What Happens After a Foreclosure?
Greg Tidmore | Feb 19, 2020
After the Foreclosure Process
In my previous post, Foreclosure Process in Texas I covered that foreclosure is actually a process that begins with default of the loan (missing a payment) and culminates in the sale of the property at a foreclosure auction. Now having an understanding of how the process works, let's discuss what happens after the auction takes place.
Unfortunately, Texas has no statutory right of redemption after a mortgage foreclosure has taken place. (A redemption period is the legal right of a mortgage borrower who has been foreclosed to pay off the total debt, including principal balance plus certain additional costs and interest, in order to reclaim the property.) Once a home has been foreclosed due to a mortgage default, it cannot be redeemed.
There are two provisions for redemption of non-mortgage foreclosures:
(1) Sale for unpaid taxes. After a foreclosure for unpaid taxes, the former owner of homestead or agricultural property has a two-year right of redemption. For other types of property (i.e., non-homestead), the redemption period is 180 days.
2) Sale for unpaid Home/Property Owner Association assessments. After a foreclosure for HOA assessments, the former homeowner has 180 days to redeem the property from the date the association mails written notice of the sale to the owner and the lien holder. A lien holder also has a right of redemption in these circumstances within 90 days.
Eviction Following Foreclosure
If you don’t vacate the property following the foreclosure sale, the new owner will take steps to entice you to move out amicably through a cash-for-keys offer, or they will take steps to evict you.
With cash-for-keys, the new owner offers you money (typically a couple of hundred to a couple thousand dollars) in exchange for you agreeing to move out in a specified period of time with the requirement of leaving the property in "broom swept" condition. This is generally cheaper and faster for the new owner than taking you to court for an eviction and taking the risk that the property will be damaged or left in disrepair.
If you don't get a cash-for-keys deal, the eviction process begins when the new owner serves the former owner or occupant with (at least) a three-day notice to vacate followed by an eviction lawsuit if you fail to vacate in the specified amount of time. Any right of occupancy of a tenant is terminated with the foreclosure.
After the court grants judgment, it can issue a writ of possession after the expiration of five days. The constable or sheriff then posts a 24-hour warning at the property. If the occupants do not vacate the property, the constable or sheriff enters the property and removes the occupants and their belongings. If you feel an eviction is unwarranted or illegal, or if you simply need additional time, the eviction may be delayed through the assistance of a competent law firm.
Deficiency Judgment Following a Foreclosure Sale
In Texas, the lender may obtain a deficiency judgment after a non-judicial foreclosure. Purchase loans (loans used to purchase a house) and rate-and-term refinance loans (refinancing without getting cash out) are both non-judicial. Deficiency judgements are not possible for judicial foreclosures, including Home Equity Loans.
When a lender forecloses on a property, the total debt owed by the borrower to the lender frequently exceeds the foreclosure sale price. The difference between the sale price and the total debt is called a “deficiency.”
Example: Say the total debt owed (including principal, interest, escrow advances, late and attorney fees) is $200,000, but the home only sells for $150,000 at the foreclosure sale. The deficiency is $50,000.
For non-judicial foreclosures, the lender must file a lawsuit to obtain the deficiency judgment within two years after the foreclosure sale. The lender can also choose to "write off" the loan and will instead issue a 1099-C to indicate the cancellation of debt. The amount on the 1099-C will be treated as income and may pose a tax liability for the former homeowner.
Texas state law allows the borrower to receive credit for the fair market value of the property. This means the borrower is entitled to an offset in the deficiency amount if the fair market value of the property is greater than the foreclosure sale price.
The Day After the Foreclosure Auction
After a home is sold at auction, it is very difficult for the foreclosure to be undone unless there was truly something "wrongful" that happened during the process. You can have an attorney review your situation to determine if there is anything that can be done. Even if the foreclosure was wrongful, you can still lose your eviction case and possession of the house before the wrongful foreclosure case is resolved.
Before you start packing your belongings, it is recommended that you wait to be contacted by an agent of the new owner. If the bank purchased the property, they will likely send a real estate agent to make contact with you. That agent may be authorized to offer you time and or cash to move out. In some cases it takes weeks or months (or longer) before that contact is made. In any case, you'll have 3-4 weeks minimum to vacate the property following that initial contact.
If you or someone you know is facing foreclosure, or has already been foreclosed on, call us at 713-595-8200, or click the button below to schedule a free consultation.