Foreclosures - Deed Of Trust

SEE UNDERWRITING MANUAL
TX 18.28 Soldiers' And Sailors' Civil Relief Act

SEE BULLETIN
SLS2010023 - Insuring at or after Mortgage or Deed of Trust Foreclosure
SLS2011001 - Class Actions on Foreclosures
SLS2011002 - Service Member Foreclosure Protection Extended
SLS2015009 - UNDERWRITING - Servicemembers Civil Relief Act [Revised 5-2-17]
TX000008 - Recent Legislation
TX000011 - Maintenance Liens, Foreclosures
TX000069 - Procedural Rule P-53 Rebates and Discounts Prohibited
TX2015004 - LEGISLATIVE UPDATE 2015

TX2023005 - Legislative Update 2023

 

6.26.1

v 3 07/26/2013

In General

Nonjudicial Foreclosures

Deed of Trust/Power of Sale

A deed of trust containing a "power of sale" is the primary mortgage document utilized in Texas real property transactions. Consequently, the majority of foreclosures encountered are nonjudicial foreclosures exercised under the power of sale provisions contained in a deed of trust.

Requirements

Generally, a title arising out of a nonjudicial foreclosure may be insured upon satisfaction of the following requirements:

The nonjudicial foreclosure was conducted in compliance with the provisions of the deed of trust and Property Code Sec. 51.002.

The power of sale vested in a trustee under a deed of trust exists by virtue of the private contractual relationship between the parties and the requirements therein for foreclosure must be satisfied. However, Section 51.002 of the Property Code establishes the minimum level of requirements for exercise of a power of sale.

The requirements delineated in Section 51.002 are:

• If the property is the debtor's residence, the holder of the debt must give the debtor (i) written notice of default by certified mail and (ii) at least 20 days to cure the default before notice of sale can be given. (Property Code Sec. 51.002(d)).
• Notice of the sale must be given at least 21 days before the date of the sale by:
  • Posting at the courthouse door of each county in which the property is located, a written notice designating the county in which the property will be sold. (Property Code Sec. 51.002(b)(1)).
  • Filing in the office of the county clerk of each county in which the property is located, a copy of the posted notice. (Property Code Sec. 51.002 (b)(2)).
  • Serving written notice of the sale by certified mail on each debtor who, according to the records of the holder of the debt is obligated to pay the debt. (Property Code Sec. 51.002(b)(3)).
    
    Service of notice is complete when the notice is deposited in the United States mail, postage prepaid, and addressed to the debtor at debtor's last known address as shown by the records of the holder of the debt.
    
    Service of notice is to be given by the holder of the debt. (Property Code Sec. 51.002(e)).

o   A county shall prominently post a notice of sale filed with the county clerk under Subsection (b)(2) on the county’s Internet website on a page where the county posts other auction information and that is publicly available for viewing without charge or registration. viewing without charge or registration.

• The sale must be a public sale at auction held between 10:00 a.m. and 4:00 p.m. of the first Tuesday of the month. (Property Code Sec. 51.002(a)).
• The sale must take place at the county courthouse where the property is located.
  
  If the property is located in more than one county, the sale may be made in any county where the property is located. (Property Code Sec. 51.002(a)).
• The sale must take place in the area at the courthouse designated by the county commissioner's court.
  
  If no area is designated by the commissioner's court, the sale must take place in the area of the courthouse specified in the notice of sale. (Property Code Sec. 51.002(a)).
• The notice of the sale must state the earliest time at which the sale will begin. (Property Code Sec. 51.002(c)).
• The sale must begin at the time specified in the notice of sale or not later than 3 hours after that time. (Property Code Sec. 51.002(c)).

Requirements

• · Review the county’s website for proper notice publication as to transactions with a public sale. This will be in addition to the regular statutory requirements of notice of sale required to be examined for public real property sales.

Notice to Whom?

Under Section 51.002 of the Property Code and current case law, only the debtor/debtors obligated to pay the debt must be served with written notice of the sale.

In addition to the maker of a note, guarantors and anyone who has assumed the mortgage and so informs the mortgagee of said assumption must also be served with written notice of the sale.

Computation; 20-Day Notice

The entire calendar day on which the 20-day notice to cure is given (regardless of the time of day at which the notice is given) is included in computing the 20-day cure period, and the entire calendar day on which the notice of foreclosure sale is given is excluded.

