Foreclosure can cause financial and emotional havoc and can lead to a housing crisis. It may seem impossible to stop foreclosure if you have fallen behind in your payments. However, you can still get help, regardless of where you are at the process.
What is a Foreclosure
Foreclosure occurs when the lender who holds your mortgage seizes your home. This is usually due to you not making a monthly mortgage payment for at least three months. A lender must follow certain steps before a foreclosure becomes final. You will be informed about each step.
These are the steps:
- Missing Payments – Federal law states that lenders must wait 120 days before initiating foreclosure proceedings. However, they will likely send letters to you and start calling once 60 to 90 days have passed.
- Public Notice – Also known as a “notice in default”, this is the official start of the foreclosure process. The lender informs the court or the county clerk that they are closing on the property.
- Notice of Sale – A notice of sale is filed when the court determines that the lender has the right to foreclose the property. This sets the date at which the lender will sell the property. The notice can be filed with the court or county within 120 days to several weeks after it was filed in a judicial proceeding. In a nonjudicial proceeding, it can take as little as 30 days.
- Auction – The bank hopes to recoup the mortgage amount it has lost by selling the home at auction.
- After foreclosure – The bank takes over the home and the owner is evicted.
Ways you can be foreclosed Upon
Sometimes, bad things can happen to people who are good. A homeowner could face foreclosure for many reasons. These could include, but aren’t limited to:
- Unexpected unemployment or job loss
- Sudden illness, or medical emergency
- Death in the family
- Divorce, or loss of second-income
- Excessive debt obligations
- Inability to pay property taxes
- Demotion of job or denial of promotion
- Inability to pay a variable interest rate that rises
- Major home maintenance costs that were not expected
What is the process
- Each state has its own foreclosure process. We will be discussing the Texas foreclosure law. The following steps are taken once your loan has been declared in default.
- Notice of default and intention to accelerate: Texas law requires that your lender sends you a foreclosure notice, also known as a notice de default and intent to accelerate. You will be given at least a twenty-day grace period to make late payments. The letter will contain the amount due and the date that it must be paid in order to avoid foreclosure. Your home will be considered pre-foreclosure if it is not paid by the due date. You still have options to stop foreclosure.
- Notice of sale: Your lender will send you a notice to sell if you do not pay your debt in the grace period. The notice will be sent at least 21 days prior to the scheduled foreclosure sale. It will be posted at the door of the county courthouse and filed with county clerk. The notice will contain the date, time and location of the sale.
- The Foreclosure Sale: These sales take place every Tuesday between 10:00 a.m. to 4:00 p.m. at a county courthouse. Your property will be sold at the auction to the highest bidder. The home may also be offered to your lender. If they are the highest-bidder, ownership of the property will revert back to the bank and it will be considered Real Estate Owned.
- Deficiency Judgment: You may still owe money to your lender after the foreclosure. If your your home is sold is sold for less than your loan amount, this is called a deficiency judgment. Your lender could file a lawsuit in this instance to recover the difference. In Texas, the bank has two years to sue the nonjudicially-foreclosed owner for the deficiency in a separate lawsuit. The bank cannot collect the balance if it loses or forgoes the suit.
Although some states offer more flexibility and longer grace periods for debt repayment, Texas foreclosures are very fast. The sale of your property usually takes place within six weeks from the date you notify them of your default.
What are the types of Texas foreclosures
There are two types of Texas foreclosure procedures that can be used depending on your mortgage agreement.
What is a Nonjudicial Foreclosure
Most Texas foreclosures are either non-judicial or power-of sale. Your lender doesn’t need to go through the courts to complete the foreclosure. This is possible because of a power-of-sale clause in your deed or mortgage agreement that you signed at the time.
This clause authorizes you to sell your property through a nonjudicial foreclosure in order to repay the loan balance. Although you are allowed to file a lawsuit to obtain judicial review, you are responsible for all legal fees.
What is a Judicial Foreclosure
Before obtaining judicial foreclosure, the lender must go through the state courts and get approval from a judge. This type of foreclosure can be done in all 50 states, but is very rare in Texas. This process is similar to a nonjudicial foreclosure. Your lender will send you a letter of intent.
The lender then files a lawsuit asking the court for permission to sell the house and to apply the proceeds to the debt. At this point, the lender might also request a judgment of deficiency. The lender may then request a deficiency judgment.
You have the right to reply to the complaint and present your case to the court. This time can also be used to make late payments to settle the debt. If the court rules in favor of the lender foreclosure proceedings will continue with the sale.
How Long Does the whole thing take
The majority of Texas foreclosure cases are nonjudicial. This means that foreclosure can be completed in 60 days. The timeline for judicial foreclosures can be quite different, depending on how long each case is.
