Contesting a foreclosure in Texas has certain hidden traps for the unwary that you should consider and have a plan for handling. As is usually the case with all things, early prevention is the best cure. But homeowners are over looking an important factor in the wrongful foreclosure process.
Our Texas foreclosure case law was developed through what I call “one – two” foreclosures. Long before the mortgage secondary mortgage market, Texas mortgage loans were held by local banks and savings and loans associations. Defaults were isolated and dealt with on a one-to-one basis. Texas case law developed to support the non-judicial foreclosure – there is a presumption that notice was adequately provided and was timely according to the Section 51.002 of the Texas Property Code.
Here’s the rub – there is a clause in most, if not all, Texas deeds of trust. It provides that upon foreclosure, the homeowner becomes a tenant at sufferance. This means that in Texas, a landlord-tenant relationship is established, paving the way for the successful bidder at the foreclosure sale to use the equally fast Texas eviction process to remove homeowners.
Like the Texas foreclosure law in the Texas Property Code, the Texas eviction process is slanted against the former owner/occupant. Deadlines are quick. Justice of the Peace courts can not hear or decide issues of title to real estate, but with the clause in the deed of trust establishing the landlord tenant relationship, the only issue becomes payment of rent and the right to continue to occupy the property. An appeal from the JP court is available, but the same issues arise at the county court level.
While this presents severe hardship for borrowers who are challenging the Texas foreclosure, third party buyers at the foreclosure sales may be induced to enter into a formal lease agreement pending the wrongful foreclosure claim. Third-party buyers stand to lose a lot during this process and they potentially have no claim for damages against the lender for any damages incurred in the wrongful sale.
The more difficult situation is dealing with a lender who may not realize their risks in the situation. Complicating the matter is the facts that lenders will usually have a contractor/realtor handle the eviction with the express purpose of putting the home on the market.
You can re-establish a little leverage in this situation by filing suit in Texas state district court for wrongful foreclosure, and by filing a notice of lis pendens claiming an interest in the property. This places the world on notice of your claim and may prevent the REO agent of the lender from selling the home and further complicating things.
Texas foreclosure and eviction law is slanted toward the lender and owner, so be aware of those issues and deal with them early so that you can deal with the heart of your claim, the wrongful foreclosure. The good news is that Texas courts are becoming aware of the foreclosure mess and the shortcuts lenders are taking, and equally important, of the inequity of the law in dealing with this fact pattern.