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.
So, don't get caught off guard if you're a Texas homeowner behind in mortgage payments. Learn about Texas foreclosure laws and each step in a Texas foreclosure, from missing your first payment to a foreclosure sale.
In a Texas foreclosure, you'll most likely get the right to:
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.
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 (a preforeclosure notice).
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.
If you default on your mortgage payments in Texas, the lender may foreclose using a judicial or nonjudicial method.
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.
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.
Again, most residential foreclosures in Texas are nonjudicial. Here's how the process works.
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.
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:
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)).
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.
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.
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.
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.
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.
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.
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)).
For more information on federal mortgage servicing laws and foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
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.