What You Need To Stop Your Texas Foreclosure
Learn about the many options you have for dealing with a foreclosure in Texas.
If you are posted for foreclosure in Texas, and if you want to keep the property, don't let the foreclosure sale take place. Foreclosure of your mortgage cannot be undone in Texas easily, if at all.
Once it happens, that is usually "all she wrote," and you have lost the house forever. There is no right to "redeem" a property (get it back) once it has been foreclosed upon by a mortgage company, at least in Texas.
It can be possible to "unwind" a foreclosure in Texas if there was some serious error in the foreclosure process, but don’t count on it. Don’t risk it; if you are going to save your home. If you want to save your home, stop the sale from taking place.
When can foreclosures take place?
In Texas, foreclosures can only occur on the first Tuesday of a given month. This is so even if it is a holiday, like January 1st, or July 4th, it doesn’t matter, they have foreclosure sales anyway.
They must "post" the notice of sale at a certain location in your county and send you notice by certified mail. They have to send it by certified mail; you don’t have to receive it, and it can still be a valid sale. Be sure to pick up all your certified mail, so at least you know what is going on; the sale is good whether you pick up your mail, or not.
The foreclosure itself is an "auction sale" where someone (usually the Trustee named in your Deed of Trust or a substitute Trustee) calls out the property, and solicits bids. Investors and others bid on the properties. If no one bids as much as is owed on the property, the Trustee enters a bid on behalf of the mortgage company, and they then become the owner of the property.
What happens after the foreclosure takes place?
The successful bidder will typically give you a "three day" notice to move out. If you don't move, they will file an eviction lawsuit against you in Justice of the Peace court. If they win, the court issues a "writ of possession" to a sheriff or constable to put you out, and put the purchaser in possession of the property.
What if I still don't move after a foreclosure?
The sheriff or constable shows up with a moving company and they pack your property up and move it to a storage facility. Don’t let it get that far! If you do, it will cost you $1000’s of dollars to get your stuff back.
And if you can’t afford it, too bad, it is auctioned to the highest bidder. Your furnishings, clothes and other items may not be worth a lot, but it is very costly to replace them, so you don’t want to let that happen.
Why Isn't My Mortgage Company Accepting Payments Anymore?
In Texas the mortgage lender is required to give you a "notice of intent to accelerate the loan" 20 days prior to calling your entire loan due, assuming the property is your principal residence.
Once they "accelerate" or call your entire loan due, they will no longer accept one payment at a time, but will insist that you catch it all up at once, in order to cancel the foreclosure. Following this notice, the mortgage lender’s attorney must "post" the property for foreclosure by posting a notice at the county courthouse door.
When this occurs, you'll probably get several letters from real estate brokers, investors, and bankruptcy attorneys, soliciting your business. People may even come to your house and make offers to buy your house, certainly they will if there is a lot of equity in the property, that is, if the property is worth more than what you owe on it.
What are your options if you're facing foreclosure?
If you have had a temporary issue with income, let's say you were laid off for a few months, but now that you're back at work, you're able to re-commence payments, you may ask your mortgage company for what's called a "forbearance agreement."
Under a forbearance agreement, which I would insist that they give you in writing, they agree to stop the foreclosure in exchange for you agreeing to not only make the regular payments going forward, but also paying a “catch-up” payment. For example, if you're now able to start payments again, you could contact your mortgage company and propose to pay one and one-half (1 ½) payments per month until you are current, provided that they cancel the foreclosure sale. If they accept that, and you can afford it and you complete the payments, fine.
Another alternative is for you to apply for a loan modification. Under the "Making Home Affordable" or HAMP program, once you apply for a loan modification, your mortgage company is supposed to stop any pending foreclosure proceedings. However, you must ask for the loan modification at least 10 days prior to the foreclosure sale.
And I would make doubly sure that they have in fact stopped the sale. If they have not stopped the foreclosure sale then you may want to consider filing chapter 13 or possibly seeking a state court temporary restraining order or injunction to stop the foreclosure sale. If you are turned down for a HAMP Loan Modification, your mortgage company can still give you a “proprietary” Loan Modification, one of their own. At least they have the ability to do that in most cases. In some cases, the “investor” or owner of your loan, will not agree to a Loan Modification. There really isn’t anything you can do about that.
Filing Chapter 13 to Stop the Foreclosure Cold.
If your mortgage company won't do a forbearance agreement, and your loan modification has either been denied or is not practical, you may want to consider filing chapter 13 to save your house. Filing Chapter 13 can stop a foreclosure in its track, right away.
In chapter 13, a petition can be filed with the bankruptcy court which brings into effect the "automatic stay" which IMMEDIATELY stops the foreclosure from occurring, so long as the mortgage company is properly notified. Then your attorney files a chapter 13 plan which proposes to catch up the delinquent payments over a period of time, usually 3 to 5 years.
You, your home and other property are protected by the Federal Bankruptcy Court, all the while you are in Chapter 13, so long as you comply with your plan. When you come into our office for your first free visit, we can show you how Chapter 13 can stop your foreclosure cold, and how much your plan payments are likely to be.
If things change, it is possible to amend or modify your plan, to take into account changes in your circumstances, within limits. Chapter 13 is entirely voluntary, you can ask your attorney to dismiss or cancel it at any time.
What is "stripping liens" in Chapter 13?
If your property has dropped in value, such that it is worth less than what you owe on the "first mortgage," that can be a very good thing in Chapter 13. How come?
Because if you have second or third mortgages, or say you owe your Homeowner's Association a lot of money, and you file Chapter 13, and there is not even $1 of “equity” in your home, over and above the first mortgage, the second or later mortgages can be “stripped” or turned into unsecured debt, which you only have to pay based on your ability to pay, which could be little or nothing.
One of the conditions of stripping liens is that you complete your Chapter 13 plan and receive a discharge. If you sell the house during the Chapter 13 plan, or convert your case to a Chapter 7 case, the liens will no longer be considered stripped. You must finish the plan to strip the liens.
Can I Sell My House During the Chapter 13?
Yes. During the chapter 13, if you change your mind and decide to sell the home, that is possible. Usually it's necessary for your attorney to file papers with the court to get a court order authorizing the sale of the property, to satisfy your purchaser's title company. That is not a problem, and is routine for lawyers like us, that do Chapter 13’s.
What is a Short Sale?
Yet another option if you no longer want your house, is a “short sale.” In a short sale, if you can’t sell your house for as much as you owe, you find a buyer and then get the mortgage lender to accept what the buyer is offering, and forgive any difference that you may owe. Sometimes second lien holders or even your real estate agent will agree to “take a haircut” or reduce the amount that they are owed, in order to close a sale.
A short sale can be better than a foreclosure, but it can be a hassle. Particularly if you have more than one mortgage against your property, or if you have tax liens or other issues, it can be very difficult to successfully complete a short sale.
What if I just want to surrender the property?
As another option, if you decide to surrender or “walk away” from the property, that can be done in chapter 13 as well. Some people decide it is just too much of a burden to continue to pay the house payments, insurance, taxes, maintenance, etc. and decide to surrender the property, at least if they can no longer make payments and they cannot sell it and get any money out of it.
If you decide to let the property go, but need more time before you move, filing Chapter 13 or Chapter 7 can stop the foreclosure temporarily, and give you additional time to move.
Or, you can let the foreclosure take place. A foreclosure is an auction, at the courthouse steps. If a third party bids on your property, not the mortgage company, they must bid at least the amount that you owe on your mortgage.
If that happened, the mortgage would be paid and you would be out of it. You would have a foreclosure on your credit for 7 years, but at least you would not owe anything, if you surrender it during a bankruptcy.
If you surrender it without a bankruptcy, it is possible that the mortgage company could bid less than what you owe on the property. If they do that, you could not only lose the house, but you could owe many $1000’s of dollars to the mortgage company, who could then file a lawsuit against you for a “deficiency,” i.e. the balance still due on the house after the foreclosure.
Chapter 7- Discharge Your Dischargeable Debts.
If you want to surrender the house, and avoid any chance that they you could be sued for a deficiency balance, you may want to consider filing Chapter 7 bankruptcy. Chapter 7 can cancel your debts, and give you a fresh start.
Not all debts are discharged in Chapter 7, but mortgages, credit cards, bank loans and lines of credit, medical bills, payday loans and other debts are generally discharged in Chapter 7. Some debts that are not discharged are recent taxes, child support and alimony, and student loans unless you can show undue hardship.
What other kind of foreclosures are there in Texas besides mortgage foreclosures?
There are also foreclosures of home-equity loans and home equity lines of credit. In Texas, if your home equity loan or home equity line of credit is delinquent and is foreclosing on you, they first must file papers with the state court and get permission to proceed with foreclosure.
Once they do that then they still have to "post" your property for foreclosure and give you 21 days notice of the sale, as I explained above. Important Secret! As a practical matter, your house would probably not be up for foreclosure if there was equity in the property and you could sell it. You would likely have already sold it! Therefore, many houses that are up for foreclosure have no bidders. What happens then is that the mortgage company bids on your property. They bid a credit against what you owe them. They do not have to bid as much as what you owe them, and as I explained above, if that occurs, you can actually owe your mortgage company money, even though you no longer own your house (this is the “deficiency” I was telling you about earlier).
Most mortgage companies, at least in recent years, have bid the amount of the debt at mortgage foreclosure sales so that you will not normally owe money to them following the foreclosure. But it is possible.
Home equity loans and home equity lines of credit are an exception. In Texas, you do not have “personal liability” for those types of loans. If they foreclose, they get the property, that is all. There are also “ad valorem” tax or property tax foreclosures in Texas.
In Texas, when people don’t pay their property taxes, the local county or school district must first file a lawsuit against the homeowner to get a court judgment to order the foreclosure of the property. There are many such “property tax” or “ad valorem” tax foreclosures in the Houston area each month.
Chapter 13 Bankruptcy can also stop these kinds of foreclosures. If the sale has happened, there is a limited amount of time to “redeem” properties from tax foreclosure sales in Texas, but again, I recommend that you don’t wait. If you want to save your property, file Chapter 13 before the foreclosure sale to avoid complications.
There are also Homeowner's Association foreclosures in Texas.
If you don’t pay your Homeowner's Association dues, your Homeowner's Association can foreclose on your home!
Your Homeowner's Association must first sue you and get a judgment, but then they can post your property for a foreclosure sale, just like any other kind of foreclosure in Texas, for the first Tuesday of a given month.
All these kinds of foreclosures can be stopped, but you must act quickly, or it could be too late. This is beyond the scope of this report, but a foreclosure is a taxable event (it is considered a sale) and it is possible that you can have tax problems by reason of a foreclosure occurring and you should discuss that with your tax advisor.