Deed of trust used to foreclose

Your Deed of Trust defines a special agreement between you (the borrower), the lender, and a trustee. You will also find the triggers and process for a nonjudicial foreclosure if you default. You still maintain actual/equitable title and responsibility for your property. When you pay off the loan, the lender releases the lien on the property: voiding or concluding the Deed of Trust. But if you default, the power of sale clause in the Deed of Trust triggers, as a remedy, a nonjudicial foreclosure sale. Defined foreclosure triggers often include not making regularly scheduled payments (default), not paying taxes on your property, and not maintaining insurance. If the lender pursues a foreclosure, the trustee is charged with administering a foreclosure sale at the banks direction. How the path to foreclosure proceeds and the foreclosure sale itself, is defined in the Deed of Trust and certain Texas statutes.

Attorney Fun Fact about Texas Foreclosure Trustees

A little history lesson. Initially the trustee was chosen and named so because they filled a role of a neutral party meant to carry forward obligation of the deed of trust which defined the rights and duties, or relationship of the beneficiary (mortgagor) and the homeowner (mortgagee). This gives the impression of power and responsibility. Since it has become misleading for instance in Texas, the trustee has been reduced by judicial opinion to a mere agent or representative of the beneficiary, or bank, charged with doing such acts as the foreclosure.

What happens when you can not make payments

1) Late Charges

Although most loans have a grace period, you will be assessed a fee for late payments. Late fees are charged every month you miss a payment. The length of grace periods and late fee amounts are described in your promissory note. You may also find this information in your monthly loan statement. Federal law requires loan servicers to wait until accounts are 120 days delinquent before beginning the foreclosure process. In this pre-foreclosure period, mortgage servicers will likely contact you about catching up with your payments. This is the time to explore loss mitigation options. These options can help you find a way to get caught up on your payments to avoid foreclosure.

2) Required Loss Mitigation Options

Loss Mitigation is a process intended to benefit you and the lender. Since foreclosure is costly to both of you, there is a financial incentive for loss mitigation. Since 2017, federal law requires lenders to offer loss mitigation to consumers that are behind on their mortgage payments. They are supposed to give you one point of contact to help you in loss mitigation. Typically this starts when accounts are 45 days delinquent. The help they offer includes information about loss mitigation programs, how to submit a loss mitigation application, the status of your application, how to appeal lender decisions, and the circumstances requiring foreclosure. Loss mitigation remedies where you keep your home include a repayment plan, forbearance, and loan modification.

Repayment Plan

A repayment plan is an agreement with your lender to spread out missed payments among upcoming regularly scheduled payments. Your upcoming regularly scheduled mortgage payment would include an additional amount that is a portion of a previously missed payment. This allows you to continue making regularly scheduled payments and catch up on missed payments. Once you are caught up on your missed payments, you simply continue making your regularly scheduled monthly payments for the remainder of the loan term.

Loan Modification

A loan modification fundamentally changes the details of your promissory note. The loan modification process begins by contacting your lender’s loss mitigation department and making a loss mitigation application. Applications typically ask for information that describes your current financial situation. Pay stubs, tax returns, bank statements, and income/expense worksheets help paint this picture. You may also be asked to sign a hardship affidavit. Specific application requirements depend on the lender. Although most programs are in-house, some federal loss mitigation programs exist. If your lender agrees to a loan modification, they can alter the promissory note to make your monthly payment more affordable. They may agree to lower your interest rate or convert your loan from a variable to fixed interest rate. They may also agree to extend the term of your loan. Any changes depend on the decisions they make from the information you provide in your loss mitigation application.

Forbearance

Forbearance is a temporary grace period given by the lender to reduce or suspend your regularly scheduled payments and not initiate foreclosure proceedings against you. Forbearance is designed to give you a little breathing room from your mortgage because a temporary hardship prevents you from paying on time. Once this forbearance period ends, the lender expects you to resume your regularly scheduled payments that will include portions of the missed payments, much like in a repayment plan. Depending on the lender, the forbearance period may be extended if your hardship continues.

Avoiding foreclosure without keeping your home

Short Sale

In a short sale, you sell your house before the foreclosure sale occurs once the lender agrees to accept an amount of money that is less than what you borrowed. This describes the “short” of the short sale. Although this sale can relieve you of your mortgage debt and keep a foreclosure off your credit report, you may be subject to a deficiency judgement, and have to leave your home once escrow closes.

