Texas Commercial Law Firm

H. The First Tuesday: Conducting Foreclosure Sales

Unlike the requirements for a foreclosure sale of personal property under the UCC (see §IV.A. below) real property foreclosures are not required to be commercially reasonable. Savers Federal Savings and Loan Association v. Reetz, 888 F.2d 1497 (5th Cir. 1989). Real property foreclosures are instead governed by Tex. Prop. Code §51.002 and the provisions of the deed of trust. In evaluating the propriety of a foreclosure sale of real estate, a court will review only whether it was conducted in compliance with the deed of trust and property code, without regard to commercial reasonableness.

1. How much should be bid? Inadequacy of consideration alone will not render a foreclosure sale invalid if the sale is otherwise legal and proper. American Savings and Loan Association v. Musick, 531 S.W.2d 581.587 (Tex. 1975); Savers Federal Savings and Loan Association v. Reetz, 888 F.2d 1497 (5th Cir. 1989). In order for inadequacy of consideration to affect the sale, there must also be some irregularity in the foreclosure that causes or contributes to cause the real property to be sold for a grossly inadequate price.

2. Durrett is no longer a factor in determining a bid amount. On May 23, 1994 in a 5-4 decision, the U.S. Supreme Court overruled the long-established precedent of the 5th Circuit Case, Durrett v. Washington National Insurance Company, 621 F. 2d 201 (5th Cir. 1980). BFP v. Resolution Trust Corporation, 1994 WL 19748 (U.S.). In short, the Court held that the “reasonably equivalent value” standard stated in Section 548(a)(2) of the Bankruptcy Code “is the price in fact received at the foreclosure, so long as all the requirements of the state's foreclosure law have been complied with.” Id.

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