goes into default on the obligation secured by the master deed of trust and the lienholder forecloses. Often, individuals who buy on a contract for deed are not sophisticated in real estate matters, do not obtain a title policy, and have no awareness that they are purchasing subject to a superior lien that could cut off their rights to possession of the property -- even after they have made all payments required under the contract for deed. This example is a common scenario in Texas. The result is justified because the buyer under a contract for deed has at least “constructive notice” of the pre-existing lien that has been recorded in the real property records. The borrower need only examine the real property records to learn of the lien. Texas courts have ruled that a foreclosure that cuts off the rights of the owner of the property without notice is not a taking of property without due process under the U.S. Constitution because it does not involve state action. For the same reasons, no notice is required to be given to a junior lienholder even though its interest will be cutoff by foreclosure.

In the situation where an inferior lien is foreclosed, notice is not required to be given to the superior lienholder because its lien will be unaffected by the foreclosure.

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