Texas Commercial Law Firm
Lender Services: Residential Foreclosures
Balcom Law Firm provides complete foreclosure services throughout Texas, (in all 254 counties). Our services include the following:
Provide initial notice of default/right to cure/intent to accelerate;
Order VA Appraisals and prepare VA Form 567
Order broker's price opinion ("BPO") if necessary to obtain bid;
Order title, bankruptcy, federal tax lien and judicial records searches within 24 hours of receiving referral;
Provide all required notices of acceleration and notice of non-judicial foreclosure sale;
Post and file Notice of Non-judicial Foreclosure Sale;
Handle borrower inquiries regarding and follow your instructions in negotiating reinstatements, payoffs or forbearance plans with the borrowers.
Prepare all supporting foreclosure documentation, (Demand letters, Removal of Trustee and Appointment of Substitute Trustee, Notice of Non-judicial Foreclosure Sale, Military Affidavit, Notice to Appropriate Government Entities, Notice to Investor, Notice to Mortgage Insurance Co., etc.).
Provide whatever reports you require in any format you specify;
Provide you with copies of the Demand letters, Acceleration letters, Notice of Non-Judicial Foreclosure Sale, IRS Notice (if applicable), Title work and Tax Certificate (if applicable).
Conduct the non-judicial foreclosure sale on the first available sale date pursuant to your bidding instructions.
Fax or email foreclosure sale results by 5:00 p.m. on sale day;
Prepare all post-sale documents (Notice Affidavit, Substitute Trustee's Deed, Special Warranty Deed and other required documents).
Record all documents in the real property records of the appropriate county.
Prepare and submit title packages to HUD/VA in accordance with their guidelines.
Assist your REO Department with any post-foreclosure title problem.
Residential Non-Judicial Foreclosures in Texas
In Texas, unlike many other states, liens against real property may be foreclosed non-judicially without suing for a judgment ordering foreclosure. Texas foreclosure procedure has been described as “brutally short” from the consumer's perspective. As lenders' counsel, we believe it is efficient and economical, thereby lowering servicing costs and ultimately making loans more readily available than they would be if foreclosure procedure were more time-consuming and expensive.
When dealing with non-FNMA documentation in Texas, a foreclosure may be accomplished in as little as 21 days. Because FNMA forms require a 30-day right-to-cure period before accelerating a debt and posting the property for foreclosure, the typical mortgage foreclosure of residential property in Texas is completed in approximately 51 days.
A properly conducted foreclosure sale is final. Unlike some other states, in Texas, the borrower has no right repurchase or “redeem” the property after foreclosure. Before the sale is consummated, the borrower is entitled to pay the amount owing at any time and have the lien released. If there is any dispute concerning the amount, the borrower may pay the amount alleged to be owed into the registry of the court and suspend the sale.
Default
Before foreclosing a lien against real estate, the debt secured by the real estate must have matured. With consumer loans, this usually occurs through acceleration of the loan after a default in payment. Failing to properly accelerate the debt is probably the most common foreclosure defect and will serve to void a foreclosure sale.
To properly accelerate a debt there must first be a default under the terms of the loan documents. While the most common default is default in payment, failing to pay property taxes, maintain the condition of the property or maintain insurance, for example, are usually also defaults under the loan documents.
If the most common FNMA form deed of trust is used, once a default is declared, the lender is required to provide the consumer thirty days to cure the default. If a deed of trust is used which does not specify a right to cure period, Texas law requires that a consumer be provided with 20 days written notice of their right to cure their default. Beyond requiring thirty-days notice, the FNMA deed of trust requires the lender to provide specific notices to the consumer including notifying the consumer of his or her right to reinstate the debt after acceleration. In addition, the Texas Supreme Court requires the mortgagee to give clear and unequivocal notice of its intent to accelerate to the extent that the “the mortgagee “must bring home to the [mortgagor] that failure to cure will result in acceleration of the note and foreclosure under the power of sale.” Ogden v. Gibraltar Sav. Ass'n., 640 S.W.2d 232, 233 (Tex. 1982).
