Non-judicial foreclosures in Texas provide a remedy for defaults by borrowers on secured real estate lien notes. Defaults can range from simple nonpayment of installments or technical items such as failure to insure the property, pay property taxes, maintain the property to prevent municipal liens, etc.
The documents outlining the agreement and securing the lien, such as the promissory note and deed of trust, may have terms that dictate periods of time for the borrower to cure defaults, specific notice requirements, or acceleration clauses. These documents should always be thoroughly reviewed to ensure proper foreclosure takes place.
What is a Non-Judicial Foreclosure?
In Texas, a foreclosure can be judicial (by court order) or non-judicial (without court order). Most foreclosures in Texas are non-judicial. By executing secured lien note documents such as a promissory note, deed of trust, and warranty deed with vendor's lien, a lienholder may exercise their option to pursue non-judicial foreclosure. The deed of trust must provide the lienholder with the right to accelerate the lien and foreclosure on the property.
These foreclosures are sold “at the courthouse steps” which translates to the county courthouse or other designated place in the county in which the property is located (see Texas Property Code Section 51.002(a) and (h)). Foreclosure sales take place on the first Tuesday of the month and must be sold between 10:00am and 4:00pm local time and not later than 3 hours after the time of sale stated in the notice of sale provided to borrower.
Trustees and Substitute Trustees
The promissory note, deed of trust, and warranty deed with vendor's lien will identify the trustee responsible for noticing borrowers regarding any default, related cure period, and intent to accelerate if the property is a residential homestead. The trustee is also responsible for formally posting the notice of acceleration and trustee's sale and sending the borrower a copy along with conducting the foreclosure sale on the provided sale date.
A trustee can be substituted if provided for in the deed of trust recorded securing the lien. These new trustees are called “substitute trustees” and are appointed by the lienholder by an “Appointment of Substitute Trustee” that is recorded in the county property records.
Required Notices of Non-Judicial Foreclosures
Texas Property Code Section 51.002 provides notice requirements for non-judicial foreclosures. The terms of the deed of trust recorded to perfect the lien may also provide extended notice or cure periods for the borrower. Notices provided to borrowers must be clear and provide borrowers with 1) notice of intent to accelerate the lien then 2) a notice of acceleration and foreclosure sale.
For residential homestead properties, a Notice of Default and Intent to Accelerate must be provided to borrower and allow at least 20 days to cure the default. The deed of trust may lengthen this cure period. Furthermore, if the deed of trust is executed with the Fannie Mae (FNMA) form, the borrower must be given at least 30 days to cure the default.
Once the cure period has expired, a Notice of Acceleration and Posting of Foreclosure, along with the Notice of Foreclosure Sale, must be provided to the borrower at least 21 days prior to the foreclosure sale date listed in the notice. This notice must be provided to borrower by certified mail return receipt requested at the last known address contained the lienholders records or any updated address provided by borrower. Providing an additional copy via first-class mail is recommended. It must be signed by a trustee or substitute trustee while containing specific information such as the specific location of the foreclosure sale and the 3-hour window from 10:00am to 4:00pm in which the sale will take place. This notice is physically filed and posted with the county clerk's office.
It is worth noting that no notice of the foreclosure sale is required for other lienholders on the property.
Home Equity Loans
Home equity loans are secured by Texas Home Equity Security Instruments instead of a deed of trust used to secure other liens. Home equity loans may only be foreclosed through a court order which provides the specific date of sale. The lienholder may file a verified application with the local district clerk's office and the matter will be heard in an assigned district court. These proceedings are generally expedited with no discovery period permitted.
Federal (IRS) Liens and Rights
If the property has an attached federal tax lien or other federal lien, proper notice must be given to the IRS. This notice of foreclosure sale should list the same information as provided to the borrower and be sent via certified mail to the IRS and U.S. Attorney's office at least 25 days prior to the date of the sale (not including the sale date).
Furthermore, the IRS can redeem the property and unwind the sale within 120 days from the date of the foreclosure sale.
Texas Property Code Section 51.015 prohibits non-judicial foreclosures against borrowers who are currently on active-duty military status or within 9 months from the end of active-duty status. Judicial foreclosure, via district court, should be pursued for active-duty military borrowers in default.
Conduct and Bidding at Sale
The trustee or substitute trustee shall sell the property to the highest bidder provided the bidder makes payment without delay and in the monetary form allowed under the deed of trust. For example, many deeds of trust state bidders may provide cash or certified checks.
Once the property is sold, the highest bidder shall receive a trustee's deed or substitute trustee's deed for the property within a reasonable time.
Foreclosure and Debt Collection
The notice provided to borrower mentioned above are considered attempts to collect a consumer debt. This means the Fair Debt Collection Practices Act and Texas Debt Collection Act apply to non-judicial foreclosures. These notices should provide proper disclosures and allow for verification of the debt.
The notices should contain information that advises the borrower of the amount of the debt, the name of the current creditor (lienholder), the lienholders right to dispute the debt in writing or by verbal communication, and the borrower's right to know the original lienholder's correct address. Furthermore, the lienholder must state in the notices that it is a debt collector, it is attempting to collect a debt, and that any information will be used for that purpose.
According to the Fair Debt Collection Practices Act, the borrower must be given at least 30 days to make a written request to verify the debt. If this request is received, a written verification of the debt should be sent to the borrower by the lienholder via the trustee or substitute trustee. Of note, according to Texas Property Code Section 51.0075(b), a trustee exercising the powers of sale granted by a deed of trust is not a “debt collector”. To be safe, conducting a foreclosure sale before the 30-day verification period expires should be avoided if possible.
Non-judicial foreclosures can be extremely confusing with strict requirements to be followed. Consulting an experienced foreclosure attorney to navigate the process can help you avoid delays or loss of damages owed to you. At Bertolatus Rodman PLLC, we provide free initial consultations to review your matter. Please call us at (281) 343-3382 or submit the contact form to get started!
The information is not offered as legal advice upon which anyone may rely. Information in this article is provided for public informational and educational purposes only. No attorney-client relationship is created by the offering or reading of this article. This law firm does not represent you until expressly retained by written agreement. It is recommended that you seek legal and professional counsel for your individual circumstances prior to taking any action with legal implications.