Understanding the Foreclosure Time Line in Texas

As a real estate lawyer, one frequesntly-asked question I receive from both lenders and homeowners is "How Fast Can a Residential Property Be Foreclosed?"

The answer to this question is generally set out in 2 sources: (i) the documents a borrower signs at closing, including the "promissory note" and "deed of trust;" and (ii) Chapter 51 of the Texas Property Code.

Though often ignored or rushed-through in the excitement of buying a new home, the documents signed at closing are legal instrucments with very serious implications. These documents evidence the buyer's personal promise to pay the mortgage lender, and serve as a legal grant to the lender (called the "mortgagee") of a security/collateral interest in the property being purchased. They also empower the lender to sell the collateral throgh a foreclosure sale when a default occurs. This power is the basis for foreclosure sales following a homeowner's default in his promise to pay the mortgage lender.

Chapter 51 of the Texas Property Code, and Section 51.002 in particular, is the State's way of regulating how the process authorized by the clsoing documents occurs.

Section 51.002(a) provides that a sale of real property pursuant to a deed of trust or other contract lien must be a public sale at auction held between 10 a.m. and 4 p.m. of the first Tuesday of a month. The sale must take place at the county courthouse in the county in which the land is located at a designated area at the courthouse.

In practical terms, Section 51.002(a) means that there is only ONE DAY EACH MONTH upon which foreclosure sales, as known as "Trustee's Sales" take place. The remaining deadlines prescribed by Chapter 51 are triggered by the sale date.

For 2011, Trustee's Sale / Foreclosure Sale Dates are as follows:

January 4, 2011
February 1, 2011
March 1, 2011
April 5, 2011
May 3, 2011
June 7, 2011
July 5, 2011
August 2, 2011
September 6, 2011
October 4, 2011
November 1, 2011; and
December 6, 2011.

Section 51.002(b)requires the foreclosing lender to provide at least 21 days written "Notice of Sale" by: (1) posting notice at the courthouse door of each county in which the property is located; (2) filing a copy of the notice with the county clerk; and (3) serving written notice of the sale by certified mail on each debtor who is obligated to pay the debt. NOTE: Service by of certified mail is complete when the notice is deposited in the United States mail, postage prepaid and addressed to the debtor at the debtor's last known address. Failure or refusal of the borrower to accept the letter has no bearing on the timeline.

However, Section 51.002(b) is not the beginning of the notice period. Instead, Section 51.002(d) requires a mortgage lender or its servicer to FIRST serve a debtor in default under a deed of trust with written notice by certified mail stating that the debtor is in default under the deed of trust and giving the debtor at least 20 days to cure the default. This notice, often referred to as a "notice of Default and Acceleration" must be given at least 20 days before the "Notice of Sale" is given under Subsection (b). This notice must be sent by certified mail, return receipt requested, and the right to receive such notice cannot be waived.

Thus, the timeline may be calculated as follows:

1.date that a debtor in default is sent a Notice to Cure/Notice of Acceleration under Setion 51.002(d).

ADD MINIMUM 20 DAYS.

2. lender to send "Notice of Sale" under Section 51.002(b).

ADD MINIMUM 21 DAYS

3. Trustee's Sale/Foreclosure Sale to take place (MUST BE FIRST TUESDAY OF A CALENDAR MONTH).

It is important to realize that the trustee must strictly comply with Chapter 51 and any other requirements set forth both in the deed of trust and the promissory note to ensure a valid foreclosure.

If insufficient notice of either the Acceleration or the Sale is provided, the sale may be halted by issuance of a Temporary Restraining Order. Also, if the sale does not occur on the date for which notice is provided, the entire process of sending, posting and filing notices must be repeated.

Given the fact that there is only one FORECLOSURE DAY each month, this can significantly delay the sale of the property.

Homes at Risk, and No Help From Lawyers

In California, where foreclosures are more abundant than in any other state, homeowners trying to win a loan modification have always had a tough time. Now they face yet another obstacle: hiring a lawyer.

To protect homeowners seeking loan modifications, California banned payment to lawyers before the work was done. Now lawyers say they cannot afford to help.

