Foreclosure Process
STEP 1:
STEP 1: Notice of default – 20 days to cure
Default is outlined in the lending documents (property & tax liens trump everything)
Notice #1: If the debtor’s residence –> TX Property Code requires that mortgagee give notice of default and acceleration of debt allowing at least 20 days to cure the defect
- If uncured, this means that debtors must pay the full amount of the debt or face foreclosure
- There is no requirement that the debtor actually receives the notice
Foreclosure Process:
Judicial v Non-judicial
- Judicial process takes longer and is more expensive
- Deficiency judgment is required when the property is worth less than what is owed by debtor
Foreclosure Process:
Judicial Foreclosure STEP 2
Judicial Foreclosure STEP 2: Action on the Debt & Order to Proceed
- Court determines validity of claim and orders a sale
- Lender will file a lawsuit against the debtor and will ask for payment or foreclosure as remedy
- In the lawsuit the court will determine the validity of the claim and will determine whether a foreclosure can proceed if no payment
- Judge will enter a judgment ordering a sale to take place in order to satisfy the debt
Foreclosure Process:
Judicial Foreclosure STEP 3
or Non-Judicial Foreclosure STEP 2
STEP 2 (3 for judicial): Notice of sale
- 21 days notice (earliest time, location, date), posted & filed & certified mail
- If the default is not cured by the date indicated, then the mortgagee must give at least 21 days notice of the foreclosure sale
- The notice must state:
- the earliest time the sale will begin
- the location of the sale
- date of the sale
- Notice of the foreclosure sale must be distributed
- Written notice posted at the courthouse of each county in which the property is located; AND
- Written notice filed in the office of the county clerk in each country in which the property is located; AND
- Written notice is sent by certified mail to each mortgagor who is obligated to pay the debt
** No requirement that the debtor be present at the foreclosure sale
Texas Foreclosure Procedure
WHEN? First Tuesday of every month between 10 am and 4 pm
WHERE? County courthouse in a county where property is located. Usually on the courthouse steps.
Effects of a valid foreclosure sale
- Title transfers from the mortgagor to the high bidder at the sale (maybe the mortgagee)
- Foreclosure extinguishes the lien foreclosed and all liens junior to it
After foreclosure, property is still subject to liens senior to the one foreclosed –> Property tax lien trumps all
Foreclosure Process:
Multiple Liens
Multiple liens –> liens are attached in chronological order, except that property tax liens trump all
- The lien that is causing the foreclosure extinguishes all liens junior to it. However, any senior liens remain with the property and transfer to the new buyer unless paid off.
- Creditors of junior liens not otherwise paid off will try to find some other collateral and get that money from the original debtor – can’t come after the new buyer
Foreclosure Process:
Deficiency Judgments
Deficiency Judgments (allowed in TX)
- If the foreclosure sale price is less than the unpaid balance of the mortgage obligation, an action may be brought to recover a deficiency judgment against any person who is personally liable on the mortgage obligation
- Amount of deficiency judgment = amount by which mortgage obligation exceeds foreclosure sale price
- Any person against whom a recovery is sought may request a proceeding in which the action for deficiency is pending a determination of the fair market value of the real estate as of the date of the foreclosure sale
- If FMV is determined to be greater than the foreclosure sale price, persons against whom the recovery of deficiency is sought are entitled to an offset against the deficiency
- Best to bring a judicial foreclosure (court makes determinations that there truly is a default and how much)
Notices of Default
Notices of default – certified mail, conspicuous, remedy, delinquent payment amount, violation + cure
- Must be a written notice sent by certified mail (return receipt requested)
- Conspicuously printed in 14-point bold or 14 POINT UPPERCASE
- Must state:
- Less than 40%/48 payments à “You are not complying with the terms of the contract to buy your property. Unless you take the action specified in this notice by (date) the seller has the right to take possession of your property”
- 40% or more/48 payments à “You are not complying with the terms of the contract to buy your property. Unless you take the action specified in this notice by (date) the seller has the right to sell your property at a public auction”
- Identify the remedy to enforce
- Specify delinquent payment amount (specifics)
- Identify any contract term violated and action to cure
Instead of mortgages, Texas uses __________.
Texas uses Deeds of Trust (DOT) instead of a mortgage, although this is sometimes inaccurately referred to as a mortgage.
DOT use the non-judicial process for foreclosure.
