Understanding the foreclosure process in Texas is an important part of navigating your home foreclosure.
Before we dive in..
What is foreclosure anyway?
Foreclosure is the legal process that allows lenders to take back the amount owed by the borrower by taking ownership of and selling the mortgaged property. A default loan is when a borrower fails to pay back a debt within the agreed term or misses a specific number of monthly payments.
Foreclosure can be very stressful but it can be avoided. It also varies per state and normally lenders would try to work with borrowers to help them caught up with payment and in the end avoiding foreclosure.
Understanding the foreclosure process in Texas and how it works will equip you with the knowledge to make sure you navigate it well and come out the other end well.
The Basic Stages of A Foreclosure
There are a few stages that are important to any foreclosure process and it works differently in different states around the country.
In Texas, foreclose on a property are a judicial sale and power of sale.
Judicial Sale Foreclosure refers to foreclosure proceedings that take place through the court system, however, foreclosure doesn’t go to court until 3-6 months of missed payments have elapsed. The procedure is carried out according to the laws of the state in which the property is situated. Usually (but not always), a lender will send out many notices that you are in arrears – overdue or behind in your payment.
Under Judicial Foreclosure:
- Your mortgage lender must file suit in the court system.
- You’ll get a letter from the court demanding payment.
- Assuming the loan is valid, you’ll have 30 days to bring payment to court to avoid foreclosure (and sometimes that can be extended).
- If you don’t pay during the payment period, a judgment will be entered and the lender can request the sale of your property – usually through an auction.
- Once the property is sold, the sheriff serves an eviction notice and forces you to immediately vacate the property.
How does Judicial Foreclosure works?
Once the debtor is deliquent on payment for 120 days, the mortgage servicer will notify the foreclosing party with a breach letter letting the debtor know about the missed payments. In most cases, debtors are given 30 days to clear the default loan, and if they fail to do so, the servicer will then move forward with foreclosure proceedings.
The foreclosure party then files the lawsuit and would request the court to allow the home to be sold to pay the debt.
Power of Sale on the other hand is a mortgage clause that permits the lender to foreclose on and sell a property to recover the remainder of the loan.
Under Power of Sale (or Non-Judicial Foreclosure):
- The mortgage lender serves you with papers demanding payment, and the courts are not required – although the process may be subject to judicial review.
- After the established waiting period has elapsed, a deed of trust is drawn up and control of your property is transferred to a trustee.
- The trustee can then sell your property to the lender at a public auction (notice must be given).
How does Power of Sale Work?
The power of sale clause invokes the right of foreclosure. Mortgages that includes the power of sale clause can put the debtor of getting his property on a speedy foreclosure process if they missed out some monthly payments. Once the debtor falls into default, the lender must give notice of the pending foreclosure. The debtor may then receive a notice or a warning that the porwer of sale has been implemented and the property wil be sold.
What Happens After A Foreclosure Auction?
After a foreclosure is complete, the loan amount is paid off with the sale proceeds.
Sometimes, if the sale of the property at auction isn’t enough to pay off the loan, a deficiency judgment can be issued against the borrower.
A deficiency judgment is where the bank gets a judgment against you, the borrower, for the remaining funds owed to the bank on the loan amount after the foreclosure sale.
Some states limit the amount owed in a deficiency judgment to the fair value of the property at the time of sale, while other states will allow the full loan amount to be assessed against the borrower.
Here’s a great resource that lists the state by state deficiency judgment laws, since every state is different.
Generally, it’s best to avoid a foreclosure auction. Instead, call up the bank, or work with a reputable real estate firm like us at TMC Property Solutions to help you negotiate discounts off the amount owed to avoid having to carry out a foreclosure. Understanding the foreclosure process in Texas will help you prevent foreclosure.
Experienced investors can help you by negotiating directly with banks to lower the amount you owe in a sale – or even eliminate it, even if your home is worth less than you owe.
If you need to sell a house near Fort Worth Texas, we can help you.
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