Cash for Keys (Deed-in-lieu-of-foreclosure)

If a foreclosure has been posted, many lenders will offer a “cash for keys” option. To avoid the time and financial costs of a foreclosure sale, a lender may offer you a lump sum to vacate your property by a certain date. Your obligation is to keep the property responsibly maintained (subject to inspection), and leave on the specified date. The amount of money and timing of vacating the property depends on the lender.

Ask Your Attorney

There have been occasions where a lender is processing a borrower’s request for loan modification, while simultaneously proceeding with a foreclosure. This process of Dual Tracking is illegal. Foreclosure cannot be initiated until your account is 120 days delinquent. This 120 day period is a good time to submit your loss mitigation application. Your loan servicer cannot initiate foreclosure proceedings once you have submitted your application and your application is pending. Foreclosure also cannot proceed unless: your loan modification has been rejected and all appeals have been exhausted, you reject the plan given to you, or you accept the modification plan but fail to follow the agreement.

Notice of Default letter begins foreclosure process

If loss mitigation of any kind, including a short sale and cash-for-keys options are unavailable to you, the foreclosure process will begin. This starts with the Notice of Default letter.

Texas Foreclosure Process

There are two types of foreclosures in Texas. Nonjudicial and judicial. Nonjudicial foreclosures are the most common type and conducted according to the power of sale clause in your Deed of Trust and relevant Texas statues. If no power of sale clause exists, then the foreclosure follows the judicial track. In this case, a judge must rule that a foreclosure sale can take place.

Texas Non- Judicial Foreclosure

If you default on a mortgage that was used to purchase your home and you received no money back from the title company , you will follow the nonjudicial foreclosure track.

Notice of Default and Acceleration

The Notice of Default letter is required by law from the lender. Also known as a breach letter, Texas Law requires the lender to notify you when you are in default before it can accelerate the loan and proceed with foreclosure. These letters typically specify the default, action(s) necessary to remedy (cure) the default, a date that includes 20 days to cure the default (30 days for Federal National Mortgage Association loans), and how failure to cure the default will result in acceleration of the debt.

Notice of Intent to Accelerate

The Notice of Intent to Accelerate the debt means the lender intends to call due the remainder of the loan after the time allowed to cure the loan has elapsed without remedy. Loans cannot be accelerated before a Notice of Acceleration is given and the cure period has elapsed. Typically the Notice of Default and Notice of Intent to Accelerate are delivered together. If the cure period has elapsed with no remedy, the lender sends a Notice of Acceleration and instructs the trustee named in the Deed of Trust or appoints a substitute trustee, to initiate a foreclosure sale. The trustee then starts the nonjudicial foreclosure sale process according to Texas law. This begins with a Notice of Sale given at least 21 days prior to the foreclosure sale to the borrower, and anyone else responsible for repaying the debt. This is a public notice posted on the county courthouse door and filed with the county clerk where your property is located.

*Notice of Appointment of Substitute Trustee – filed in County Records and mailed. This is how everyone knows you are in foreclosure.

You can still stop the foreclosure by filing a lawsuit against the lender.

Filing a lawsuit against the lender can stop the foreclosure sale through a Temporary Restraining Order. Although few options remain, a lawsuit may compel the lender to reconsider loan modifications, open the possibility of a short sale, or create more favorable conditions for surrendering your home.

Chapter 13 may not be the best option to stop your foreclosure

Filing bankruptcy before the foreclosure date stops the foreclosure, even just 24 hours in advance. Most bankruptcies filed intended to save a home fail because of bankruptcy illiteracy. Chapter 13 bankruptcy filings roll all your outstanding debt into a monthly payment. Your responsibility for your regularly scheduled monthly mortgage payment will be in addition to your Chapter 13 filing obligations. This means your mortgage payments could easily double. If you fail to meet your regularly scheduled monthly mortgage payments, the lender may begin foreclosure proceedings again.

Texas Judicial Foreclosure

Loans that are a HELOC, Cash out refi, received money from the title company, or HOA foreclosures

File lawsuit for Expedited Order of Foreclosure.

