This is Tom Black, Atty at Law. I'm Board Certified in Consumer BR Law by the Texas Board of Legal Specialization. This is my information message about foreclosure.

Introduction

If you're reading or listening to this information, your house is probably posted for foreclosure, or in the process of being posted. It's very important that you make the right choices now, because what you do at this time can affect your future financial well-being. Try not to be frightened or anxious; it's scary, but if you make the right choices, this can be handled in such a way that you are harmed the least.

Please carefully consider this information, and schedule an appointment with me or another attorney experienced in these matters. Please keep in mind that the information presented here is general information only, and is not intended to be advice for your particular situation. Only after the facts of your particular case have been reviewed by me or another experienced practitioner can legal advice be given that you should rely upon.

What is Foreclosure?

Foreclosure is the process by which mortgaged property is sold upon default to satisfy mortgage debt. In Texas, most real estate is financed by you, the purchaser, giving a promissory note and a mortgage (called a "deed of trust" in Texas) to a lender, in return for the money to purchase the real estate. The Deed of Trust names someone, usually an attorney hired by the lender, as Trustee. The trustee technically holds the legal title to your property in trust for the lender. If you fail to make pymts, the lender orders the Trustee to sell your property at a foreclosure sale.

Lenders must strictly comply with the deed of trust in conducting a foreclosure. There are also state laws that set out how to properly foreclose on someone. For example, if the property is your principal residence, lenders must give at least 20 days' notice of their intent to "accelerate" a mortgage, that is, call the entire amount of the promissory note due. Written notice of the foreclosure sale must be "posted" at the courthouse where the sale will take place at least 21 days prior to the sale.

Please note: There is no requirement that notice of the foreclosure sale be received, only that it be sent to the last address of each debtor according to the lender's records. So, it makes sense to always pick up the certified mail, so at least you know what is going on with the foreclosure.

And finally, the foreclosure must take place on the first Tuesday of a month. You may attend. You may bid (terms are cash). You are entitled to know what the trustee bids for the property. You may call your trustee's office in advance and ask what they intend to bid, if there are no other bidders. They don't have to tell you.

Please be aware that these notice requirements only apply to deed of trust financing-- if you are purchasing your property under a "Contract for Deed" otherwise known as an "Installment Land Contract", then different rules apply, and they're not discussed here.

Wrongful Foreclosure

If the lender doesn't comply with the foreclosure requirements, and conducts the sale anyway, they may be liable to you for money damages for wrongful foreclosure. Also, it can affect the marketability of their title, if they do wrongfully foreclose. Therefore, if they've done something that's arguably wrong in the foreclosure process, sometimes they will agree to "reinstate" the loan and let you catch it up in a way that's favorable to you. In certain circumstances, you can file a lawsuit in state court and have a judge order that the foreclosure stop. In certain circumstances, you may be entitled to money damages and attorney's fees.

The Foreclosure Sale

Following the notices required by law, the Trustee, pursuant to the "power of sale" clause in the Deed of Trust, then conducts a foreclosure sale on the first Tuesday of a month. It is an auction; people may come and bid for your house. However, usually there are few if any bidders because, most properties that are in foreclosure are in foreclosure because they are worth less than what's owed-- that is, there is no "equity" in the property. They can't be sold for more than the total of the mortgage and the costs of sale, such as closing cost, real estate brokers, fees and the like.

The trustee may also bid on your property, on behalf of your mortgage company. If no bidders appear and bid at least the amount of your mortgage, the trustee will "bid the property in" by bidding a credit against what you owe. The Trustee may bid the entire amount of the debt at the foreclosure sale. If he or she does that, then you owe the lender nothing.

Or, the Trustee may bid a credit against your debt that's less than the full amount of the debt, and you still owe the lender the difference.

The lender may then try to collect the difference from you in a "deficiency suit"- a civil lawsuit against you to collect the balance of the debt. For example, say you owe $100,000 on your house, but it's only worth $80,000. At the foreclosure sale, say the Trustee bids a credit against what you owe the lender of $56,000, 70% of the value of the house. You still owe $44,000- the difference between the $100,000 you owed and the $56,000 credit. You also owe all of the mortgage company's costs and attorney fees. And of course, if a lawsuit is filed against you, you'll also owe even more attorney's fees cost of court, and interest on the whole amount until paid.

Lenders will normally bid at least 70% of the value of the property at a foreclosure sale, but that's not required. They typically will do some sort of an appraisal prior to the foreclosure sale, but they're not required to do so.

Under a Texas state law that went into effect in 1991, if you are sued for a deficiency, you have the right to have a jury determine the value of the property. This law has a two year statute of limitations. Of course to successfully use this law you would probably have to hire an attorney, and take the time and trouble to participate in a jury trial.

As if losing the property and possibly getting sued are not bad enough, it is even possible that you may suffer adverse tax consequences by reason of a foreclosure, depending upon your tax basis in the property, and whether or not you are solvent on the date of the foreclosure.

