The Federal Reserve Bank shows a slight decline in Texas homeownership over the past few years. The Lone Star State has not been as affected as most other states by the housing market decline. Home sales remain fairly steady in the Lone Star state. However, many Texans want an alternative to standard mortgage loans and hard money loans can sometimes help people to purchase or renovate an investment property or to buy a home. Hard money loans usually fund much quicker than a standard mortgage and require much less paperwork. When a property owner is willing to use their home or other real estate as collateral, a hard money loan might be the right option.
Texas Foreclosure Laws
The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale 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.
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 of their default. 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. The majority of Texas foreclosures occur this way.
In Texas, a quasi-judicial process is sometimes used to foreclose on home equity loans. The lender must obtain a court order approving the foreclosure prior to conducting a non-judicial foreclosure. (Texas Rule of Civil Procedure 735.)
Property Redemption after Foreclosure Sale
Redemption refers to a homeowners ability to reclaim or redeem their home after a foreclosure sale. In some states, it is possible to catch up with payments, pay some additional fees and still reclaim the home. But in Texas, there is no right of redemption option. Once the home has been sold in foreclosure, that sale is final.
When a home is sold at auction in a foreclosure, in a short sale or even with a deed in lieu of foreclosure (giving the house back to the lender) if there are still monies owed after a sale, the lender can ask the courts for a deficiency judgment. If granted, the borrower will still have to pay what is owed, even if they have lost the property. In Texas, the lender may obtain a deficiency judgment after foreclosure, whether it is managed in or out of the courts. (Tex. Prop. Code §51.003, §51.004). For non-judicial foreclosures, the lender must file a lawsuit to obtain the deficiency judgment within two years after the foreclosure sale (Tex. Prop. Code §51.003).
Deed in Lieu of Foreclosure
Texas allows homeowners facing foreclosure to use a deed in lieu of foreclosure option. This gives the homeowner an opportunity to avoid foreclosure, thereby preventing a negative effect on his credit score. This option is sometimes called “cash for keys” because homeowners who default and agree to a deed in lieu of foreclosure arrangement with the lender can sometimes negotiate a small cash payment to help offset the costs associated with moving out. The lender is usually willing to consider it because a foreclosure can take a lot of time and can be expensive.
Grace Period Notice
Texas foreclosures happen very quickly. In fact, the state has one of the fastest foreclosure timelines in the country with the average foreclosure lasting just a few months. In Texas, the foreclosing party must give two notices to the defaulting borrower: a notice of default and a notice of sale. The mortgage servicer (the company that handles a borrower's mortgage account on behalf of the lender) must mail the borrower a Notice of Default and Intent to Accelerate ("accelerate" means to demand that the entire balance of the loan be repaid) that provides at least 20 days to cure the default. Tex. Prop. Code Ann. § 51.002(d).
Notice of Sale
After the cure period expires, and at least 21 days before the foreclosure sale, the servicer then mails a Notice of Sale to each borrower. Tex. Prop. Code Ann. § 51.002(b). The servicer must also post the Notice of Sale at the courthouse door and file it with the county clerk. Tex. Prop. Code Ann. § 51.002(b).
Protections for Military Personnel
For those who are in the military, there are a few special protections. Namely, the home cannot be foreclosed upon by the lender while the military member is serving and is therefore unable to take action to keep the house. The time limits listed above do not count while you are on active duty, for example, so they merely begin when you return. You will not return home to find out that you lost the house while you were serving. Texas does not have special protections for high-cost mortgages, which some other states do provide. Active military personnel also get more protection from homeowners associations who attempt to foreclose for past-due membership fees, according to a bill passed by the Texas Legislature Senate Bill 101.
High Risk Mortgage Protections
There are no guaranteed solutions or protections for Texas homeowners who are in what is called a "hit risk" mortgage. Before a lender or bank can file a foreclosure action on a high risk home loan, they usually must send a notice that informs the borrower of their right to cure the default within 30 days. In addition, a borrower can raise violations of the high risk home loan law, including the prohibition of prepayment penalties and negative amortization, as a defense in a foreclosure action. In these cases, it is important to have experienced legal counsel in order to get the best outcome in your specific situation.
Do You Have a Mortgage or a Deed of Trust?
Texas is a deed of trust state. A deed of trust has a crucial advantage over a mortgage from the lender's point of view. If the borrower defaults on the loan, the trustee has the power to foreclose on the property on behalf of the beneficiary. In most U.S. states, a deed of trust (but not a mortgage) can contain a special "power of sale" clause that permits the trustee to exercise these powers.
Additional State Laws
The maximum legal interest rate on a personal loan in Texas is 6%. Most states have laws limiting the interest rates a creditor may charge, but consumers usually consent to higher rates by agreeing to the terms of the loan (thus waiving statutory interest rate limits). In Texas, interest rates are statutorily limited to 6 percent, or 18 percent for interest rates on judgments. Texas interest rate laws also provide an exception to these limits for business loans, commercial loans, investments, and open-end accounts.
Texas is a homestead state. Texas has a different style of homestead rules than most of the other states. State homestead protection laws help prevent people from becoming homeless in the event of a foreclosure or change in economic circumstances. In Texas, every family and every single adult person is entitled to a homestead exempt from seizure passed on the claims of creditors, except for a pre-existing mortgage or lien. Texas homestead law protects qualifying real property from forced sale by general creditors, and courts have interpreted the laws broadly to help accomplish their goals. Homestead can be either urban property or rural property. An urban homestead may be a home or a place of business, or both. There is no limit to the value of urban or rural homesteads, only to their size. Rural homesteads are limited to 200 acres for a family and 100 acres for a single adult, including improvements on the property. An urban homestead is limited to ten acres with improvements, which must be in adjacent lots. Whether a homestead is rural or urban affects such issues as the amount of acreage subject to the homestead exemption and whether the property can qualify as a business homestead.
Texas property law says that a homestead is considered to be urban if the property is: located within the physical or jurisdictional limits of a municipality or a within a planned subdivision or development; and served by police and/or fire protection; and at least three of the following services are provided by a municipality or under contract to a municipality:
- Natural gas;
- Storm sewer; and/or
Lender Licensing Requirements
The State of Texas regulates Mortgage Brokers through the Bureau of Financial Institutions. The requirements to become a Mortgage Broker in Texas are the same as those for becoming a Mortgage Lender. In Texas, anyone who acts as a Mortgage Broker, even for only one loan, needs to have a Mortgage Broker License.