If you default on your mortgage payments in Texas, the servicer (on behalf of the loan owner, called the "lender" in this article) will eventually begin the foreclosure process. The method will most likely be nonjudicial, although judicial foreclosures are also allowed.
Texas foreclosure laws specify how nonjudicial procedures work, and both federal and state laws give you rights and protections throughout the foreclosure.
If you get a mortgage loan to buy residential real estate in Texas, you'll likely sign two documents: a promissory note and a deed of trust.
The promissory note is the document that contains your promise to repay the loan along with the repayment terms.
The deed of trust, which is very similar to a mortgage, is the document that gives the lender a security interest in the property and will probably include a power of sale clause. If you fail to make the payments, the power of sale clause gives the lender the right to sell the home nonjudicially so it can recoup the money it loaned you.
If you miss a payment, the servicer can usually charge a late fee after the grace period expires. Most mortgage loans give a grace period of ten to fifteen days, for example, before you'll incur late charges. To find out the grace period in your situation and the amount of the late fee, review the promissory note or your monthly billing statement.
After you miss a few mortgage payments, the servicer will probably send letters and call you to try to collect.
In a foreclosure, you usually get specific rights under federal and state law, such as the right to pursue a loss mitigation option and, in most cases, certain contractual rights, like the right to get a breach letter.
Federal mortgage servicing laws require the servicer to contact you (or attempt to contact you) by phone to discuss foreclosure alternatives—called "loss mitigation" options—no later than 36 days after a missed payment and again within 36 days after each following missed payment.
No more than 45 days after a missed payment, the servicer must let you know in writing about loss mitigation options that could be available, and assign personnel to help you.
If you want to avoid a foreclosure and stay in your home, you might qualify for a loan modification, forbearance, or repayment agreement. Or if you'd like to give up the home but not go through a foreclosure, you might be able to do a short sale or deed in lieu of foreclosure.
And if the government owns or backs your loan, say you have an FHA-insured loan, you might qualify for a special workout option.
Many deeds of trust in Texas have a provision that requires the lender to send a breach letter if you fall behind in payments. This notice tells you that the loan is in default.
If you don't cure the default, the lender can accelerate the loan (call it due) and go ahead with the foreclosure.
Federal law generally requires the servicer to wait until the loan is over 120 days delinquent before officially starting a foreclosure. However, in a few situations, like if you violate a due-on-sale clause or if the servicer is joining the foreclosure action of a superior or subordinate lienholder, the foreclosure can begin sooner. (12 C.F.R. § 1024.41).
Foreclosures in Texas are usually nonjudicial. But judicial foreclosures are also allowed.
A judicial foreclosure begins when the lender sues a delinquent borrower in court. To start the lawsuit, the lender (the plaintiff) files a document called a "complaint for foreclosure" or "petition for foreclosure" in court and serves it to the borrower along with a summons. The case then goes through the litigation process.
Generally, in a nonjudicial foreclosure, the foreclosure happens with little or no court oversight. A Texas nonjudicial foreclosure usually has no court involvement.
Again, most Texas foreclosures are nonjudicial.
In Texas, the foreclosing lender has to give two notices of the foreclosure: 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)). The breach letter that the servicer sends can satisfy this requirement.
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)).
The sale is a public sale, open to all bidders. The lender normally makes a bid on the property using a credit bid rather than bidding cash. The highest bidder at the sale becomes the new owner of the property.
"Reinstating" is when a borrower pays the overdue amount, plus fees and costs, to bring the loan current and 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 before the sale happens. Check your loan documents for details.
Sometimes, a foreclosure sale doesn't bring in enough money to pay off the full amount owed on the loan. The difference between the sale price and the total debt is called a "deficiency balance." Many states allow the lender to get a personal judgment, called a "deficiency judgment," for this amount against the borrower.
In Texas, to get a deficiency judgment after a nonjudicial foreclosure, the lender must file a lawsuit within two years after the foreclosure sale. You can ask the court to determine the property's fair market value. If the court says that the fair market value is more than the foreclosure sale price, you're entitled to an offset against the deficiency. (Tex. Prop. Code § 51.003).
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. Texas law, however, doesn't provide you with a right to redeem your home following the foreclosure.
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.
But you might be able to qualify for a new mortgage sooner than seven years. How long you must wait before you can get another loan to buy another home depends on the type of loan and your financial circumstances.
Learn about the statute of limitations for foreclosure.
Read about last-minute strategies to stop a foreclosure.
Find out how filing for bankruptcy affects a foreclosure.
This article contains details on foreclosure laws in Texas with citations to statutes so you can learn more. Statutes change, so checking them is always a good idea. How courts and agencies interpret and apply the law can also change. And some rules can even vary within a state. These are just some of the reasons to consult with an attorney if you're facing a foreclosure.
Also, foreclosure laws are complicated. Servicers and lenders sometimes make errors or forget steps. If you think your servicer or lender failed to complete a required step, made a mistake, or violated state or federal foreclosure laws, you might have a defense that could force a restart to the foreclosure or you might have leverage to work out an alternative.
Consider talking to a local foreclosure attorney or legal aid office immediately to learn about your rights. A lawyer can also tell you about different ways to avoid foreclosure.
Likewise, a HUD-approved housing counselor can provide helpful information (at no cost) about various alternatives to foreclosure.