In addition to the FNMA requirement that a borrower be provided 30 days right-to-cure a default, the Fair Debt Collection Practices Act [15 U.S.C. §§ 1692 - 16920] (“FDCPA”) requires that a debt collector provide the borrower 30 days in which to request verification of the debt. Recent case law has interpreted this provision of the FDCPA to mean that a debt collector may not take any action during this 30-day period. The FDCPA 30-day period and the FNMA periods may overlap, however, if an attorney sends the right-to-cure demand letter while the FDCPA 30-day period in which to request verification will not lengthen the time necessary prior to foreclosure if an attorney sends the right-to-cure demand letter, it will lengthen the time necessary prior to foreclosure if the attorney's initial correspondence is the 21-day Notice of Sale. This is because the 21-day Notice would be extended to 30 days to assure that foreclosure does not occur before the expiration of the FDCPA 30-day debt verification period.
Notice of Acceleration
Once the notice of default has been properly given and the time provided to the borrower to cure the default has passed, the debt may be accelerated. The debt must be accelerated and notice of acceleration given in order to foreclose. While Texas law is unclear about how specific notice of acceleration must be, we recommend that the borrower be notified specifically that the debt was accelerated and is now fully due and payable. The borrower should also be advised in writing of the date of acceleration. The date of acceleration will be important after foreclosure in calculating any resulting deficiency.
No doubt should remain in the borrower's mind that the debt has been accelerated. Notice of acceleration is usually combined with the Notice of Foreclosure required as a condition to non-judicial foreclosure. Because the Notice of Foreclosure is required to be given at least 21 days before the date of sale and the right to cure notice required under the uniform FNMA deed of trust must be given at least 30 days before the Notice of Foreclosure, at least 51 days pass between the date of the right to cure notice and date of the foreclosure sale. This provides the borrower ample time to attempt to resolve the default. Nevertheless, experience shows that most borrowers wanting to work out the default wait until just a few days before the sale is scheduled to contact the lender or lender's counsel.
While notice of default and acceleration may be waived by agreement in non-residential, non-consumer transactions, they may not be waived in residential or consumer transactions. Similarly, the provisions of the federal Fair Debt Collection Practices Act may not be waived.
Reinstatement after Acceleration
Once the debt is accelerated, the Texas four-year statute of limitations for suing on a written contract begins to run. Consequently, it is essential that after an obligation has been accelerated that any agreement to reinstate is documented. If the lender were merely to agree to not foreclose and continue to receive payments without obtaining a reinstatement agreement in writing, the lender will run the risk of being unable to collect whatever remains of the obligation after four years passes from the date of acceleration.
Appointment of Substitute Trustee
Proper appointment of a substitute trustee in accordance with the deed of trust is a prerequisite to a valid foreclosure sale. Depending on the form of deed of trust, in addition to being in writing, the appointment may need to be executed by a specific officer (such as the president) and it may need to be recorded. In the event the substitute trustee is not properly appointed, or if someone other than the substitute trustee conducts the foreclosure sale, then the foreclosure sale will be void, as if it never occurred. Such a sale will be subject to being set aside any time after the sale until barred by adverse possession.
Notice of Sale
Once the right-to-cure period has expired and usually simultaneously with the notice of acceleration, notice of the foreclosure sale must be provided. Current Texas law requires that the Notice of Sale must be provided to the borrower and posted and filed in the county courthouse of the county where the property is located. Occasionally, a deed of trust may be found following pre-1976 law requiring the Notice of Sale to be posted in three public places. When this occurs, the deed of trust requirements must be followed and the notice must be filed in three public places, one of which should be the accepted place of posting for that specific county.
