Texas Commercial Law Firm

I. After The Sale: Now That You Own It, How Do You Take Control Of It?

Under the Texas lien theory of mortgage law, during a foreclosure sale, title never vests in the trustee or the mortgagee. In conducting a foreclosure sale, therefore, the trustee transfers legal title directly from the owner of the mortgaged property to the purchaser.

One who purchases at a foreclosure sale takes the property at his peril. The conveyance from the borrower is similar in certain respects to a quitclaim deed. This means that a prospective purchaser at a foreclosure sale takes substantial risk unless he has previously investigated title to the property to learn if there are any superior liens against the property. If there are superior liens against the property, whoever purchases at foreclosure will take title subject to those superior liens, as well as to rights of parties in possession, shortages in area, and any other similar defects.

1. Anyone on the property? Lenders should inspect foreclosed properties immediately after completion of the sale. If it is unoccupied, locks should be changed and the property secured. If occupied, eviction proceedings should be commenced.

2. Tenants? It is important to recognize that a lease agreement creates an interest in real property. In terms of how it is affected by a foreclosure of a deed of trust lien recorded prior to commencement of the lease term, it is very similar to a junior lien. That is, foreclosure of the deed of trust lien will serve to cut off the lease. F.P. Groos & Co. v. Chittim, 100 S.W. 1006 (Tex. Civ. App.--1907, no writ). (Holding that a lease executed prior to a deed of trust lien is not cut off by foreclosure; Peck & Hill's Furniture Co. v. Long, 68 S.W.2d 288 [Tex. Civ. App.--Fort Worth 1934, no writ]).

Next Page>>> |Previous Page>>>