Foreclosure is the process by which a mortgage holder obtains legal title to your home when you have failed to make monthly payments when due. In Texas, most foreclosures are done outside of court – this is called a nonjudicial foreclosure.
Texas law requires that your mortgage holder comply with state laws which require that you be sent a series of notices and given a period of time to reinstate your loan prior to foreclosing. Further, where a home equity loan or certain other liens are involved your creditor must get a court order approving the foreclosure before proceeding with the nonjudicial foreclosure process.
When will the foreclosure begin?
Generally speaking, most mortgage holders will wait until you are at least 120 days past due on your monthly payment before foreclosing. However, once the process begins your lender is only required to send you two notices before the foreclosure sale. The entire foreclosure process can be completed in less than 60 days.
What is the foreclosure process?
Most foreclosures are done in 3-steps:
1. Notice of Default with Intent to Accelerate – Under Texas law, your mortgage holder must send you a “demand letter” – that is a written notice giving you at least 20 days to “reinstate” your loan by paying all amounts due, including interest and penalties. However, some loans require that the mortgage holder allow additional time for reinstatement. For example, most FHA, VA, and home equity loans require that you be given at least 30 days to reinstate the loan.
2. Notice of Acceleration – If you failed to reinstate your loan within the time allowed, your mortgage holder will send you an “acceleration letter” informing you that you have failed to comply with the demand letter and further advising that the entire unpaid principle, accrued interest, including attorney’s fees and costs are immediately due and payable. At this point, you must pay the loan off or take other legal action to stop the foreclosure.
3. Notice of Foreclosure Sale and Sale – In Texas, all foreclosure sales are held on the first Tuesday of each month unless such Tuesday falls on January 1 or July 4. In such cases, the foreclosure sale is held on the first Wednesday of such month. Texas law requires that the notice of foreclosure sale be: 1) filed with the county clerk; 2) mailed to the borrower at their last known address; and 3) posted on the county courthouse door.
The sale is then held on the courthouse steps by public auction and your property will be sold to the highest bidder for cash. Anyone may bid the property, including your mortgage holder, who is given a bidding credit equal to the outstanding balance on your loan.
Exceptions to the General Rule
If you have a home equity loan, a tax lien, tax transfer loan, or owe assessments to a homeowner’s association, Texas law affords you additional rights. In such instances, a lawsuit and court order are usually required before your property can be posted for a foreclosure sale.
How Bankruptcy Can Help
There are few, if any, options as effective as bankruptcy when it comes to stopping a Texas foreclosure. A bankruptcy is a quick and easy way to stop the foreclosure sale, regardless of loan type. Further, if you are running out of time and want to sell your home while maximizing your return a bankruptcy filing can afford you the additional time necessary to properly market the property – you don’t have to accept less than market value for your property.
Absent certain circumstances, a temporary injunction is automatically put in place upon the filing of your bankruptcy case – this is commonly referred to as the “automatic stay.” The automatic stay prohibits your creditors, including your mortgage holder, from taking any action to collect a debt. The mortgage holder will immediately back off for fear of violating federal law. In most instances, the filing of a bankruptcy will give you an immediate reprieve from creditor collection, including harassing phone calls, foreclosure and repossession.
Frequently Asked Questions
Question: How do I know which cure period applies to my loan?
Answer: You can find this information in your deed of trust. Specifically, you are looking for the “power of sale” provision. This provision is included in most residential deeds of trust and it is commonly titled “Acceleration; Remedies.” It is usually set forth in bold print and on one of the last few pages of the document.
Question: Can my mortgage holder foreclose even if I haven’t received any notices of foreclosure?
Answer: Yes! We stressed the words “send” and “mailed” above because Texas law does not require that the mortgage holder provide proof that you actually received any of the notices. The law firms engaged by mortgage holders are aware of this loophole and routinely print pre-paid postage labels and make copies of the postmarked letter prior to mailing it to your last known address. In fact, we have seen many instances in which a foreclosure sale has occurred without the homeowner having actually received the notice. In such cases, there is little, if anything, that can be done to save your home. Texas has no statutory right of redemption.
Failing to collect certified mail will also not stop or invalidate an otherwise legal foreclosure sale.
Question: What type of bankruptcy is most effective at stopping foreclosure?
Answer: It really depends on your circumstances and intentions with respect to the property. Any type of bankruptcy will be effective in putting a hold on the foreclosure. From there, a Chapter 7 may be in your best interests if you have little equity in the property and know that you cannot afford the monthly payments, taxes, and or maintenance. Whereas, if you can afford the monthly expenses and want to keep the property, a Chapter 13 bankruptcy might give you an additional 3-5 years to make up the payments you are behind while also affording you an opportunity to clear up any other credit problems such as outstanding credit cards, medical bills, collection accounts, and civil judgments.