If you’re a homeowner in Texas and you’ve fallen behind on your mortgage payments, you might be wondering what happens during a foreclosure in your state. The majority of foreclosures in Texas are nonjudicial, which means they happen outside of court. Not only are most banks able to complete a Texas foreclosure without court involvement, but state law requires that the bank mail just two notices during the process. Though, you’ll also get some different notices under federal law.
Judicial foreclosures, which go through the court system, are also possible. But because foreclosures are usually nonjudicial, this article focuses on that process. You’ll learn nonjudicial foreclosure procedures and get information about your rights under federal and state law.
Again, foreclosures in Texas are usually nonjudicial. Here's how they generally work.
Under federal law, in most cases, a loan servicer must wait until you're over 120 days' delinquent before officially starting the foreclosure process. This preforeclosure period is a good time to submit an application for a loss mitigation option (an alternative to foreclosure), like a loan modification, to your servicer. (12 C.F.R. § 1024.41).
Federal law also provides other protections to homeowners facing a foreclosure, like the following:
In Texas, the foreclosing bank has to give two notices to you: a notice of default and a notice of sale.
Notice of Default and Intent to Accelerate. The servicer must mail you a Notice of Default and Intent to Accelerate. ("Accelerate" means to demand that the entire balance of the loan be repaid). This notice has to give you at least 20 days to cure the default. (Tex. Prop. Code Ann. § 51.002(d)).
Notice of Sale. After the cure period expires, and at least 21 days before the foreclosure sale, the servicer then mails a Notice of Sale to each borrower. The servicer must also post the Notice of Sale at the courthouse door and file it with the county clerk. (Tex. Prop. Code Ann. § 51.002(b)).
"Reinstating" is when you catch up on the missed payments, plus fees and costs, to stop a foreclosure. In Texas, you get the right to reinstate the loan within 20 days after the servicer serves (mails) the Notice of Default and Intent to Accelerate. (Tex. Prop. Code Ann. § 51.002(d)).
The terms of the deed of trust that you signed when you took out the loan might also provide you with additional time to complete a reinstatement. Check your loan documents for details.
Some states allow the borrower to redeem the home within a specific period after a foreclosure. Texas law, however, doesn't provide you with a right to redeem your home following the foreclosure.
When the total mortgage debt exceeds the foreclosure sale price, the difference is called a "deficiency." Some states allow the bank to seek a personal judgment (called a "deficiency judgment") against the borrower for this amount. Other states prohibit deficiency judgments with what are called anti-deficiency laws.
In Texas, the bank may obtain a deficiency judgment after a foreclosure. To get a deficiency judgment after a nonjudicial foreclosure, the bank must file a lawsuit within two years after the foreclosure sale. (Tex. Prop. Code § 51.003).
If you don't vacate the home after the foreclosure sale, the purchaser who bought the property at the sale must give a notice to quit (move out) before initiating an eviction lawsuit against you. (This kind of lawsuit is called a "forcible detainer" action in Texas.)
If you want to learn more about the foreclosure process in Texas or want to find out if you have any potential defenses to a foreclosure, consider talking to a lawyer.
It’s also a good idea to make an appointment to speak to a HUD-approved housing counselor, especially if you want to learn about different loss mitigation options.