Preface: I am not a lawyer, and if you want or need legal advice – pay for it.

As is with most people, I am sure you would just love to sit back and spend the evening reading about the Texas foreclosure process in Chapter 51 of the Texas Property Code, but if you are anything like me let’s just take a look at some of the key points and how they can help us. For all of us “normal” people I have assembled a quick glossary at the end of this to help make sense of some of the legal jargon, but for now let’s get to the nitty gritty.

Texas doesn’t play around when it comes to foreclosure. Nope. Although, I believe changes in the CFPB now states that a borrower must be in default for a minimum of 120 days prior to acceleration of the note (Dodd Frank may even extend that to 180 days), but before this a foreclosure in Texas could be in as little as 41 days! In comparison to judicial states, like Kansas, a foreclosure can take several years. Ouch.

Appointment of Substitute Trustee

Hmm…. Sounds like a big mess of words that make no sense, but this is a rock solid list to market to as an investor. I know we are talking about Texas, but this is pretty much the same across the states for non-judicial foreclosure. Let me explain a little about what it is, and why it is so important to you.

In general, when people buy a house with financing there are 3 key pieces of paper signed at closing. The Deed that transfers ownership of property, the Promissory Note that outlines the terms of payment to the lender, and finally the Deed of Trust that is the security instrument for the lender outlying the terms of default and foreclosure. The Deed of Trust appoints a Trustee in the document to be the responsible party in charge of the foreclosure in the event of default.

It is all too common that the Trustee originally appointed at purchase is not the foreclosing attorney chosen by the lender upon default. This means the bank must appoint a “substitute” trustee to take place of the original. What does this mean to you?

This is generally the first indicator filed of record in the county records when somebody is about to go to foreclosure (although it doesn’t always guarantee a pending foreclosure) sometimes this can be filed many weeks before the Notice of Default!!! This is a tedious task to pull these records from the counties daily, but hey…. if it lands the deal who cares!

For those in DFW, you can get these lists emailed to you daily with a Propelio Pro Account –  Click here for a 7 day FREE trial.

Notice of Intent to Accelerate and Right to Cure

Without knowing what this is it sounds kinda fun? Sometimes the lender sends this, sometimes the trustee, but either way with residential mortgages in Texas the mortgagor must receive a minimum of 20 days to catch up on the past due payments. This must be sent certified mail return receipt to the mortgagor’s last address, and will contain lots of valuable information. When you are on a meeting with a seller I recommend that you ask to see this because it can help in determining the payoff quickly, who is on the loan, and the reason for acceleration. There could be several different reasons why a lender would accelerate without a late payment such as behind on taxes, behind on insurance, or transfer of title. The list of applicable reasons would be found in the deed of trust signed by the borrower at their closing.

Notice of Default

Not so fun. If it wasn’t serious before now…. it just got real. This is basically the red flag that says you will go to foreclosure in a minimum of 21 days, and not only do they notify the borrower, but they post it at the court and in public record for everybody to see. The notice will usually state the home is going to be sold at the next auction, which is always on a Tuesday. It doesn’t matter if it is a holiday, rain sleet or snow – first Tuesday of every month in Texas is bye bye property day.

This can be a pretty motivated list of sellers. I mean the reality of it is, if they don’t catch up their payments or sell their house before the next Tuesday auction then the trustee will sell the house to the highest bidder. That’s a pretty hard dose of reality. Just like the appointment of substitute trustee, I would strongly recommend that you grab these from the county clerks office as soon as they are posted, and mail to them immediately. When things are competitive speed matters, and if you wait 4-5 days to send out the mailing, then the property is probably already sold.

For those in DFW, you can get these lists emailed to you daily with a Propelio Pro Account –  Click here for a 7 day FREE trial.

First Tuesdays – The Texas Foreclosure

As I already mentioned, tornado, hail, or anything else it doesn’t matter, first Tuesday of every month properties across the state are sold at foreclosure auction. The trustee will hold the auction at the place and time listed in the notice of default, and the property will be sold to the highest bidder with title transferred at sale via a trustee deed. In the event there are no bids the property will be purchased by the trustee on behalf of the lender and become a REO property.

If the sales price at auction is not enough to cover the penalties and loan amount then the lender may file a law suit against the borrower and receive what is known as a deficiency judgement. If the lender does not take this route, the borrower may still be pursued by the IRS for the deficiency int he form of a phantom income that will be taxed.

What next for the borrower?

If the borrower does not leave after the auction…. well several things could happen but most likely they will either be offered cash for keys by the new buyer, or they will be evicted by the courts. Step one of the eviction will be a 3 day notice to vacate, followed by a lawsuit called a forceable detainer suite, AKA an eviction. The eviction process usually takes 21-30 days, and almost always the new owner is awarded the eviction in court and the debtor must now leave the property. If they still have not left after 5 days a writ of possession can be filed, and a court constable will be sent to the house to remove the original borrower, by force if necessary.

With all this said, it seems like there is a lot to offer a seller facing foreclosure. These are all good negotiating points and topics to discuss when dealing with a seller facing foreclosure. I mean the seller can sell the house on their terms, negotiating lease backs, purchase price, and other terms, or they can have their home sold at auction losing all equity, rights to tenancy, and even face the constable knocking down their door.

Glossary

• Acceleration Clause – A clause written into most deeds of trust that allows the mortgagee to declare the full amount of the note due and payable. Simple Terms: If the borrower breaks a rule, the lenders want all their money back, not just a part of it.
• Collateral –  Property pledged to the lender in the deed of trust as security for the repayment of the loan. Simple Terms: If you break the rules, the lender will take the collateral.
• Deed of Trust – Mortgage instrument that creates a lien on the collateral and allows the trustee to sell it to satisfy the loan debt in the event of default. Simple Terms: This is the lien the lender puts on your house, and it outlines the rules you must follow or else they can foreclose.
• Mortgagee – Lender or holder of the security interest in the property; the lienholder; the mortgage servicer under certain conditions. Simple Terms: This is who the home owner owes the money to.
• Mortgagor – Debtor, borrower and grantor of the security interest in the collateral. Simple Terms: This is the person who signed the loan docs and bought the property originally.
• Mortgage Servicer – Last person to whom the mortgagor has been instructed by the current mortgagee to send payments for the debt. Simple Terms: This is who the owner sends their payments to.
• Non Judicial Foreclosure – Foreclosure process that involves no judicial intervention and is free of court involvement. Simple Terms: No judge or court involved = fast and no playing around.
• Security Instrument – Deed of trust or mortgage; the document creating the lender’s lien on the collateral and giving the trustee the power of sale. Simple Terms: See deed of trust 😉
• Substitute Trustee – Person appointed by the current mortgagee or mortgage servicer to exercise the power of sale in lieu of the original trustee designated in the deed of trust. Simple Terms – This is the person who conducts the sale at the foreclosure auction.
• Trustee – Person or persons authorized to exercise the power of sale under the terms of the deed of trust. Simple terms: The lender wants their money back, and if you don’t pay they send this person to get it.

If you have any questions feel free to ask away in the comments section below, and as always if you enjoyed what you read fee free to share.

Cheers to happy investing!

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