The real estate market in Texas has held up well compared to other parts of the country. The national media is full of stories about foreclosures, short sales, loan modifications, and the like. But what about Texas? Fortunately, we have not been hit hard. Unfortunately, there are people who are losing their houses. This topic is a rather large one, so I’m going to break it up into a series of posts over the next few weeks. The first part will be on the Texas foreclosure process.
Foreclosure laws are set by the states and, as such, there are 50 different sets of rules on them. Therefore, don’t believe everything you hear on the radio or see on television because it probably doesn’t apply here. In fact, Texas foreclosure laws are very different than other states. In short, Texas is very friendly to the lender compared to other states.
When a borrower misses a mortgage payment, they will first get a friendly reminder or two from their lender noting that a payment has been missed. Once the borrower misses a second payment, the tone will certainly change. It is at this point that, in Texas, a borrower should seriously look at foreclosure alternatives, but that will be discussed in more detail in a later post. When a borrower has missed their fourth or fifth payment, the lender will typically begin the formal foreclosure proceedings. When the process starts is up to the lender, but this time frame is pretty average for most lenders and across all states. Once this phase begins, the various state foreclosure laws kick in and the process changes from state to state.
While I had long known that we were among the quickest foreclosures states (as little as 41 days), I confirmed with RealtyTrac and learned that we indeed have the shortest foreclosure process in the union. This is due to the fact that most foreclosures in Texas are handled outside the courts. Most Texas mortgages have a power-of-sale clause in them meaning that when a borrower signs the mortgage, they are preauthorizing the lender to sell the property to satisfy the debt if the borrower defaults. Therefore, no court proceedings are necessary to transfer ownership to the lender, as is the case in most states. This results in a short foreclosure process in the Lone Star state. It should be noted, however, that not all Texas mortgages have a power-of-sale clause and those mortgages are subject to judicial process. Because this is a very small number, I am not going to delve further into the topic. Once the lender has decided to foreclosure (again, usually the four or five month mark), the process is as follows:
1) The lender sends a notice to the borrower demanding full payment of the default amount (missed payments, late fees, etc). The borrower then has 20 days to make full restitution. As you can imagine, a borrower who has reached this point finds it virtually impossible to satisfy the payment.2) After the 20 day period as ended, the lender notifies the borrower that the acceleration clause of the mortgage has been effected. Simply put, the lender now demands full payment of the entire outstanding loan balance (not just the default amount). Again, it is indeed a rarity that a borrower would be able to meet this obligation. This is the start of the actual foreclosure process. In addition to notifying the borrower, the lender also notifies the county clerk and posts a notice on the county courthouse door. The notices to the borrower and the county schedule a date on which the lender plans to sell the house at the county’s foreclosure sale. The date cannot be less than 21 days from the notice. Since the foreclosure sales in Texas are held on the first Tuesday of every month, the time that passes between the notice and the sale can vary from 21 days to just over 50 days. Texas does not require any public notice to be published in the newspaper.
3) On the day of the sale, the property is sold to the highest bidder for cash. Most of the time, the winning bidder is the lender whose bid essentially cancels out the balance of the loan. However, anyone is able to bid on the property (provided you have the available cash to pay for it).
Once the sale is complete, a Texas borrower does not have the right to redemption. This means that even if the borrower somehow came up with the money, they cannot repurchase the property from the winning bidder (as a side note, Texas does permit redemptive rights following a tax foreclosure sale). Again, if it got this far, the borrower is highly unlikely to be able to redeem anyway. Other states allow up to one year for a borrower to redeem the property.
Finally, if the borrower does not vacate the property, the winning bidder files an eviction notice. Presuming the court finds in favor of the new property owner, the borrower has five days to vacate the property (or appeal the ruling). The constable’s office then posts a notice on the door giving the borrower 24 hours to vacate. If they do not, the constable forcibly removes the borrower from the house and puts all of their possessions outside on the lawn.
Now you can see why this topic has to be broken up into several posts. The next post on this subject will be alternatives to foreclosure.
If you know someone who is behind on their payments, please contact me so that I can help them before it is too late. You can contact me at 512-650-7300, by email, or the form below.
As you now know, the process is short in Texas so we don’t have much time.