Deed in Lieu of Foreclosure

If you don't want to keep the property, perhaps your lender would consider accepting a "deed in lieu of foreclosure", whereby you deed the property to the lender, and the debt is foregiven. In this way, the delay and expense of the foreclosure sale is avoided. However, this procedure is just not all that common in Texas. It's relatively quick and easy for lenders to foreclose in Texas, only taking about 2 months. The fact that your homestead is exempt from seizure by your general creditors does not keep it from being foreclosed upon for non-payment of your mortgage, loans for home improvements, and taxes.

In some other states, a lender wanting to foreclose must file a lawsuit and get a judgment of foreclosure, and there are minimum waiting periods of up to a year prior to a foreclosure actually occurring. Not so in Texas. So, the deed in lieu of foreclosure is not that common in Texas. Warning: if you do consider doing a deed in lieu, review the tax consequences carefully.

Walking Away from the Property

Simply walking away from the property is probably a poor choice. Many people did so without adverse consequences in the 1980's, but lenders, government guarantee agencies and private mortgage insurance companies seem far more interested in suing "walk aways" today. And, there are the tax consequences to consider.

Filing Chapter 7 Bankruptcy

Another option is to file a Chapter 7 bankruptcy. The "automatic stay" that goes into effect immediately upon filing the Chapter 7 case will temporarily stop the foreclosure. In order to foreclose, the mortgage company must file a motion with the Bankruptcy Court, which takes a minimum of 20-30 days, and can take 2-4 months. Then the mortgage company must re-post the foreclosure sale, which will take another month or so. You own the house until the foreclosure sale, and can of course occupy the house in the meanwhile.

During this time, you may be able to catch the mortgage up, or if you have decided to surrender it, you would not be making the payments on the home. This can be an opportunity to gather funds for moving expenses. In fact, many lenders prefer to have you in the property until the actual foreclosure sale, even if you're not making the payments. That's so that there's less likelihood of vandalism, fire and the like.

And, when you receive your Chapter 7 discharge in about four months, the mortgage deficiency, as well as your other dischargeable debts are discharged or cancelled and never have to be paid. If you live in the Southern District of Texas, I will be happy to file a Chapter 7 case for you; if this option interests you, please call my main telephone number, 713-772-8037 during business hours and make an appointment. I also have appointments on Saturdays.

Keeping the Property

If you want to keep the property, of course an option is to catch up the payments somehow, perhaps through loans from friends or relatives, or extensions of unsecured credit on credit cards.

Sometimes the lender will agree to a reinstatement, whether or not there's been an error in the foreclosure process, if you'll make a reasonable offer to reinstate. Believe it or not, the lender doesn't want your house; they want their money, and they want it in the manner in which you agreed to pay it. It's very costly to them to continually have to monitor late payments, partial payments, etc.

Lenders are set up to get one mortgage payment per month, on or about the first of the month; if you send it any other way, you're going to have trouble with them. Pretend you loaned that much money to someone; you would want paid your payment every month, and you'd want it on time, too.

If you're interested in trying to work with your lender, call their "loss mitigation" or "loss prevention" department. Ask them about a "loan modification," to add the missed payments to the principal of the loan, or if they have some other program to help you catch up.

Chapter 13

Now, if you can't catch it up, and you can't propose an acceptable reinstatement agreement or loan modification, the preferred alternative for many people is to file a Chapter 13 case under the U.S. Bankruptcy Code. Immediately upon filing, an "automatic stay" order goes into effect, which stops the foreclosure.

You should consult a knowledgeable attorney who will be able to assist you in filing the Chapter 13. It is, of course, best not to wait until the week before the foreclosure sale to do this.

By promptly proposing a Chapter 13 plan to catch up the mortgage over a 3 to 5 year period, and resuming the regular monthly payments beginning with the next one due, a Chapter 13 case can allow you to save your home from foreclosure. A Chapter 13 can also help you deal with all of your other debts, including past due homeowner's association dues, income taxes, property taxes, auto finance co's, credit cards, hosp and doctor bills, and the like.

If you're facing foreclosure, Chapter 13 is something you should consider carefully. If you have regular income, can afford your regular house payment, and are willing to make a monthly payment to your Chapter 13 Trustee to catch up your mortgage, you probably qualify for Chapter 13. If you want more information about chapter 13 or Chapter 7, see my information message about bankruptcy, or call my office to make an appointment.

Getting Your Case Started

Your first consultation with me is free with no obligation. It usually takes about a half an hour. Please bring your most recent paycheck stub, and the foreclosure notices. If you have them, bring your last two years' tax returns. Please download a questionnaire from this web site, fill it out, and bring it to your first visit with me.


In the usual Chapter 13 case, if you hire me to file for you, I will start your case and stop the foreclosure sale for a small down payment and the Court filing fee. The balance of my attorney fee is payable out of the monthly payments made to your Chapter 13 Trustee, to catch up your mortgage pymts and pay what you can afford on your other debts.

Whatever you decide about dealing with the foreclosure, please get help now. Once the foreclosure occurs, it's too late.

Also, if after listening to or reading this information, you are considering a Chapter 7 or Chapter 13 Bankruptcy it is probably in your best interest not to continue trying to make "token" or minimum payments on other debts you may have. Consult quickly with a qualified Attorney before making such payments.

I'm Board Certified in Consumer Bankruptcy Law by the Texas Board of Legal Specialization.