Judicial Foreclosure
The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale  (“power of sale” clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event the homeowner defaults) is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, the property will be auctioned off to the highest bidder.

Non-Judicial Foreclosure
The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A “power of sale” clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event the homeowner defaults. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the “Power of Sale Foreclosure Guidelines”.

Power of Sale Foreclosure Guidelines
If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:
 

1. Prior to proceeding with a foreclosure, Texas laws state that the lender must mail the borrower a letter of demand, informing the buyer he has twenty (20) days to pay the delinquent payments or foreclosure proceedings will begin.
    
2. At some point after the borrowers twenty (20) days have expired, but at least twenty one (21) days before the foreclosure sale, a foreclosure notice must be: 1) filed with the county clerk; 2) mailed to the borrower at their last known address; and 3) posted on the county courthouse door.
    
3. The foreclosure sale must take place on the first Tuesday of any month, even if said Tuesday falls on a legal holiday, but only after the proper preliminary notices have been given. The sale is on the courthouse steps by auction to the highest bidder for cash. Anyone may bid, including the lender, who bids by canceling out the balance due on the note, or some part of it.

Lenders may obtain deficiency judgments, but they are limited to the difference between the fair market value of the property at the time of sale and the balance of the loan in default.   Lenders may also issue a 1099, where the homeowner may have to pay taxes on the amount of the deficiency brought about by the foreclosure or a short payoff.   In 2007, The Mortgage Forgiveness and Debt Relief Act and Debt Cancellation was passed in order to help homeowners who faced foreclosure.  If you can prove you were insolvent at the time of your foreclosure or short sale, your debt could be forgiven. Best to speak to a tax advisor about your particular situation.

If you would like to discuss your situation with us, please feel free to contact Giraffe Realty at 713.376.1212.  You do have options.