In Texas, lenders may
foreclose on deeds of trusts or mortgages in default using
either a judicial or non-judicial foreclosure process.
Judicial Foreclosure
The judicial process of foreclosure, which involves filing a
lawsuit to obtain a court order to foreclose, is used when no
power of sale is present in the mortgage or deed of trust.
Generally, after the court declares a foreclosure, the property
will be auctioned off to the highest bidder.
Non-Judicial Foreclosure
The non-judicial process of foreclosure is used when a power of
sale clause exists in a mortgage or deed of trust. A "power of
sale" clause is the clause in a deed of trust or mortgage, in
which the borrower pre-authorizes the sale of property to pay
off the balance on a loan in the event of the their default. In
deeds of trust or mortgages where a power of sale exists, the
power given to the lender to sell the property may be executed
by the lender or their representative, typically referred to as
the trustee. Regulations for this type of foreclosure process
are outlined below in the "Power of Sale Foreclosure
Guidelines".
Power of Sale Foreclosure Guidelines
If the deed of trust or mortgage contains a power of
sale clause and specifies the time, place and terms of sale,
then the specified procedure must be followed. Otherwise, the
non-judicial power of sale foreclosure is carried out as
follows:
- Prior to proceeding
with a foreclosure, Texas laws state that the lender must
mail the borrower a letter of demand, informing the buyer he
has twenty (20) days to pay the delinquent payments or
foreclosure proceedings will begin.
- At some point after
the borrowers twenty (20) days have expired, but at least
twenty one (21) days before the foreclosure sale, a
foreclosure notice must be: 1) filed with the county clerk;
2) mailed to the borrower at their last known address; and
3) posted on the county courthouse door.
- The foreclosure sale
must take place on the first Tuesday of any month, even if
said Tuesday falls on a legal holiday, but only after the
proper preliminary notices have been given. The sale is on
the courthouse steps by auction to the highest bidder for
cash. Anyone may bid, including the lender, who bids by
canceling out the balance due on the note, or some part of
it.
Lenders may obtain
deficiency judgments, but they are limited to the difference
between the fair market value of the property at the time of
sale and the balance of the loan in default.
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