Computation; 21-Day Notice

The day on which the 21-day notice of foreclosure sale is given (regardless of the time of day at which the notice is given) is included in computing the 21-day notice of foreclosure sale period, and the entire calendar day of the foreclosure sale is excluded.

Recitals in Trustee's Deed or Affidavit

Unless the policy issuing agent has actual knowledge of some problem with the sale, it may rely on recitals in the trustee's deed (after 4 years) or in an affidavit (current transaction) from the trustee or substitute trustee which verifies the foreclosure sale was conducted in compliance with Sec. 51.002. The recitals should specifically outline the requirements of Section 51.002 which have been complied with and provide specific information rather than general representations.

Since recitals contained in a trustee's or substitute trustee's deed constitute prima facie evidence that the terms of the deed of trust were fulfilled, the Company will accept the recitals in the trustee's or substitute trustee's deed in lieu of the affidavit noted above. However, the requirements for specifics in the affidavit also apply to the recitals in the trustee's or substitute trustee's deed.

The nonjudicial foreclosure was conducted in compliance with the terms of the deed of trust.

A trustee's power to sell a mortgagor's property is derived solely from the deed of trust and the powers conferred on the trustee must be strictly followed.

Therefore, if the deed of trust power of sale provisions establish requirements in addition to those set forth under Section 51.002 of the Property Code, these additional requirements must be complied with.

The policy issuing agent may rely on an affidavit from the trustee or substitute trustee or the recitals contained in the trustee's or substitute trustee's deed which specifically verify that the terms and conditions of the deed of trust have been complied with.

The nonjudicial foreclosure was conducted by the trustee or a properly appointed substitute trustee.

Delegation of Sale

Unless authorized by the deed of trust, the power of sale cannot be delegated to another.

A foreclosure sale conducted by anyone other than the designated trustee or authorized substitute trustee is void.

Any failure to comply with the provisions of the deed of trust pertaining to the appointment of a substitute trustee renders the appointment void.

However, a trustee or substitute trustee may delegate the duties of signing and posting the notice because these acts are ministerial in character.

Appointment of Substitute Trustee

Unless expressly required by the deed of trust, there is no requirement that the appointment of a substitute trustee be recorded.

However, if the appointment of substitute trustee is not recorded, the policy issuing agent should require a copy of the appointment for review and recording.

If the deed of trust requires that the appointment of substitute trustee be recorded, any notice of sale by the substitute trustee will have no force or effect until the appointment is recorded.

If the appointment of substitute trustee is required to be recorded by the deed of trust and the appointment is made before the rendition of the 21-day notices required by Section 51.002(b) of the Property Code, the appointment must be recorded at least 21 days prior to the foreclosure sale in order to validate said sale.

Effective January 1, 2004, a mortgage servicer can administer a foreclosure for the mortgagee under Sec. 51.0025 Prop. Code. The mortgage servicer can appoint a substitute trustee (51.0075). You may assume that the foreclosure is valid if it is a one to four family property and the mortgagor has abandoned the property.

Collateral Assignment

If the underlying note is endorsed by the collateral assignor (beneficiary of the deed of trust) to a collateral assignee, the collateral assignee is the legal holder of the note and is therefore authorized to appoint a substitute trustee.

If, however, the underlying note is not endorsed and the deed of trust has been collaterally assigned to another and the collateral assignment document indicates the assignment is for collateral purposes rather than an outright assignment, the collateral assignor (beneficiary of the deed of trust) remains the holder of the underlying note and is the one authorized to appoint a substitute trustee.

It is unclear what the result would be in the situation where the underlying note is not endorsed but an outright assignment of the note and lien to another has been executed rather than a collateral assignment, even though the assignment was in fact for collateral purposes.

In collateral assignment situations, the Company may require that the appointment of substitute trustee be executed by both the collateral assignor and collateral assignee.

The debtor is not in possession

The policy issuing agent may rely upon

an inspection by the policy issuing agent which verifies the debtor has vacated the property, or

a non-possession recital in the trustee's or substitute trustee's affidavit, or

a non-possession recital delineated in the trustee's or substitute trustee's deed.

The debtor was alive at the time of the nonjudicial foreclosure

Intestacy/Dependent Administration - effective on or after January 1, 1996 (Estates Code Sec. 355.151 - 355.160)

A nonjudicial foreclosure is allowed during the pendency of a dependent administration if:

The personal representative and lienholders are personally served,

The court authorizes the foreclosure, and

The claim of a lien has been allowed, approved and fixed.