In Texas, special rules govern certain foreclosing on defaults where a loan was secured via lien on a borrower’s homestead. A loan like this is governed by a “Texas Home Equity Security Instrument” instead of a Deed of Trust. This would include a Home Equity Line of Credit, cash-out refinance, loans where you received money from the Title Company, and overdue HOA dues. Here an Expedited Order of Foreclosure is available to the lender. These types of home equity liens can only be foreclosed on by court order. In this case the court specifies when the foreclosure sale will take place. Because a lawsuit must be filed to initiate a judicial foreclosure, answering the lawsuit can buy time to create favorable arrangements with your lender. Not answering the lawsuit will lead to a default judgement and judicial foreclosure.

Foreclosure Sale

Notice of Sale

The Notice of Sale (Posting of Foreclosure) will be given no less than 21 days prior to the foreclosure sale. 21 days are calculated from the mailing of the notice. The Notice of Sale will also be posted at the county courthouse and filed with the county clerk where the property is located. Notices you receive and those posted at the courthouse will be identical and typically state that the property will be sold on the first Tuesday of the month after 21 days have elapsed. A foreclosure sale is a public auction that must occur at a specific date and time, last for a given duration, with the property sold to the highest bidder.

Right of Redemption

Texas has no statutory Right of Redemption except when property is sold for unpaid taxes or an assessment lien from an HOA. When a property is sold for unpaid taxes there is a 2 year redemption period for homestead property, and a 6 year redemption period for non-homestead property. If an HOA forecloses on an assessment lien, the homeowner and the lien holder have redemption rights. In common default-based foreclosure cases however, once the home is sold it cannot be redeemed or repurchased from the foreclosure buyer by curing the defaulted loan.

Post Foreclosure Eviction

Texas has no requirement for you to vacate your home because the foreclosure sale has been completed. This responsibility falls to the new owners who must file an eviction action. After an eviction action is filed the Texas county constables’ office where the property is located will serve an eviction notice with a court date for an eviction hearing. If the judge issues an eviction ruling, you will have 5 days to vacate the property or appeal the ruling. Remaining in the property after the 5-day vacate notice will compel the Constable to post a notice giving 24-hours to vacate. Once the 24-hour period has expired, Texas Constables can remove you and your possessions physically.

Deficiency Judgment

When the amount of the foreclosure sale exceeds the amount you owe the lender, including any fees associated with the sale, you are entitled to the surplus funds. When the property sells at auction for less than you owe, you may be subject to a deficiency judgement. In Texas nonjudicial foreclosures, lenders can pursue deficiency judgements against you. The lender can file a lawsuit against you to get the deficiency judgement up to two years after the foreclosure sale. You can however, offset the deficiency judgement by the fair market value of the property if it is greater than the foreclosure sale price.

Wrongful Foreclosure

Texas has very specific procedures that must be followed before and during foreclosure sale proceedings. Proper notifications and their timing with ancillary filings must be made in a very specific manner. Violations of these rules may create the basis for a wrongful foreclosure lawsuit. Wrongful foreclosure typically results from lenders illegally pursuing Dual Tracking. Other violations may include missed or misused notification deadlines, foreclosure sale posting errors, and sale conduct mistakes. You may elect to file a wrongful foreclosure lawsuit based on errors in the foreclosure process, challenging the ability of the lender to foreclose on your property, or any other wrongful circumstance you may discover. Common wrongful foreclosure lawsuit filings include improper Notice of Default and Right to Cure, improper Notice of Foreclosure, improper foreclosure process, inappropriate lender bids during the foreclosure sale, lender had no right to foreclose on your property, and Consumer Finance Protection Bureau (CFPB) violations.

Ask Your Attorney

There have been occasions where a lender is processing a borrower’s request for loan modification, while simultaneously proceeding with a foreclosure. This process of Dual Tracking is illegal. Foreclosure cannot be initiated until your account is 120 days delinquent. This 120 day period is a good time to submit your loss mitigation application. Your loan servicer cannot initiate foreclosure proceedings once you have submitted your application and your application is pending. Foreclosure also cannot proceed unless: your loan modification has been rejected and all appeals have been exhausted, you reject the plan given to you, or you accept the modification plan but fail to follow the agreement.