How can you avoid a foreclosure
- It can be very difficult to stop the foreclosure process once it has begun. A foreclosure proceeding in Texas can quickly go out of control once it has been initiated. To avoid foreclosure, it is best to stop a notice in default being filed. To prevent foreclosure from happening, the best thing to do is to pay any outstanding debts.
If you feel that you cannot meet your mortgage payments, call your lender. Many lenders want to avoid foreclosure, so they may be able to offer you several options to keep your home.
- Forbearance: Your lender agrees not to exercise their legal right of foreclosure if you agree to a plan that brings your monthly payments current for a specific period. At the end of the specified period, you must make full payments. Any additional amounts will be added to your account. This short-term solution is best for people with temporary financial problems due to unexpected circumstances such as unemployment, medical problems, or other issues.
- A repayment plan: This is another option for people in temporary financial difficulties. This involves increasing your monthly payments by a small amount until you are able to repay your debt.
- Loan modification – A loan modification agreement is a long term solution that changes the terms of your original loan. Modifying a loan will typically involve a decrease in the interest rate, an extension of maturity, a new type of loan or a combination of all three. These measures will reduce your monthly payments.
- Refinance: Your lender may be willing to make the missed payments to the current loan balance, and then recalculate your monthly loan payments.
- Your lender may forgive you one or two late payments in rare cases.
Is it possible to stop this process
- You have very little time to stop the foreclosure process once it starts. What is the best way you can prevent foreclosure?
- These steps could help you stop foreclosure before your house is sold.
- Talk to your mortgage company. If you haven’t yet spoken to your lender, now is the time. Your lender might still be open to a compromise to avoid foreclosure, even after the notice has been sent.
- Sell your home. If you cannot reach an agreement with your lender, it may be possible to sell your house before the auction. The lender will consider all offers for your home until the auction. A short sale is possible if your home’s value is less than what you owe.
- A short sale can affect your credit, but not as severe as a foreclosure. Your agent or you will need to negotiate with the lender to determine if they will allow a short sale.
- You can sign a deed in lieu of foreclosure. Instead of going through the foreclosure process, your lender may accept a properly prepared deed to your house. Your lender will then transfer ownership of your home to you.
- This will cancel the foreclosure proceedings and forgive the mortgage debt. A deed-in lieu can have a similar effect on your credit score to a foreclosure. It is usually more beneficial for the lender than it is to you, depending on the circumstances. You only have the advantage of a faster process and unlike foreclosure, it is not made public.
- Filing for Chapter 13 bankruptcy can help you keep your home afloat in the face foreclosure. The court will issue an automatic stay to all debt collection actions against your, including foreclosure proceedings, after you file. You can use Chapter 13 to catch up on your mortgage payments for five years.
- You can avoid foreclosure as long as you make your Chapter 13 Trustee payments. Chapter 7 bankruptcy can temporarily stop foreclosure, but you will eventually have to make your mortgage payment in order to keep your home. Both bankruptcy options have the potential to result in foreclosure if you fail to make the agreed payments.
Is it too late for it to be stopped
Your mortgagor can foreclose on your home if you fail to make your mortgage payments. The answer is anytime until the county sells the house in an auction. Texas gives you the right to redeem your home if it is being foreclosed on in tax foreclosure.
For residential properties and agricultural properties, the redemption period is two-years. All other properties are subject to a six-month grace period. Learn more about the tax foreclosure procedure here.
What does preforeclosure refer to
Your Texas home will be considered pre-foreclosure during the 20-day grace period following the date your lender issues the foreclosure notice. This is also known as a notice in default and intent to accelerate.
You still have the opportunity to stop foreclosure by staying current with your loan, selling your house to avoid foreclosure, and/or working out a deal with your lender.
What is the process of foreclosure auctions
Texas foreclosure auctions are also known as trustees sales and take place on the first Tuesday in each month at the county courthouse between 10:00 a.m. to 4:00 p.m.
Your lender will determine the auction’s opening bid. The bid will be equal to the remaining loan balance, accrued interest, and any fees associated with trustee sale.
The lender will purchase the property if there aren’t any higher bids than the opening bid. This is known as Real Estate Owned (REO). This is common since many properties that are up for auction at foreclosure auctions have a value lower than what the lender owes.
There are some websites that show you auctions of REO properties.
What does it mean to foreclose
Redeeming the property prior to foreclosure sale is another way to avoid foreclosure.
You will need to pay off all underlying mortgage debt and any interest incurred during foreclosure in order to redeem your home. You will need to request a payment quote from your lender in order to redeem the home.
Texas allows you to redeem your property anytime between the time of receiving the notice of default or the foreclosure sale.