The court may establish a minimum price.

A confirmation order after the sale is not required.

Underwriting Standard: To insure out of such a nonjudicial foreclosure sale:

a)Verify that all other requirements for a nonjudicial foreclosure are satisfied,

b)Verify that the personal representative, any other owner, and all lienholders are personally served, and

c)Verify the bid complied with any court ordered minimum price.

Intestacy/Dependent Administration - Prior to January 1, 1996

A nonjudicial foreclosure exercised during the pendency of a dependent administration is void because of the suspension of the power of sale by the opening of administration.

A nonjudicial foreclosure conducted after the death of the debtor is voidable if a dependent administration is opened within 4 years of the death of the debtor.

In these situations, require

that the lender present its claim in the probate court and secure a sale of the property under Estates Code Sec. 356.201 – 356.203,

a deed from all of the heirs, or

an exception in the policy on Schedule B for the possibility of the foreclosure being voided.

If more than 4 years has elapsed since the death of the debtor with no administration having been filed, a nonjudicial foreclosure can be pursued.

If more than 4 years has passed since the death of the debtor and no dependent administration has been opened, then a foreclosure sale conducted during the 4 years will pass title via the recorded trustee's deed.

Testacy/Independent Administration

The power of sale in a deed of trust may be exercised after the death of the debtor if there is a pending independent administration. The policy issuing agent should review the notice of sale to confirm that the independent executor or executrix was notified.

Recitals

The policy issuing agent should require either a recital in the trustee's or substitute trustee's affidavit or deed which indicates the debtor was alive at the time of the nonjudicial foreclosure or the facts of an intestacy or testacy situation that allow foreclosure. Such recitals should be supported by complete documentation.

The debtor was not in the military service at the time of the foreclosure.

Under the Service Members Civil Relief Act of 2003, 50 U.S.C. Appendix Sec. 501, et seq. (1981), no sale, foreclosure or seizure of property for non-payment is valid if made during the period of military service or within 9 months after the end of the military service, without a written agreement between the parties or upon the entry of a court order. The SCRA commences no later than the date a person enters active service or for a Reserve Member on the date they receive active duty orders.

When appropriate, this requirement is satisfied by

a recital in the trustee's or substitute trustee's affidavit or a recital in the trustee's or substitute trustee's deed which indicates the debtor was not in the military at the time of the nonjudicial foreclosure.

a written agreement between the parties, or

a court order.

A proper and accurate trustee's or substitute trustee's deed to the purchaser was recorded in the deed records of the county where the real property is located.

Judicial Foreclosures

Upon a default of a loan secured by a deed of trust on real property, the lender can foreclose its lien either by instituting a judicial foreclosure proceeding or by a valid exercise of the power of sale contained in the deed of trust.

However, the lender cannot resort to both proceedings and must make an election or remedies.

In addition to a deed of trust, when the purchase of real property is financed by the seller or a third party lender, a vendor's lien is retained by the seller in the deed to secure the unpaid purchase money for the real property.

If the purchase is financed by a third party lender, the vendor's lien is assigned by the seller to the third party lender.

A vendor's lien exists separate and apart from a deed of trust lien and may be enforced by a suit to foreclose the lien.

Even if an express vendor's lien is not reserved in the deed, it arises by operation of law to secure the payment of purchase money and may be foreclosed in a judicial foreclosure proceeding.

Bankruptcy - The Effect Of

Automatic Stay

The filing of a bankruptcy petition by the debtor operates as an automatic stay against the commencement or continuation of a foreclosure proceeding. 11 USCS A§362 (1985).

Lifting the Automatic Stay

If the title search to a property reflects a recent foreclosure consummated after the filing of a bankruptcy petition by the debtor, the policy issuing agent should require a certified copy of an order from the bankruptcy court lifting the automatic stay. Said order must be obtained prior to the foreclosure and recorded.

Annulling the Automatic Stay

If a foreclosure has been initiated and completed subsequent to the filing of a bankruptcy petition by the debtor in violation of the automatic stay, it is possible to validate the foreclosure.

An order from the bankruptcy court which "annuls" the automatic stay has the effect of invalidating the stay thereby rendering the subsequent foreclosure sale void.

