Understanding the foreclosure process in Texas is an important part of navigating your own home foreclosure.
Before we dive in…
What is foreclosure anyway?
Foreclosure is the legal process that lenders use to take back property securing a loan, generally after the borrower stops making payments.
Foreclosure can be overwhelming and incredibly scary. It’s not the end of the world just because your house might be taken away, however. Becoming educated on foreclosure laws in Texas and familiarizing yourself with what to expect in the process is key to making sure you come out as unscathed as possible. Knowing your potential rights and responsibilities ahead of time will help ensure you make the best decision for yourself and your family during this stressful time. Don’t think of foreclosure as a death sentence—it’s really an opportunity to learn valuable lessons from a challenging situation..
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The Basic Stages of A Foreclosure
Foreclosing on a property is a complicated process, and it is important to be aware of the different stages regardless of where you are located. There tend to be a few key steps that apply nationwide. This includes defaulting on mortgage payments, the lender starting a foreclosure lawsuit, the lender obtaining a judgment, sale of the property by the lender, redemption rights and finally the release of excess proceeds from the sale. These stages can’t always be locked into place, as certain states may modify or adjust certain rules or approaches used in dealing with foreclosures. However, an understanding of these key elements will provide any property owner with knowledge that could prove invaluable in better understanding their personal foreclosure situation.
The two ways different states use to foreclose upon a property are: judicial sale or power of sale.
Foreclosures can be a stressful and potentially disastrous outcome for homeowners who have fallen behind on their payments. Fortunately, foreclosure typically does not occur until the homeowner has been several months delinquent. Many lenders will send out notices prior to starting the foreclosure process in order to alert the homeowner of their status and offer options for resolving the issue. Though lenders may initially allow for minimal missed payments, it is important for homeowners to work with their lender and ensure payments are made regularly. If these steps are taken, homeowners can often avoid foreclosure altogether.
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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.
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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).
If you’re interested in a foreclosed property, it’s important to know that you must be notified during either type of foreclosure. This includes contractors or banks with liens against the property. They’re entitled to collect from the proceedings of an auction..
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 an additional consequence for homeowners who’ve experienced foreclosure. Banks may pursue a claim against them with a “deficiency judgment” after their home has been sold to cover the remaining funds on the home loan, depending on the state in which they are located. In states that employ this sort of legal recourse, it is often limited to the fair market value of the property at its sale date.
Otherwise, banks can opt to seek full repayment of both principal and any interest due from borrowers through courts. While deficiency judgments are not always applicable or applicable in full, should homeowners find themselves faced with this situation it can add extra financial stress atop already difficult circumstances..
Here’s a great resource that lists the state by state deficiency judgment laws, since every state is different.
A foreclosure auction is a stressful and risky proposition. Instead, the best course of action is to simply pick up the phone and call the bank or consult a reputable real estate firm to help you negotiate a discount off of your remaining mortgage balance. Working with experienced real estate investors can be incredibly useful in this situation, as they may be able to find ways – such as negotiating directly with banks – to reduce or even eliminate your remaining balance if your home is worth less than what you owe. If you’re selling a property near Alvin, our team at Move On House Buyers can help provide expertise and guidance for getting the most out of your sale.
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Another Foreclosure Resource For Alvin Texas HomeOwners: