If 120 days have passed without any action from the homeowner, then the lender will send a Notice of Default and Intent to Accelerate. Doing this will start the foreclosure process. This notice gives the homeowner a final 20 days to reinstate their loan, which is for them to pay the overdue amount plus other fees and costs.
If a foreclosed home does not get sold in the public auction, it becomes a bank-owned or real estate-owned (REO) property. In this stage, the lender is highly motivated to sell, but homebuyers will have to deal with a lot of regulations and paperwork, so expect the transaction to be slow. You might also have to pay a higher price for the property compared to when buying it during the previous two stages.
Foreclosures in Texas are mostly non-judicial, meaning there was no court involved in the filing of the foreclosure. However, you may encounter foreclosed properties that were filed with a court and ordered by a judge. Non-judicial foreclosures are usually auctioned off on the first Tuesday of each month.
When you purchase a foreclosed property in Texas, you will be buying it as-is, meaning that you cannot negotiate for the owner to fix something before you buy the house. Additionally, the property you purchase may not be as high quality as you would expect. The state of these homes can vary; some may be ready for move-in while others may need substantial repairs.
The lender must also advertise the foreclosure sale in the local newspapers. Just like in the Notice of Sale at the courthouse, you will also find in these ads details about the property such as its description, debt owed, and when the sale will take place.
The first thing you should do is to look up its title and check for the balance of the main lien and other possible liens it could have. If you end up buying this property, you will be responsible for these, and the cost of clearing these liens can offset the equity in the home.
Should you find any liens on that property, consider hiring a real estate attorney to help you clear these without having to pay for them. But if the lawyer is not able to clear these liens, then you could move on to a different foreclosure.
If you hire a real estate agent, though, they may be able to help you arrange for an inspection. They could also handle the entire transaction on your behalf, as buying a foreclosed home can be overwhelming for beginners.
Learning how to buy a foreclosed home in Texas can be intimidating for a first-time real estate investor. But think about this: if you are able to navigate the entire process even with the help of an expert, you will come out of this with experience that you can use on your next home purchase. You might even decide to only buy properties that are either in the pre-foreclosure stage or up for auction.
If you work with an agent, they can set up alerts with specific details (i.e. pre-foreclosure, specific price range, desired areas/ZIP codes) to keep you up to date on all the latest properties of interest. Agents also have access to MLS listings before they are posted on sites like Zillow, which allows you to stay on top of your local marketsand get the jump on your competition.
County sheriff offices usually have their own website dedicated to listing and advertising auctions, but the sites vary from county to county, and some of them are a bit clunky. Regardless, here are the links to some of the more high-volume foreclosureareas:
Fortunately, finding REO properties is relatively easy. Banks list their foreclosure properties on the open market with agents, so REOs will show up in all the usual places: local MLSs like HAR.com, Zillow, and so on. You can locate these listings by filtering with terms like "sold as-is," "foreclosure," or "lender owned."
HUD homes are sort of like REOs in the sense that they didn't sell at auction and were repossessed by a lender. But, since HUD home mortgages were backed by the government, the government takes possession after foreclosure instead of a bank.
According to ATTOM, Texas had a foreclosure rate of 1 in every 6,887 housing units in early 2022, giving it the 23rd highest foreclosure rate in the U.S. Most of the foreclosures are in or nearmajor metropolitan areas like Houston, Dallas, and San Antonio. Houston is actually among the cities with the most foreclosures in the nation.
Federal law applies in Texas, which states that a borrower must be at least 120 days delinquent on their mortgage loan before the foreclosure process can begin. How soon a specific lender issuesa letter of breach and eventually a notice of default is up to the lender, but then borrowers will have three weeks or more to pay their debts before a foreclosure auction.
The moratorium on foreclosures due to the COVID-19 pandemic ended on July 31, 2021. Investors predicted a wave of foreclosures when the moratorium ended, but so far, there is no evidence that has occurred.
Note Foreclosure procedures may be impacted by the COVID-19 pandemic. Please see the Homeowners subpage on the COVID-19 and Texas Law research guide for current information related to COVID-19 and foreclosures.
After the sale, if the property sells for less than what is owed, the creditor may try to come after the borrower for the remainder of what is owed to them. This is referred to as a deficiency judgment. In nonjudicial foreclosures, a lawsuit must be filed in order to obtain a judgment to collect the deficiency. In judicial foreclosures, a second lawsuit needs to be filed. These lawsuits must be filed within two years of the sale.
After the foreclosure sale, if the property sells for a higher price than what is owed, the excess funds would then be used to pay off any additional liens that may be on the property. If no other liens exist, or if there are additional funds after the junior liens have been paid, the rest of the funds may be available to the former homeowner.
The "right of redemption" refers to one's ability to reclaim the property even after the foreclosure sale takes place. In Texas, the "right of redemption" is only available for specific kinds of foreclosure actions such as foreclosures of certain tax liens and property owners association assessment liens.
Weaknesses or omissions in the foregoing list could mean trouble for the lender. It is important for a lender and its attorney to be broadly confident that it has a solid case, built on solid documents, before moving forward with foreclosure.
As noted, the FDCPA requires that a borrower be given 30 days to make a written request to obtain verification of the debt. The lender or its attorney may nonetheless give notice of default, accelerate the debt, and even post for foreclosure in less time, but the foreclosure sale itself should not be conducted until the 30-day debt verification period has expired.
In the days before the 2005 reforms to the Property Code concerning executory contracts, a buyer-tenant was truly at a disadvantage when it came to a contract for deed. Buyer-tenants could forfeit all sums paid if they defaulted and be evicted as ordinary tenants. No longer. If the buyer-tenant has paid more than 40% of the amount due or made 48 or more monthly payments, then pursuant to the equity-protection provisions of Property Code Section 5.066, the seller-landlord must provide a 60-day notice of default and opportunity to cure the default. If the default is not cured, then a trustee may be appointed who can proceed with a non-judicial foreclosure.
The best practice is to do a title search prior to foreclosure to determine if there is an IRS tax lien or other federal lien. If so, notice must be given to the IRS and/or the U.S. Attorney at least 25 days prior to the sale, not including the sale date. 26 U.S.C. Sec. 7425(c)(1). If this is not done, any IRS tax lien on the property will not be extinguished by the sale. Note that the IRS also has 120 days following the sale to redeem the property, although this seldom happens. The successful bidder on an IRS-liened property is therefore not entitled to breathe a sigh of relief until the 121st day.
The investor should also check the military status of the borrower, since Property Code Section 51.015 prohibits non-judicial foreclosure of a dwelling owned by active duty military personnel or within 9 months after active duty ends. Knowingly violating this law is a Class A misdemeanor.
It is, of course, important not to bid more than the equity in the property (fair market value less the total dollar amount of the liens, if any, that will survive the foreclosure sale). So how does one discover fair market value? Again, it is a question of getting the right information. One of the best ways to do this is to obtain a comparative market analysis or broker price opinion (BPO) from a realtor.
Compared to other states, Texas has a streamlined non-judicial foreclosure process that is nearly as quick as an eviction. The minimum amount of time from the first notice to the day of foreclosure is 41 days, unless the deed of trust is a FNMA form, in which case the time is 51 days, although it is never wise to cut any legal deadline that close. Why risk a void sale or give the borrower a possible wrongful foreclosure claim?
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