However, a subsequent bankruptcy order which merely "lifts" or "terminates” the stay is not sufficient to validate a foreclosure conducted in violation of the automatic stay. The subsequent bankruptcy order must contain specific language which "annuls" the stay in order to validate foreclosure.

Therefore, the policy issuing agent should require a certified copy of a bankruptcy order annulling the stay in order to insure a title arising out of a foreclosure which was otherwise conducted in violation of the automatic stay. Said order should be recorded.

Abandonment of Debtor's Real Property

The abandonment of property in the bankruptcy by the trustee does not terminate the automatic stay in regard to the abandoned property.

Upon the filing of a bankruptcy petition, property owned by the debtor becomes property of the bankruptcy estate.

The automatic stay applies to property of the bankruptcy estate and property of the debtor.

The abandonment of the property by the trustee merely converts the property into property of the debtor and the automatic stay is still in existence against property of the debtor.

Therefore, notwithstanding the abandonment of the property by the bankruptcy trustee, it is a requirement that an order from the court lifting the automatic stay be obtained prior to a foreclosure.

Affected Interests

Generally

A nonjudicial foreclosure of a senior lien, as well as the judicial foreclosure of a senior lien in which all parties have been joined, extinguishes inferior liens and other encumbrances.

If the policy issuing agent is satisfied that the nonjudicial or judicial foreclosure constituted a valid foreclosure of a senior lien, inferior liens and encumbrances need not be shown as exceptions to title.

Lease Agreements

A valid sale under foreclosure gives the purchaser the right to either terminate a lease agreement created subsequent to the foreclosed lien, or to continue it in force with the consent of the tenant.

The foreclosure sale does not terminate the inferior lease agreement as a matter of law.

The policy issuing agent should not assume the foreclosure of a superior lien extinguished an inferior lease agreement.

The policy issuing agent should require some evidence, such as a recordable affidavit from the purchaser, which verifies the purchaser did not continue to recognize the lease, did not allow the tenant to remain in possession after the foreclosure, and did not accept rentals after the foreclosure, etc.

Federal Tax Liens

If a lien senior to the IRS lien is foreclosed (or a senior land sale contract is forfeited), the federal tax lien may be extinguished, but only if the foreclosure complies with procedures set forth in federal laws.

In a judicial foreclosure, a junior tax lien is not affected if the U.S. was not made a party to the action.

If the U.S. is named as a defendant and properly served, then it has the right to redeem.

The redemption period is 120 days or it may be longer if allowed by state law.

Even if the U.S. is not made a party, it may assert its lien against the proceeds of a judicial sale prior to an order for their distribution, although only to the extent of its priority.

In a nonjudicial foreclosure, the federal tax lien is not divested unless the IRS is given notice of the sale.

Where authorized by state law, forfeitures of land sale contracts are deemed to be nonjudicial foreclosure sales. (26 USC 7425(b)(4)).

The IRS must be given notice as long as its notice of lien was recorded more than 30 days before the date of sale (or of a postponed sale). See discussion of this point in Sec. 6.08 Federal Tax Liens.

The government's consent to a nonjudicial sale free and clear does not cut off its right to redeem.

The requirements of the notice are spelled out in 26 USC 7425(c)(1) and in the Federal Tax Regulations, Code of Federal Regulations, Section 301.7425-1, et seq.:

The notice must be given not less than 25 days prior to sale, in writing, by registered or certified mail, or by personal service, are to be directed to the  Advisory Consolidated Receipts (ACR) office. (See IRM 5.12.4.5.1 Timeliness of IRC 7425 Notice).

The notice must contain the name and address of the person submitting the notice of sale, a copy of each notice of federal tax lien (Form 668) affecting the property to be sold, or prescribed information from the notices, full description of the property to be sold, date, time, place, and terms of proposed sale, and approximate amount of the principal obligation secured by the lien and other expenses such as sale costs, etc..

A is entitled to whatever notice of postponement is required under local law.

If the U.S. is not made a party to a judicial foreclosure or not notified or a nonjudicial foreclosure of a senior lien, its lien is not affected. In such a case, title insurance for purchases at a mortgage foreclosure sale or land contract forfeiture sale must contain an exception for the federal tax lien.

Redemption Rights Of The United States (IRS)- Nonjudicial Foreclosure

Where a nonjudicial sale of real estate is made to satisfy a lien prior to that of the United States, and the United States has been given proper and timely notice in accordance with the provisions of Section 7425(b)(1)(2), the United States shall have a right of redemption as follows:

"In the case of a sale of real property to which subsection (b) applies to satisfy a lien prior to that of the United States, the Secretary may redeem such property within the period of 120 days from the date of such sale or the period allowable for redemption under local law, whichever is longer."

