Texas Foreclosure Laws and Procedures

Before the foreclosure crisis, federal and state laws regulating mortgage servicers and foreclosure procedures were relatively limited and tended to favor foreclosing lenders. However, federal and state laws now heavily regulate loan servicing and foreclosure processes. Most of the laws give protections to borrowers. Servicers generally have to provide borrowers with loss mitigation opportunities, account for each foreclosure step, and strictly comply with foreclosure laws.

Also, most people who take out a loan to buy a residential property in Texas sign a promissory note and a deed of trust. These documents give homeowners contractual rights.

So, don't get caught off guard if you're a Texas homeowner behind in mortgage payments. Learn about foreclosure laws and each step in a Texas foreclosure, from missing your first payment to a foreclosure sale.

What Are My Rights During Foreclosure in Texas?

In a Texas foreclosure, you'll most likely get the right to a preforeclosure breach letter, apply for loss mitigation, receive certain foreclosure notices, get current on the loan and stop the foreclosure sale, receive special protections if you're in the military, and get any excess money after a foreclosure sale, among other things.

With this knowledge, you can make the most of your situation and, hopefully, work out a way to save your home or at least get through the process with as little anxiety as possible.

What Is Preforeclosure?

The period after you fall behind in payments, but before a foreclosure officially starts, is generally called the "preforeclosure" stage. Sometimes, people refer to the period before a foreclosure sale happens as "preforeclosure," too.

During this time, the servicer can charge you various fees, including late and inspection fees, and, in most cases, must inform you about options to avoid foreclosure, and send you a breach letter (see "Notice of Default and Intent to Accelerate in a Texas Foreclosure" below).

When Can a Foreclosure Start in Texas?

Under federal law, the servicer usually can't officially begin a foreclosure until you're more than 120 days past due on payments, subject to a few exceptions. (12 C.F.R. § 1024.41). This 120-day preforeclosure period provides most homeowners plenty of time to apply for loss mitigation with their loan servicer.

What Types of Foreclosure Are Available in Texas?

If you default on your mortgage payments in Texas, the lender may foreclose using a judicial or nonjudicial method.

How Judicial Foreclosures Work

A judicial foreclosure begins when the lender files a lawsuit asking a court for an order allowing a foreclosure sale. If you don't respond with a written answer, the lender will automatically win the case. But if you choose to defend the foreclosure lawsuit, the court will review the evidence and determine the winner. If the lender wins, the judge will enter a judgment and order your home sold at auction.

How Nonjudicial Foreclosures Work

If the lender chooses a nonjudicial foreclosure, it must complete the out-of-court procedures described in the state statutes. After doing so, the lender can sell the home at a foreclosure sale. Most lenders opt for the nonjudicial process because it's quicker and cheaper than litigating the matter in court.

What Are the Steps Involved in the Nonjudicial Foreclosure Process in Texas?

Again, most residential foreclosures in Texas are nonjudicial. Here's how the process works.

Notice of Default and Intent to Accelerate in a Texas Foreclosure

Texas law requires the servicer to send you (the borrower) a notice of default and intent to accelerate by certified mail that provides at least 20 days to cure the default before a notice of sale can be given. The 30-day breach letter sent pursuant to the terms of the deed of trust can satisfy this requirement. (Tex. Prop. Code Ann. § 51.002(d)).

The notice is sent to the borrower's last known address and must include the amount due and the date it has to be paid.

Notice of Sale in a Texas Foreclosure

After the cure period has expired and at least 21 days before the foreclosure sale, the servicer sends a notice of sale via certified mail to each borrower obligated to pay the debt. The notice of sale will also be:

• posted at the courthouse door in the county where the property is located, and
• filed with the county clerk in the county where the property is located. (Tex. Prop. Code Ann. § 51.002(b)).

The notice of sale must include the date, time, and location of the sale, as well as a disclosure geared toward military servicemembers that they should notify the sender of the notice about their military status. (Tex. Prop. Code Ann. § 51.002(i)).

What Are the Requirements for a Foreclosure Sale in Texas?

Foreclosure sales are generally held on the first Tuesday of each month between 10:00 a.m. and 4:00 p.m. at the county courthouse. The sale must begin at the time stated in the notice of sale but no later than three hours after the time scheduled on the notice of sale. (Tex. Prop. Code Ann. § 51.002).

At the sale, the lender usually makes a credit bid. The lender can bid up to the total amount owed, including fees and costs, or it may bid less. In some states, including Texas, when the lender is the high bidder at the sale but bids less than the total debt, it can get a deficiency judgment (see below) against the borrower. If the lender is the highest bidder, the property becomes "Real Estate Owned" (REO).

But if a bidder, say a third party, is the highest bidder and offers more than you owe, and the sale results in excess proceeds—that is, money over and above what's needed to pay off all the liens on your property—you're entitled to that surplus money.

What Are the Options Available for Borrowers During Foreclosure in Texas?

A few potential ways to stop a foreclosure and keep your home include reinstating the loan, redeeming the property before the sale, or filing for bankruptcy.

Alternatively, you might be able to work out a short sale or deed in lieu of foreclosure and avoid a foreclosure. But you'll have to give up your home with either of these options.

Reinstating the Loan

Texas law allows the borrower to block a nonjudicial foreclosure sale by "reinstating" the loan (paying the overdue amount) within 20 days after the lender serves the notice of default by mail. (Tex. Prop. Code Ann. § 51.002(d)).