Read the full New York Times story here.

Texas Court: Deed of Trust Extinguished Upon Payment and Did Not Secure Additional Non Recourse Note

Generally, a deed of trust is extinguished upon payment of the indebtedness which it was created to secure even without a written release. However, if the deed of trust contains a dragnet clause, in some circumstances, the deed of trust may be found secure future indebtedness created after the original indebtedness was paid. A Texas Court recently analyzed these issues in Craig v. Ponderosa Development, LP.

A debtor executed a promissory note (“Note”) in favor of creditor. The Note was secured by a Deed of Trust against property owned by the debtor. The Deed of Trust contained both a dragnet clause and a release provision. A “dragnet” clause is a future advance clause. In other words, the dragnet clause in the Deed of Trust provided that the property secured both the Note and the payment of future indebtedness. The release in the Deed of Trust stated that “upon payment of all sums accrued by this Instrument, Lender shall release this Instrument.”

The debtor paid the full amount of the Note to creditor; however, creditor never released the Note or Deed of Trust. After debtor paid the Note in full, debtor executed a Non-Recourse Promissory Note in favor of creditor. Debtor defaulted on the Non-Recourse Promissory Note and creditor attempted to foreclose on the Deed of Trust. The creditor argued that the dragnet clause of the Deed of Trust covered the Non-Recourse Promissory Note.

A deed of trust has no legal effect apart from the debt it is intended to secure. A deed of trust is usually extinguished upon payment of the indebtedness which it was created to secure. Extinguishment is complete even without a written release. However, there may be an exception to extinguishment when the deed of trust contains a dragnet clause.

Texas courts do not recognize the enforceability of dragnet clauses unless the subsequent debt to be secured was reasonably within the contemplation of the parties to the deed of trust at the time it was executed. If the requisite intent is found, however, courts have indicated that dragnet clauses will be given effect even as to indebtedness created after the debt originally underlying a deed of trust has been paid in full.

In this case, the Court found that when read in conjunction with other provisions in the Deed of Trust, it was clear that the dragnet clause was not intended to secure future indebtedness created after the Note was paid in full. Any other interpretation would render the release in the Deed of Trust meaningless. The court concluded that the application of the dragnet clause to the Non-Recourse Note was not within the parties' contemplation at the time they signed the Deed of Trust.

Austin Lawyer Tip: Texas Foreclosure Procedures in Real Estate

In order to set up a non-judicial foreclosure, the lender must do several things in order to have the ability to foreclosure their security interest, or what we call a Deed of Trust. First, the loan papers (or "documentation") must include an obligation to pay (usually called a Note, Real Estate Lien Note, Promissory Note, or Note with Vendor's Lien) and should also include the security agreement (usually referred to as a Deed of Trust). The Deed of Trust gives the lender the right to "foreclose" its security interest if the Obligor fails to pay. The Deed of Trust should appoint a "trustee" and must contain a "power of sale." The Deed of Trust should also give the lender the right to designate "Substitute Trustee." In Texas, the foreclosure is usually by way of a "non-judicial" foreclosure, or by way of the posting of the property for sale on the first Tuesday of the month.

The following steps contain the basic procedures that the lender must go through in order to get to the point where they may foreclose the lien:

1) Demand for Payment - once the Obligor defaults in the making of one or more payments, the lender must give notice of the default and demand the overdue payment or payments.

2) Notice of Intention to Accelerate - prior to being able to foreclose its lien, the lender must give notice of intention to accelerate. The Notice of Intention to Accelerate is usually combined with a demand for payment. The notice should give at least ten (10) days within which the Obligor can cure the default. If the property is the Obligor's "residence," then the Notice of Intention to Accelerate should give the Obligor at least twenty (20) days notice. After the appropriate time period has expired, then the lender is free to "post" the property for a non-judicial foreclosure.