Insuring Title During the U.S.'s Period of Redemption

Any commitment or title policy to be issued after a judicial or nonjudicial foreclosure sale, but during the period of redemption in favor of the United States, must contain an appropriate exception in regard to said redemptive rights unless the United States had waived its rights of redemption or consented to the property being sold free and clear of its lien.

Sample Exception:

The Federal Tax Lien Act of 1966 (26 USC Section 6321, et seq.), among other things, establishes the right of the U.S. to redeem the property within a period of 120 days from the date of a foreclosure.

Redemption Rights of The United States - Judicial Foreclosure

Where a judicial sale of real estate is made to satisfy a lien prior to that of the United States, and the United States has been made a proper party defendant, the United States shall have a right of redemption as follows:

If the U.S. lien does not arise under the internal revenue laws - ONE YEAR.

If the U.S. lien does arise under the internal revenue laws - 120 DAYS OR THE PERIOD ALLOWABLE FOR REDEMPTION UNDER STATE LAW, WHICHEVER IS LONGER.

Waiver of the Right of Redemption

The right of the federal government to redeem property sold at either a judicial or nonjudicial foreclosure sale may be waived by the execution of a proper Certificate of Release, a Certificate of Discharge of the Property, or a Certificate of Nonattachment, which fully describes the property.

For additional information concerning federal tax liens, please refer to Section 6.08 of the Underwriting Manual.

Non-IRS Junior Lien in Favor of the United States

A federal court in Missouri, held that a non-judicial foreclosure does not extinguish a junior lien in favor of the United States or its agencies. (See Show Me State Premium Homes v. United States, 74 F.4th 911 (8th Cir. 2023)).

If you are asked to insure title to property derived from a non-judicial foreclosure of a senior lien initiated under state law where, at the time of the foreclosure, there existed a Junior Federal Lien, an exception to coverage for the Non-IRS Junior Federal Lien is required in Schedule B, as follows:

 Any right, or claim of right, arising from the interest of the United States in [identify Junior Federal Lien] dated _________ and recorded on __________ as document no. _____, due to the failure to conduct a judicial sale with joinder of and service of process on the United States, as required by 28 U.S.C. §2410.

 To delete the exception, a release of the Non-IRS Junior Federal Lien in recordable form executed by an authorized federal officer at the applicable agency of the federal government must be recorded or a judicial foreclosure of the Non-IRS Junior Federal Lien is required. If there is not a recorded release of the Non-IRS Junior Federal Lien or a judicial foreclosure of the senior lien, coverage is not to be provided without written Stewart Title Guaranty Company underwriter approval.

 After Judicial Foreclosure

You may remove a Non-IRS Junior Federal Lien as an exception to coverage in Schedule B following a judicial foreclosure of a senior lien if the United States is named as a defendant and:

• The foreclosure and sale procedures are reviewed to confirm compliance with federal and state law,
  AND
• The one-year statutory right of redemption is either:

a.  Expired, OR
b.  Waived in writing by the U.S. Attorney for the district where the Land is located or by the federal officer in charge of administering the Non-IRS Junior Federal Lien.

If the statutory post-foreclosure right of redemption in favor of the United States has not expired and no waiver is received, then you should include a Schedule B exception, as follows:

 Any right, or claim of right, arising from the interest of the United States in [identify federal lien] dated ____________ and recorded on __________ as document no. ________, due to the one-year right of redemption of the United States, provided under 28 U.S.C. § 2410(c).

If the Non-IRS Junior Federal Lien is a mortgage or lien held by Fannie Mae or Freddie Mac, see Bulletin SLS2016002. 

FDIC/RTC - "Right of Consent"

An issuing agent does not need to require consent by FDIC or RTC to a mortgage foreclosure where FDIC or RTC, in a receivership capacity or corporate capacity, is the holder of a mortgage as a result of the closure of or failed depository institution.

FDIC/RTC - "Right of Redemption"

Although an inferior lien in favor of any federal agency may be extinguished by the foreclosure of a superior lien, 28 USCS A§2410(c) provides that a federal agency has a one year right of redemption following the foreclosure of a superior lien.

