Texas Residential Foreclosure Requirements

Introduction

If a borrower doesn't pay their mortgage or doesn't follow the rules of the loan (like not paying taxes or keeping the property insured), the lender can take back the property. This is called foreclosure. To see if the borrower has broken the rules, you need to look at all the loan papers very carefully. These papers include the note, the deed of trust, and the loan agreement. These papers and the state laws tell the lender what they must do to foreclose on the property. If they don't follow these rules, the foreclosure may not be legal. 

Judicial and Non-Judicial Foreclosures

Foreclosures can be done through the court system (judicial) or outside of the court system (non-judicial). These two types cannot be done at the same time. Most foreclosures in Texas are non-judicial and happen on the first Tuesday of the month. 

Laws for Residential Foreclosures

The laws about foreclosures are found in Chapter 51 of the Property Code and Chapter 22 of the Business & Commerce Code. Article 16 of the Texas Constitution and Rules 735-736 of the Rules of Civil Procedure apply to home equity loans. The time limit to foreclose is in Civil Practice & Remedies Code Chapter 16.

EVALUATING A RESIDENTIAL FORECLOSURE CASE

Reviewing the Lender's File

In a foreclosure case, the first thing a lender's attorney should do is look at all the loan documents very carefully. They need to see if there is a valid lien on the property. They should also:

• List everyone involved in the loan, including any guarantors
• Look at the note to make sure it is signed by the borrower and is valid
• See if the lender owns the note and has the original note
• See if the borrower has not paid or done something else wrong that breaks the rules of the note
• Look at how the lender and borrower have acted and talked to each other to see if they changed the loan or if the lender has done something that would stop them from foreclosing
• Read the deed of trust to find out what notices need to be given and if it was recorded
• Find out who the trustee is and if a new one needs to be appointed
• Figure out what the property is like, if it can be looked at, and if anything needs to be done to take care of it
• Find out exactly how the borrower broke the rules of the loan
• Look at any notices that have been given to see if they follow the rules
• Find out if there are renters, a bankruptcy case, or anything else that could affect the foreclosure
• Check that the insurance on the property is still good and if any claims need to be filed
• Get a new title report to make sure the owner hasn't changed and to see if there are any new liens on the property
• See if any problems with the loan documents or the foreclosure process can be fixed

Time Limit to Foreclose (Statute of Limitations)

Part of looking at a foreclosure case is to make sure that the lender files the case on time. The time limit is usually four years from the date the loan is due or from the date the lender speeds up the due date because of the borrower not following the rules. The lender and borrower can agree on a shorter time, but it can't be less than two years.

Starting a Foreclosure

A foreclosure is not valid if it is not started within four years of the date the right to foreclose starts. This is usually the date the loan is due, unless the lender speeds up the due date because the borrower missed payments or did something else wrong. 

The lender can change their mind and cancel the foreclosure. If they do this, the time limit to foreclose starts over.

Suing on a Note

There are different time limits for suing on a note. If it is not negotiable, the time limit is four years. If it is negotiable, the time limit is six years. 

The Discovery Rule

The time limit to foreclose usually starts when the problem happens. But, sometimes the borrower may not know about the problem right away. In that case, the time limit might start when the borrower knows or should have known about the problem. 

FORECLOSURE NOTICES, POSTING, AND REINSTATEMENT

Notices to Residential Borrowers

Notices must be given to the borrower according to the Property Code and the deed of trust. The deed of trust might have extra rules on top of what the law says. Two notices have to be sent by certified mail. The first notice tells the borrower that they have broken the rules and that the lender might speed up the due date of the loan. The second notice tells the borrower that the lender has sped up the due date and that the property will be sold. 

Address for Foreclosure Notices

Notices should be sent to the borrower's last known address. The lender should double-check this to make sure it is right. The notices can also be sent by regular mail and email. 

Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (FDCPA) is a federal law that protects borrowers from unfair debt collection. This law applies to foreclosure notices. The notices must tell the borrower how much they owe, who the lender is, and their right to disagree with the debt. The lender must also say that they are trying to collect a debt. 

IRS Liens: Notice to the IRS

If there is an IRS lien on the property, the IRS must be given notice of the foreclosure at least 25 days before the sale. If this notice is not given, the IRS lien will not be removed by the sale.

POSTING THE PROPERTY FOR FORECLOSURE

A Notice of Trustee's Sale must be filed with the county clerk and posted at least 21 days before the sale. This notice gives information about the debt and the property.

REINSTATEMENT AFTER ACCELERATION

If the lender speeds up the due date of the loan and the borrower pays what they owe before the sale, the loan can be put back to its original terms. This is called reinstatement. It is best to have a written agreement for this. 

HOME EQUITY LOANS

Home equity loans have special rules for foreclosure. They can only be foreclosed by a court order.

EXECUTORY CONTRACT FORECLOSURES

Executory contracts are contracts where something still needs to be done, like giving the buyer a deed. There are special rules for foreclosing on these contracts.

NEGOTIATIONS AND FOREBEARANCE

If the lender and borrower agree to delay the foreclosure, they should have a written agreement.

BUYER DUE DILIGENCE

A buyer should check the title of the property before bidding at a foreclosure sale. They should also check the military status of the borrower. 

CONDUCTING THE FORECLOSURE SALE

The foreclosure sale is run by the trustee. The trustee must be fair to everyone. The trustee can set rules for the sale, like how much the bids have to go up by. The highest bidder wins the sale and gets a deed to the property. 

Time Elapsed

The foreclosure process in Texas can be as fast as 41 days. 

AFTER THE FORECLOSURE SALE

Distribution of Proceeds

If the sale brings in more money than what is owed on the loan, the extra money may go to other lienholders and then to the borrower. 

Properties with Multiple Liens

If there are multiple liens on the property, the first lien is paid first.

Rescission of a Non-Judicial Foreclosure Sale

A foreclosure sale can be canceled within 15 days if certain things happen, like if the rules were not followed or if the borrower filed for bankruptcy. 

REDEMPTION BY THE BORROWER

In some cases, the borrower can get the property back after the foreclosure sale. This is called redemption. 

STOPPING A FORECLOSURE SALE

The only way to stop a foreclosure sale is to get a court order. 

WRONGFUL FORECLOSURE SUITS

A borrower can sue the lender if the foreclosure was not done correctly. This is called a wrongful foreclosure suit. These cases are often moved to federal court. 

DEFICIENCY SUITS AGAINST THE BORROWER

If the sale price is less than what is owed on the loan, the lender can sue the borrower for the difference. This is called a deficiency suit. The borrower can ask the court to decide the fair market value of the property.

POST-SALE LITIGATION BY THE BUYER AT FORECLOSURE

The buyer at a foreclosure sale gets the property "as is." They cannot sue the lender if there are problems with the property. The buyer may have to evict the borrower from the property.

Important Disclaimer: This article is for informational purposes only and should not be considered legal advice. Laws can change, so it's essential to consult with a qualified attorney about your specific situation before taking any action. You should also talk to your tax advisor. Please note that reading this article does not create an attorney-client relationship unless we have a written agreement with you.