3) Notice of Foreclosure - assuming that the Lender has a valid Deed of Trust and that the lender has appropriately moved to foreclose through the designated trustee or its "substitute" trustee, then after the expiration of time on the Notice of Intention to Accelerate, the lender can "post" the property for foreclosure. This is done with the giving of Notice of Foreclosure. The Notice must be posted at the Courthouse and must be send via Certified Mail, Return Receipt Requested to the last known address of the debtor. Because only the sending of the certified mail is usually required, it does no good for the debtor to attempt to refuse delivery, as the debtor would only denying themselves the information contained in the Foreclosure Notice. The Notice must give the debtor at least 21 days notice of the foreclosure, and must inform the debtor of the time, date, and place of the foreclosure sale. Foreclosure sales take place at the location designated by the Commissioner's Court for each County in which the property (or any part of the property if the property is located in more than one County) is located.

4) Posting of the Property - the Notice of Foreclosure should then be "posted" at the designated location where notices are given at the County Courthouse (or other designated location). The Notice should be posted for the full twenty one (21) days prior to the sale and must be filed with the County Clerk's office.

5) Foreclosure Sale - The foreclosure sale should take place on the designated date between the hours of 10:00 a.m. and 4:00 p.m., that date being the first Tuesday of the month of the foreclosure sale. The sale must begin within three (3) hours of the time stated in the notice of foreclosure. At the foreclosure sale, the trustee or substitute trustee must "strike off" or sell the property to the highest bidder. The trustee is not required to sell the property for any particular price. For this reason, debtors are usually advised to attend the sale if they have some ability to redeem.

6) Substitute Trustees / Trustee's Deed - the final step in the process is for the Trustee (or Substitute Trustee if one was appointed) to prepare and file a Trustee's or Substitute Trustee's Deed to reflect that the property was sold. The Deed will then transfer title of the property to the purchaser or back to the lender, as the case may be. The lender should check the Deed to be sure that it accurately reflects what happened at the foreclosure sale.

Due to the complexity of these proceedings and the possibility of many pitfalls (or loopholes as many call them), if you have questions about the validity of any foreclosure sale, you should seek the advice of an attorney who is experienced in foreclosure litigation and foreclosure sales.

Austin Lawyer Tip: Texas Real Estate Foreclosure Litigation

There has been a tremendous amount of litigation relating to foreclosures. On each side of the fence there are competing interests. On the one side there are real estate companies, banks, lenders, and mortgage servicers. On the other side, are homeowners, families, and even children. There are very important issues on each side of the fence.

If you are looking at having your property foreclosed upon, you should first attempt to work out an agreement with your lender after falling behind in payments. Many mortgage lenders have various programs to get you current. Sometimes they are willing to move a delinquent payment to the end of the mortgage, or they may simply add the accrued interest to the loan balance and give you a new amortization schedule. If you have fallen behind, you should pursue all of your remedies with the lender prior to proceeding with any legal options. If the lender is unwilling or unable to help you get current, and they are not willing to grant you an extension or renewal, then another option is to seek to have the loan refinanced.

If the foreclosure is imminent and you are sure that you do not want to keep the home, you should first attempt to give the lender a "Deed in Lieu of Foreclosure." By doing this, you may be able to negotiate a release by the lender and avoid a costly deficiency lawsuit, whereby the lender could go after you for any losses they incur in taking back the property (in other words you could be liable for any resulting "deficiency" between the sales price at the foreclosure and the total amount of the debt).

Anther option if you are sure that you do not want to keep the home is to sell it prior to the foreclosure. By doing this, you may also avoid the possibility of a deficiency lawsuit by the lender against you. In this marketplace, this might be easier said than done.

If none of these options are available, and it looks like the lender is going to foreclose, then you may want to seek the advice of a bankruptcy attorney. With the bankruptcy, your prior payments may be able to be treated as an "arrearage" so that you can make payments on the old debt while staying current on the new or "post-petition" indebtedness.

However, what do you do if bankruptcy is not available to you for some reason? What if you believe that your lender has taken advantage of you? Are their any other options? The answer to these questions are "maybe." A commercial litigation attorney may be able to help. However, oftentimes, these options are very expensive. If you had this kind of money, you probably should have simply paid down the mortgage. Nevertheless, litigation attorneys will review all of the documentation and the foreclosure documents to ensure that the lender has met all of the requirements for a valid non-judicial foreclosure. Strict compliance is usually required.