Also, most deeds of trust provide additional time to reinstate. Check your loan documents to find out if you have more time to complete a reinstatement.

Does Texas Have a Foreclosure Redemption Period?

One way to stop a foreclosure is by "redeeming" the property. To redeem, you must pay off the full loan amount before the foreclosure sale.

Some states also provide foreclosed borrowers a redemption period after the foreclosure sale, during which they can buy back the home. However, Texas law doesn't give borrowers a statutory right of redemption after a foreclosure. Once your Texas home has been foreclosed, you can't redeem it.

Filing for Bankruptcy

If you're facing a foreclosure, filing for bankruptcy might help. If a foreclosure sale is scheduled to occur in the next day or so, the best way to stop the sale immediately is by filing for bankruptcy. Once you file for bankruptcy, something called an "automatic stay" goes into effect. The stay functions as an injunction, prohibiting the lender from foreclosing on your home or trying to collect its debt, at least temporarily.

In many cases, filing for Chapter 7 bankruptcy can delay the foreclosure by a matter of months. Or, if you want to save your home, filing for Chapter 13 bankruptcy might be the answer. To find out about the options available, speak with a local bankruptcy attorney.

Foreclosure Protections and Military Servicemembers

The Servicemembers Civil Relief Act provides legal protections to military personnel who might lose their home to foreclosure.

Are Deficiency Judgments Allowed in Texas?

In a foreclosure, the borrower's total mortgage debt frequently exceeds the foreclosure sale price. The difference between the total debt and the sale price is called a "deficiency." For example, say the total debt owed is $300,000, but the home sells for $250,000 at the foreclosure sale. The deficiency is $50,000.

In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount—in our example, $50,000—from the borrower.

Texas Deficiency Judgment Laws

In Texas, the lender may obtain a deficiency judgment after a nonjudicial foreclosure. The lender must file a lawsuit for a deficiency judgment within two years after the foreclosure sale. (Tex. Prop. Code § 51.003 (a)).

However, Texas state law allows the borrower to receive credit for the property's fair market value. So, the borrower is entitled to an offset in the deficiency amount if the property's fair market value is greater than the foreclosure sale price. (Tex. Prop. Code § 51.003 (b),(c)).

Home Equity Loan Foreclosures Are Different

In Texas, how a foreclosure will work depends on the type of home loan that's being foreclosed. While there are several different types of loans, the most common are:

• purchase money loans (a "purchase money loan" is a loan taken out to buy the property)
• purchase money second loans, and
• equity loans, like home equity loans and home equity lines of credit.

Again, most foreclosures in Texas involving purchase money loans are nonjudicial. But equity loan foreclosures are a little different. Under Texas law, the lender must use a quasi-judicial process to foreclose this kind of loan.

In this process, the lender must get a court order approving the foreclosure before conducting a nonjudicial foreclosure. Also, Texas law doesn't allow deficiency judgments following the foreclosure of a home equity loan.

Home Equity Loan Foreclosures Involve an Additional Step: The Lender Must Go to Court

Foreclosing an equity loan involves another step that falls in between sending a breach letter and notice of sale: The lender must file an application in court asking for an order allowing the foreclosure. (Texas Rule of Civil Procedure 735, 736; Texas Constitution, Article XVI, § 50[a][6][D])).

Responding to the foreclosure. The application has to be served to you by mail, and you get 38 days from the date of mailing to file a response. If you decide to respond, your response must be in the proper format and may be in the form of a general denial, but must affirmatively plead:

• why you believe you didn't sign the specified loan agreement document
• why you're not obligated to make payments
• that the number of months of the alleged default (that is, the number of months the lender says you're behind in payments) is incorrect, or that the reinstatement or pay off amounts the lender provided are materially incorrect
• that any document attached to the application is not a true and correct copy of the original, or
• that you made the payments (and you'll have to provide proof). (Texas Rule of Civil Procedure 736.5).

You can't raise any independent claims for relief. To fight the foreclosure on other grounds, you'll have to file your own lawsuit.

What happens if you file a response. If you file a response to the application, the court sets a hearing that, like the response, is limited in scope. The only issue in this kind of proceeding is whether the lender can get an order allowing it to proceed with foreclosure under the law and the terms of the loan agreement. (See In re One West Bank, FSB, 430 S.W.3d 573 (Tex.App. 2014)).

If the court grants the lender's application at the hearing, the foreclosure will proceed. The lender will then send you a foreclosure sale notice.

Foreclosure Sale

Again, foreclosure sales are usually held the first Tuesday of each month between 10:00 a.m. and 4:00 p.m. at the county courthouse. The sale must begin at the time stated in the notice of sale, but no later than three hours after the time scheduled on the notice of sale. (Tex. Prop. Code Ann. § 51.002).

Deficiency Judgment Following the Home Equity Loan Foreclosure

Texas law doesn't allow the lender to get a deficiency judgment against you after foreclosing an equity loan. (Texas Constitution, Article XVI, § 50[a][6][C]).

Getting More Foreclosure Information

For more information on federal mortgage servicing laws and foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.

The Texas Department of Housing and Community Affairs also provides information about foreclosures, including foreclosure FAQs, for Texas homeowners.

Getting Help From a Texas Foreclosure Lawyer

If you have questions about Texas's foreclosure process or want to learn about potential defenses to a foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney. It's also a good idea to talk to a HUD-approved housing counselor about different loss mitigation options.