Beyond serving notice on the borrower, Texas law requires that notice also be given to each obligor on the indebtedness. This includes all guarantors. Failure to provide notice to any obligor may prevent the lender from pursuing that obligor for any remaining deficiency although it will not void the foreclosure sale.
Although a mere reference in the Notice of Sale to the recording date of the deed of trust has been held to be an adequate description of the property to be foreclosed, it is prudent practice to include a description of the property as well as a description of the deed of trust in the notice. From the Notice, a potential purchaser must be able to reasonably identify the property subject to sale.
The foreclosure notice must also specify the time and place of the sale. In Texas, foreclosure sales may only be held on the first Tuesday of the month following 21 days notice. They may only be conducted between the hours of 10:00 and 4:00 p.m. and they must be conducted at the place designated by the commissioners' court of the county where the property is located. If the commissioners' court has designated a location, the sale must be held at this location regardless of whether the deed of trust specifies a different location such as “the courthouse door.” If the commissioners court has not designated a location, then the sale must be held in the area specified in the deed of trust. If the commissioner's court has not designated a location, then the sale must be held in the area specified in the deed of trust. Most counties follow the traditional practice of conducting sales at the courthouse door --many are outside the door on the courthouse steps while others are inside the door or at some other designated location inside the courthouse. Finally, the sale must be conducted within three hours of the time specified in the Notice of Sale for the sale to begin.
Conducting the Sale
The public sale of the property must be conducted by the trustee or a validly appointed substitute trustee. A sale conducted by anyone else is void.
When conducting the sale, many trustees simply read a copy of the posted Notice of Sale or prepared script reciting the pertinent facts such as the lien information and the property description and then announce that they will accept bids. Texas law makes no requirement about what must be said at the time of sale although enough information must be provided to allow one to argue that a sale was conducted.
The deed of trust generally will call for the sale to be a cash sale and the trustee must give the winning bidder a reasonable opportunity to obtain cash and return with it at the time when the sale is to be reconvened later that same day and prior to 4:00 p.m. when the sale may be completed. It is permissible, however, for the trustee to accept any form of payment he or she wishes to accept. If the winning bidder is unable to obtain the necessary funds, the sale is made to the next highest bidder at the time of the reconvened sale.
Practically speaking, in the vast majority of foreclosure sales in Texas, the mortgagee will buy the property by bidding as a credit against the secured debt. A very small percentage of properties sold at foreclosure are sold to third-party bidders.
Inadequacy of consideration alone will not render a foreclosure sale invalid if the sale is otherwise legal and proper. 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. This rule does not consider the effect of inadequate consideration in the event the borrower goes bankrupt within one year of the foreclosure sale. This rule also does not consider the recent addition to the Property Code that does not allow a lender to recover as a deficiency from the borrower more than the difference between the fair market value of the property foreclosed and the amount owed regardless of how much is bid for the property. Both issues are beyond the scope of this article.
Notice to Prior lienholders or Owners of Property
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. 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 preexisting 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.
Rights after Sale
Under 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. The conveyance is made on behalf of the borrower by the trustee and any warranties are those of the borrower, not the trustee or mortgagee.
One who purchases at a foreclosure sale takes the property at their 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 parties in possession, shortages in area etc.
In the event the sale generates proceeds in excess of the indebtedness secured by the property sold at foreclosure, the surplus must be distributed to junior lienholders, if any, in order of priority with any remaining balance being paid to the mortgagor. In calculating the remaining indebtedness, however, the mortgagee may add attorney's fees and expenses incurred in foreclosing its lien.
Conclusion
Non-judicial foreclosure in Texas is a relatively quick and economical way to recover collateral leading Texas to be considered a mortgage lender friendly jurisdiction. If there are no complications, most residential foreclosures may be completed in approximately 51 days from the date of the first right-to-cure demand letter throughThe lawyers at Balcom Law Firm in Houston, Texas are experienced and successful dealing with residential foreclosures. Contact us today to get more information.
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