What is the Foreclosure Process in Texas?

In Texas, there are three ways in which a lienholder can foreclose on a property:

Judicial Foreclosure

A judicial foreclosure requires the lienholder to file a civil lawsuit against the homeowner. They must obtain a judgment from the court before they are allowed to sell the property. This procedure is rare in Texas. See Rule 309 of the Texas Rules of Civil Procedure for the court rule governing judicial foreclosures.

Non-Judicial Foreclosure

A non-judicial foreclosure (also referred to as a “power of sale” foreclosure) allows the lienholder to sell the property without having to file a civil lawsuit against the homeowner. In order to qualify for a non-judicial foreclosure, the lienholder must have a deed of trust with a “power of sale” clause, giving them the authority to sell the property. These foreclosures are governed by Section 51.002 of the Texas Property Code as well as the contractual documents.

Expedited Foreclosure

Certain types of foreclosures are required by law to go through judicial foreclosure, such as those involving a home equity loan, reverse mortgage, or an assessment lien by a property owners association. However, under Rules 735 and 736 of the Texas Rules of Civil Procedure, certain lienholders can apply for what is known as an “expedited foreclosure” (also referred to as a quasi-judicial foreclosure) which, if granted, allows the process to move forward similar to a non-judicial foreclosure.

Before The Sale:

Step 1: Providing Notice or Filing the Lawsuit 

In non-judicial and expedited foreclosures, the homeowner will be sent a notice letting them know the loan or obligation is in default. This notice is often referred to as a “Notice of Default.” 

In a judicial foreclosure, the lienholder will file a petition with the district or county court (depending on how much money is involved) and the homeowner would then be served with the paperwork, usually by a process server or county constable. 

In most cases involving a home loan, federal regulations state the foreclosure action cannot begin until the loan is over 120 days delinquent. 

Texas Civil Practice and Remedies Code Section 16.035 places a 4-year statute of limitations on foreclosure actions though there are some exceptions to this law. 

Federal Rules 

• Title 12, Section 1024.41(f)(i) of the Code of Federal RegulationsFederal regulation issued by the Consumer Financial Protection Bureau that states the mortgage loan obligation must be over 120 days delinquent before initiating a foreclosure action.

Right to Reinstate

In a non-judicial foreclosure, Texas law gives the homeowner the right to reinstate their loan by paying the amount that was past due, not the total loan amount, within 20 days after receiving the notice of default. It’s also important to check the loan documents, as they may provide additional time in which to reinstate the loan.

Texas Law 

• Section 51.002 of the Texas Property CodeSubsection (d) of this section governs the right to reinstate the loan within 20 days of receiving notice. 

Request for an Expedited Foreclosure

Once the homeowner has been notified, lienholders who qualify may then file an Application For Expedited Order with the court if they would like to proceed with an expedited foreclosure. If granted, the lienholder may then proceed with the sale of the property without the need for a judgment from the court, which is required in a judicial foreclosure. 

Court Rules

• Rules 735 & 736 of the Texas Rules of Civil Procedure Court rules that govern the process of applying for an expedited foreclosure. 

Step 2: Notice of Sale or Order of Sale 

In a non-judicial foreclosure, after the 20-day “right to reinstate” period has expired and at least 21 days before the sale, the servicer must provide the borrower with a Notice of Sale, letting them know the date and earliest time of the sale. These notices can also be called “Notice of Trustee’s Sale” or “Notice of Substitute Trustee’s Sale.” This notice must also be posted on the courthouse door and filed with the county clerk. 

In a judicial foreclosure, once the court has issued their judgment granting the foreclosure, the clerk of the court will prepare an Order of Sale directing the sheriff or constable to sell the property at auction. 

Texas Law 

• Section 51.002 of the Texas Property CodeState laws governing the requirements of a “notice of sale” in a non-judicial foreclosure.

Court Rules

• Rules 646a and 647 of the Texas Rules of Civil Procedure Court rules governing the notice and sale of real property in a judicial foreclosure. 

The Sale:

Conducting The Sale: 

Foreclosure auctions are generally held the first Tuesday of each month between 10:00 a.m. and 4:00 p.m. at the county courthouse. The sale must begin at the time stated in the notice of sale, but no later than three hours after the time scheduled on the notice of sale. 

Texas Law 

• Chapter 22 of the Texas Business & Commerce CodeState laws governing the sale of residential real property under power of sale.
• Section 51.002 of the Texas Property CodeState law governing foreclosure sales in nonjudicial foreclosures. 
• Section 34.01 of the Texas Tax CodeState law governing sales of property in tax lien foreclosures. 

Court Rules 

• Rule 646a of the Texas Rules of Civil ProcedureCourt rule governing the sale of real property in a judicial foreclosure. 

What Happens at the Sale? 

In non-judicial foreclosures, the trustee or a substitute trustee will be the one to conduct the sale. These auctions can sometimes be referred to as a “trustee sale” or “substitute trustee” sale.

In judicial foreclosures, the auction may be conducted by a county official, often the county constable, or by an agent hired by the local taxing authority (for those involving property taxes).

Finding Foreclosure Sales Information Online 

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After The Sale:

Deficiency Judgments 

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. 

If requested by the borrower, the remaining amount that is owed may be determined by the fair market value of the property. 

Texas Law 

• Section 51.003 of the Texas Property Code State law governing deficiency judgments. 
• Section 51.004 of the Texas Property Code State law giving borrowers the right to request the fair market value be used to determine the deficiency judgment amount owed. 

Distribution of Excess Funds 

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 clerk of the court will notify the former homeowner if there are any excess funds. The homeowner then has two years from the date of the sale to claim them. 

Texas Law 

• Sections 34.03 & 34.04 of the Texas Tax Code Laws governing the disposition and claims of excess proceeds following a property tax lien foreclosure. 

Right of Redemption 

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. 

The redemption period as well as how much it will cost will vary, so see the resources below for further details. 

Texas Law 

• Section 82.113(g) of the Texas Property CodeLaw governing the “right of redemption” in a foreclosure involving an assessment lien of a condominium owners association. 
• Section 209.011(b) of the Texas Property CodeLaw governing the “right of redemption” in a foreclosure involving an assessment lien of a property owners association. 
• Section 34.21 of the Texas Tax CodeLaw governing the “right of redemption” in tax lien foreclosures. 

Federal Law 

• Section 7425 in Title 26 of the United States CodeLaw governing the “right of redemption” by the United States to satisfy federal tax liens. 

Taking Possession of the Property After the Sale

If the previous owner refuses to vacate the property after the sale, the new owner may need to file an eviction case against them in court in order to take possession of the property. See the Eviction page of our Landlord/Tenant research guide to learn more about this process. 

For tenants who may be living in a home affected by foreclosure, see the Tenant Rights in a Foreclosure page of this guide for information on your rights during the foreclosure process. 

Our Conclusion 

The Texas foreclosure market presents a unique landscape of opportunities for savvy investors. By understanding the nuances of the foreclosure process, identifying undervalued properties, and implementing strategic renovation plans, investors can capitalize on these opportunities while mitigating the inherent risks. 

Remember, success in the Texas foreclosure market demands a combination of thorough research, informed decision-making, and a willingness to take calculated risks. By carefully evaluating potential properties, assessing the renovation costs, and factoring in the potential returns, investors can make informed choices that align with their financial goals and risk tolerance. 

Embrace the challenges, leverage your expertise, and navigate the Texas foreclosure market with a strategic mindset. With the right approach, you can uncover hidden gems, revitalize neighborhoods, and reap the rewards of this dynamic investment landscape.