The Burton Law Firm, P.C. has over 10 years of experience in this area
of the law. If you have questions about this subject please call us
at 713-222-6262; or email David Torok at david@burton-lawfirm.com.
General Law - Foreclosure
- Can Texas foreclosures be carried out both in court and out of court?
Yes. Compared to many states, it is extremely easy to foreclose on properties in Texas and the
process moves rather quickly. The entire foreclosure process can take about three months or less.
- Who is the mortgagee?
The person that takes or holds or receives the mortgage from another.
- Who is the mortgagor?
The person who, having all or some part title to property pledges such by written instrument.
- How are mortgage liens treated in Texas?
Texas is known as a title theory state where the property title remains in trust until payment in full
occurs for the underlying loan. The document that secures the title is usually called a deed of trust
but may also be referred to as a mortgage.
- When is a foreclosure conducted through a court?
When no power-of-sale clause is included in the mortgage or deed of trust, the foreclosure is
administered by the court. The lender files suit against the borrower to obtain a court order to
foreclose on the property. Once the court declares foreclosure, the property is scheduled for public
sale.
- Is court assistance usually required?
No. Foreclosures are more often accomplished out of court. Before starting the foreclosure process,
the lender first mails a letter to the borrower which allows at least 20 days to pay the default amount
on the loan. Following this time period, the lender may begin the foreclosure process by mailing a
second letter to the borrower which states that the loan has been accelerated (full balance now due),
and a sale has been scheduled to recover the full amount due.
- What else must the lender do?
The lender posts a notice of sale at the door of the county courthouse and files a foreclosure notice
with the country clerk 21 days prior to the foreclosure sale. The lender also mails a copy of the notice
to the borrower at the last known address 21 days prior to the sale. Texas does not require the lender
to publish notice of the sale in the local newspaper.
- When are foreclosure sales conducted?
All foreclosure sales are between 10 a.m. and 4 p.m. on the first Tuesday of the month (regardless
of holidays) usually on the county courthouse steps. The sale is conducted as a public auction with
the property going to the highest bidder, who pays in cash, although the trustee may allow some time
(within the same day) for the highest bidder to collect the full amount. The lender is also eligible to
bid on the property.
- What does the trustee do?
He transfers ownership to the highest bidder free and clear of any junior liens but subject to any
senior liens. If the bid amount is higher than the amount owed to the lender, any surplus goes to
junior lien holders. In Texas, the borrower's right of redemption after the sale does not exist.
- Where do the rules governing foreclosure originate?
They come from three sources. Borrowers contractually consent to the first two at the inception of
the loan. These are the promissory note and the deed of trust. The other is statutory and case law.
- What is a real estate note?
By signing the real estate lien note, also called the promissory note, the borrower pledges to pay the
amount of the note according to the stated terms and provisions. This instrument continues the
borrower's personal liability to repay the balance of the note when the foreclosure sale generates
insufficient revenue.
- What is a deed of trust?
By signing the deed of trust, also called the mortgage or mortgage instrument, the borrower grants
the lender (mortgagee) a security interest in the property being purchased or pledged as security
(collateral) for the loan. The deed of trust empowers a person designated as the trustee with
authority to sell the collateral when a default occurs. The trustee conducts the foreclosure sale and
conveys title to the highest bidder.
- What are the key statutory law provisions?
The key provisions can be found in Chapter 51 of the Texas Property Code.
- What can trigger the foreclosure process?
Several events result in a default and trigger the foreclosure process. The primary cause is the
borrower's failure to tender a scheduled payment stipulated in the promissory note. Other causes
include failure to keep the property insured or to pay the property taxes.
- What happens when a default occurs?
Once a default occurs, the lender may declare the full amount of the note due and payable under a
provision known as the acceleration clause. Without this clause, lenders could not foreclose on the
unpaid balance of the note but only on the missed payments.
- What is the first notice in a residential foreclosure for a lender to send?
For residential loans, lenders may not accelerate the note immediately. Instead, they must give the
homeowner 20 days' written notice to cure the payments in default. The notice must be sent by
certified mail, return receipt requested. This right cannot be waived.
- What happens after the note is accelerated?
After accelerating the note, the mortgagee requests that the trustee sell the property. Chapter 51 of
Texas Property Code delineates the process.
- Is strict compliance required of the trustee?
Yes. The trustee must strictly comply with Chapter 51 and any other requirements set forth both in
the deed of trust and the promissory note to ensure a valid foreclosure.
- Where does the trustee begin?
The trustee begins by sending a notice to the debtor, posting an identical notice at the courthouse and
filing it in the deed records. The notice alerts the debtor and all who read it that the property will be
sold on the first Tuesday of the month occurring 21 days after the notice was forwarded, posted and
filed. It specifies the earliest time the sale will begin. The notice must be sent to the debtor's last
known address.
- What does the trustee do on the sale date?
On the appointed date, the trustee conducts a public auction at or near the courthouse. As of
September 1, 2005, the commissioner's court may designate a public place other than the courthouse
for the sale as long as the location is in reasonable proximity to the courthouse and accessible to the
public. The sale may occur anytime between 10 a.m. and 4 p.m. but within three hours of the time
specified in the notice.
- Can the sale date be moved?
The sale must take place even if the first Tuesday of the month falls on a holiday. If the trustee fails
to conduct the sale on the designated date, the entire process of sending, posting and filing notices
must be repeated.
- How is the actual sale done?
The trustee begins the sale by reading a copy of the posted notice and stating the terms of the sale.
Generally, the trustee requires cash-only sales. If a bidder requests time to return with the cash, the
trustee must temporarily adjourn the sale to accommodate the request.
- What happens if the mortgagee makes the highest bid?
If the mortgagee enters the highest bid, the lender acquires the property without any out-of-pocket
costs as long as the bid price does not exceed the debt. The lender simply credits the bid price against
the debt.
- What is the final step of the day?
As the final step, the trustee conveys the property to the highest bidder by way of a trustee's deed.
However, Texas statutes impact the purchase and conveyance two ways. First, the purchaser acquires
the property "as is" without any express or implied warranties except warranties of title. Second, the
purchaser is not a consumer in the eyes of the law and cannot sue for a breach of the Deceptive Trade
Practices Act.
- What happens with the sale money?
Once the sale concludes, the trustee divides the proceeds. Expenses relating to the sale are first paid.
These include advertising the sale, sending and filing the required notices, trustee's commission and
attorneys' fees other than those provided in the real estate lien note.
- What next is paid?
Next, the unpaid principal, interest, late fees, attorneys' fees and other unpaid charges as provided
in the real estate lien note are retired. Any remaining funds go to the mortgagor.
- What if the foreclosure sale generates insufficient revenue to cover the foregoing items?
The debtor remains personally liable. The lender may pursue the debtor judicially for this amount
in what is commonly called a deficiency judgment.
- What determines the amount of the deficiency?
The difference in the fair market value of the collateral and the unpaid balance of the note determines
the amount of the deficiency judgment. Previously, the courts tied the fair market value of the
collateral to the highest bid price generated by the sale. Now, debtors may ask the court to determine
the fair market value independent of the sales price. The statute dictates the factors and the manner
by which the determination is made.
- Must any money the lender receives from a private mortgage guaranty insurer be credited to
the debtor's account before seeking a deficiency judgment?
Yes. However, the private mortgage guaranty insurer may then sue the debtor for the amount paid.
- Are there special procedures dealing with home equity foreclosures?
Yes. Foreclosures under home equity loans are first conducted judicially according to Texas Rules
of Civil Procedure 735 and 736.
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