Texas is not one of those states that offers homeowners the opportunity to redeem their property for a set period after it has been sold at auction.
There are no legal recourses for a homeowner who loses their home to foreclosure.
If your home is redeemed during the foreclosure process, the term “foreclosure redemption” will appear on your credit report. It is rare, however, as most people facing foreclosures are unable to make such a payment.
The Foreclosure process and guaranteed loan
A mortgage can be guaranteed by the federal government through programs such as Veteran’s Affairs (VA), the U.S. Department of Agriculture(USDA) and the Federal Housing Administration.
These programs provide additional support to borrowers who may not be eligible for conventional mortgages.
These services can help you get a mortgage but they don’t protect you from foreclosure if your mortgage defaults. How guaranteed loans work to prevent foreclosure can be found here.
Tax foreclosures and standard foreclosures
A tax foreclosure is when a house is taken over to collect a tax liability and not to pay the mortgage in default. The lien is placed on your house if you fail to pay Texas real property taxes.
The taxing authority can start a foreclosure proceeding in court to recover the debt if your property tax is not paid. The court will enter judgment and sell your home if you fail to pay the outstanding amounts. The county can take possession of the property and try to sell it if the home is not sold at the tax sale.
Texas allows you to redeem your home before and after a foreclosure has been completed. You must pay the amount listed in the judgment to redeem your home prior to foreclosure. This includes taxes, interest and penalties.
Texas offers the option of redemption after a foreclosure. This is not possible with mortgage foreclosure. For residential property and agricultural properties, the redemption period is two-years. It’s six months for all properties.
This redemption can be more expensive, but you’ll need to reimburse the buyer for the entire auction cost, as well as all associated taxes, fees, and a 25-50% redemption bonus depending on when you redeem.
Does Texas law allow for the foreclosure of a homesteaded property.
- Yes. Despite Texas’s generous exemption for homesteads, it does not protect homeowners against foreclosure.
Texas homestead laws provide exemptions that lower annual property taxes and protect you from forced sales of your home to pay creditors like payday lenders or debt collectors. These protections do not cover other debts. These include:
- Property taxes not paid
- Mortgage payments not made
- Second liens defaulted for home equity loans and home equity lines of credit
- Federal income taxes not paid
- Past-due and unpaid child support
- Student loans that are not paid by the government
If you decide to file bankruptcy to avoid foreclosure, the homestead exemption may offer protections for your home.
Government programs that could help me avoid this situation
- 1) Texas Homeowner Assistance Program (HAP): This program provides mortgage assistance to Texas homeowners who are facing foreclosure because of some financial situation. The program offers assistance with mortgage payments, like past due amounts, principal, interest, taxes, and insurance.
- Texas Foreclosure Prevention Task Force: This is a statewide initiative that offers resources and guidance to homeowners who might be foreclosed upon by their financial institution. The task force offers information on available programs, counseling services, and legal assistance.
- Texas Veterans Land Board (VLB) Home Loan Program: This offers a lower interest loan to eligible Texas veterans, military members, and their spouses to purchase a home or refinance an existing mortgage. The VLB also offers foreclosure prevention counseling and assistance.
- Mortgage forbearance programs: Many lenders offer mortgage forbearance programs that allow homeowners to [temporarily] pause or reduce their mortgage payments. Homeowners in Texas who are struggling to make their mortgage payments due to COVID-19 may be eligible for this type of assistance.
- HUD-approved housing counseling agencies: HUD-approved housing counseling agencies in Texas can provide free counseling and assistance to homeowners facing foreclosure. These agencies can help homeowners understand their options and connect them with available resources
How will the foreclosure affect my credit score
FICO says that the greater your credit score at foreclosure, the more it will fall. A foreclosure can result in a drop of 85 to 105 points on your credit score if it is 680. A foreclosure can lower your credit score by 140 to 160 points if your credit score is 780.
An average seven year period will be required for a foreclosure to remain on your credit report. Over these seven years your credit score will slowly improve, but not fully until the foreclosure is removed from your credit record.
The time it takes to apply for another mortgage loan depends on the type of loan and your personal situation. To get a conventional mortgage you must wait seven years after a short sale or foreclosure. For an FHA or USDA loan, you need to wait three years, while for a conventional mortgage you need to wait two years.
If you have a larger down payment or are willing to pay a higher interest rate, this may shorten the waiting period.
Another option is to sell to a sell to a cash buyer. They can pay off the mortgage company in cash and you won’t have to deal with anything else!
Frequently Asked Questions
For most people it is going to be a real estate attorney licensed in the state of Texas. Individuals can do this on their own without a lawyer, but it is not recommended.
Only the court can stop it!
Some alternatives to foreclosure in Texas include loan modification, refinancing, and deed in lieu of foreclosure.