The FDIC and RTC have adopted the position that they will not assert a right of redemption in their conservatorship, receivership, or corporate capacity.

This right of redemption does not apply to IRS liens.

Mechanic's Liens

The policy issuing agent should not automatically assume mechanic's liens are extinguished by the foreclosure of what appears to be a superior lien.

Generally

In the absence of an affidavit of commencement of construction pursuant to Property Code Sec. 53.124, in most recent construction situations, it is difficult to ascertain the exact date the commencement of construction or delivery of materials occurred.

Since the inception of all mechanic's liens relate back to the date of commencement of construction or delivery of materials (Property Code Sec. 53.124), it is risky to assume a mechanic's lien is automatically inferior to a foreclosed lien.

Therefore, in recent construction situations, the Company may require in the absence of clear evidence of the relative priorities, a release or waiver, or an indemnity or cash deposit in order to insure around mechanic's liens which were supposedly extinguished by the foreclosure of the superior lien.

Contact a Texas underwriter with any questions.

Removables (See also discussion under fixtures)

Materials intended to be or incorporated into real property may be removed pursuant to a valid mechanic's lien if the removal would not result in material damage to the land, preexisting improvements, or to the materials themselves removed.

A mechanic's lien securing removables is superior and primes a previously recorded deed of trust.

The policy issuing agent should examine the mechanic's lien and determine whether or not the lien is for materials which would likely be ruled to be removable under Texas law.

Contact a Texas underwriter with any questions.

State Tax Liens

Effective September 1, 2003, 113.006 (b) Tax Code provides that a single tax lien notice covers all state liens. We consider that such liens are barred by limitations 5 years after they are recorded.

Ad valorem taxes are not extinguished by a valid foreclosure regardless of when they arose and continue to be liens on the property until they are paid.

Mineral Interest

Effective January 1, 2004, the owner of an interest sold at an ad valorem tax sale has 2 years to redeem the mineral interest. Any property with any retained minerals is subject to this right. We require an exception for this right in any policy issued during the 2 years.

Maintenance Liens

A valid foreclosure of a purchase money lien will extinguish a maintenance lien which has been subordinated to the prior recorded deed of trust.

If the maintenance lien was not subordinated, the purchaser will take the property subject to any maintenance assessment.

Capacity - Incapacitated, Minors

The defense of insanity without a pending guardianship is not a defense to foreclosure.

Once a guardian has been appointed on behalf of either a minor or otherwise incapacitated person, a foreclosure will not be effective without order from the appropriate court.

Receivership

Property in the hands of a receiver during the pendency of a divorce or other court action may not be foreclosed upon validly without an order of the court where the receivership is pending.

Since court appointed receivers are not required to file a notice of receivership proceedings in the real property records, the policy issuing agent must examine any court proceedings involving the mortgagor to determine if there has been a receiver appointed.

Creditor's Rights Issues (Bankruptcy, Insolvency, Fraudulent Conveyance or Transfer)

If an issuing agent has a creditor's rights issue which arises out of the transaction vesting in the insured the estate or interest insured by the policy, the policy issuing agent may rely on the creditor's rights exclusion in the policy and need not add a special exception.

However, if an issuing agent discovers a creditor's rights issue in a prior deed in the chain of title, the Company may require that a creditor's rights exception, be included in the policy. Such exception may read as follows:

"Consequences of any attack on the estate or interest insured herein under any federal or state law dealing with bankruptcy, insolvency, or creditor's rights."

NOTE: Texas law requires the Texas Insurance Commissioner to prohibit all title insurers from providing creditor's rights coverage and land located anywhere in the USA.

Deficiency Judgments

Nonjudicial Foreclosure

If the price of the property sold at a nonjudicial foreclosure sale (Sec. 51.002) is less than the unpaid balance of the indebtedness secured by the property, any action to recover the deficiency must be brought within two years of the sale. (Property Code Sec. 51.003).

Judicial Foreclosure

Deficiencies resulting from a judicial foreclosure are governed by Property Code Sec. 51.004.

Guarantors

Deficiencies arising from foreclosures involving guarantors are governed by Property Code Sec. 51.005.

Foreclosure - A Checklist

Notice:

If the property being foreclosed is a debtor's residence, has proper written notice been given by

certified mail that the debtor is in default under the deed of trust or contract? __________, and

has the debtor been given at least twenty days to cure the default before the entire debt is due and notice of sale is given? __________

Was notice mailed to all persons obligated on the debt (including prior owners remaining liable on the debt)? __________

Was the Notice mailed at least 21 days before foreclosure (including date of mailing and excluding date of foreclosure? __________

Was Notice posted at least 21 days before foreclosure at the courthouse? ___________

Was Notice filed at least 21 days before foreclosure with the County Clerk's office? ___________

Were separate notices given to each spouse? ___________

Does the notice of sale clearly state that the sale will take place at the county courthouse? __________

Does the notice of sale clearly state that the sale will take place in an area designated by the commissioner's court? __________

If no area has been designated by the commissioner's court, does the notice of sale clearly state a designated area where the sale will take place? __________

Does the notice of sale clearly state the earliest time at which the sale will occur? __________

Death of Owners:

Were the current owners alive at the time of the foreclosure? __________

If not, was there independent administration pending at the time of foreclosure? __________

Was dependent administration pending at the time of foreclosure? __________

If so, the foreclosure may be void.

Have more than 4 years passed since the time of death of said owner? __________

If more than 4 years has passed since such person's death and no administration ever occurred, then the foreclosure would be valid.

Was there a guardianship of the estate of the mortgagor at the time of foreclosure? __________

If so, the foreclosure is void.

Did the Deed of Trust require any additional notices (such as publication in newspaper or additional postings)? __________

If so, were such requirements met? __________

Was the foreclosure requested by the holder of the indebtedness? __________

If there were several participants in the indebtedness, then all must join, if the note had been collaterally assigned, then both the assignor and assignee must join or you must verify whether the note was endorsed.

Was a substitute trustee appointed by the holder of the debt? __________

If there were several participants, then all must join if the note was collaterally assigned, and you must verify who the holder was.

Was there a divorce pending at the time of foreclosure? __________

If so, verify no injunction was entered in the Court proceeding and that there was no receivership.

Was there a pending judicial foreclosure at the time of the nonjudicial foreclosure? __________

If so, the nonjudicial foreclosure is void.

Lien Priority:

Federal Tax Liens -

Was Notice given 25 days in advance of foreclosure to the IRS? __________

If so, there is a right of redemption for 120 days; if not, then the Federal Tax lien remains on the property, and we do not recognize a re-foreclosure of an otherwise regular foreclosure simply to provide the IRS with notice. See discussion under Sec. 6.08.9.

Were there any later "cleaning" liens or "weedcutting" liens? __________

If so, they remain liens against the property and are not cut off by foreclosure.

Are there any later mechanic's lien claims? __________

If so, same should be excepted, although perhaps they can be insured under P-11 and/or P-39.

Are there any later UCC fixture filings? __________

If so, same should be excepted to since they may have priority as to fixtures.

Bankruptcy:

Is a bankruptcy pending against the mortgagor at the time of the foreclosure? __________

If so, had a motion to lift stay been filed more than 30 days before notice of the foreclosure was mailed, filed and posted, without objection to the motion having been filed? __________

If the property had been abandoned or exempted, was there a motion to lift stay, or had the discharge already been granted? __________

Was the property possibly the homestead of the mortgagors (if so, is the lien a valid lien against homestead)? __________

Deed of Trust (DOT) Foreclosure After Deed in Lieu of Foreclosure (Property Code Sec. 51.006)

This section relates to a holder of a debt under a DOT who accepts from the debtor a deed conveying real property subject to the DOT in satisfaction of the debt.

The section allows a holder of a debt to void a deed in lieu of foreclosure within 4 years of the filing of the deed in lieu of foreclosure if:

    (1) the debtor fails to disclose liens or other encumbrance on the property before executing the deed conveying the property to the holder of the debt; and

    (2) as long as the holder of the debt had no personal knowledge of the undisclosed lien or encumbrance on the property.

The holder of the debt may file an affidavit stating its intent , and third party may rely conclusively that the deed is voided. 

In voiding the deed the priority of the DOT shall not be affected by the later deed in lieu filed of record.

Also, the holder may elect to just foreclose the DOT within the 4 years from the filing of the deed in lieu, and not void the deed. Again, the priority of the DOT will not be affected by the deed in lieu.

 

Underwriting Guidelines:

If there is a prior deed in lieu of foreclosure of record within the last 4 years of your transaction you must require release of the DOT that was recited as consideration of the deed in lieu of foreclosure.  If no release can be obtained you must include an exception as the prior DOT on sch B.