If you’re at risk of losing your home to foreclosure, there are steps you can take to stop the foreclosure on your property. Whether you want to hold on to your home forever, avoid the stain of a foreclosure on your credit history, or simply delay the proceedings so you can get a handle on a spiraling debt situation, the situation is not hopeless.
Even once the foreclosure process on your home has begun, there are some options that can allow you to regain control of a stressful situation, from long-term solutions to last-second Hail Marys. Read on to learn how you can stop foreclosure in Texas.
When do banks and lenders typically begin foreclosure proceedings against homeowners?
In Texas, there are two kinds of foreclosures — judicial and non-judicial.
A judicial foreclosure is when a lender files a lawsuit in court in order to prove they have a right to seize the property. These foreclosures might happen when the loan contract does not include what’s known as a “power of sale clause,” which says that the property can be taken away from the borrower if they don’t pay the loan for the property. Judicial foreclosures are required when the foreclosure comes as a result of the borrower defaulting on a home equity loan or a homeowner’s association placing a lien on the property.
Non-judicial foreclosures are what most people think of when they think of foreclosure. This is what happens when a loan document contains a power of sale clause. As a result of federal regulations, non-judicial foreclosure proceedings typically begin after borrowers are behind at least 120 days on payments. However, some private lenders don’t have to follow this law, so the amount of time depends on what is outlined in the contract.
Texas does not have mandatory requirements when it comes to the terms of a deed of trust, so it’s important to make sure you know what your individual contract says about how many payments you can miss before you’re in default and the foreclosure process begins.
In an average year, about 1% of loans are in some state of foreclosure. But every state has its own regulations around foreclosure, and there is a wide variety of activity when it comes to foreclosure in individual states. In April 2021, Texas ranked 28th in terms of the number of foreclosures in the country, with a foreclosure rate of 1 per every 16,957 households.
Right now, many people have temporary protection from foreclosure because of pandemic-related relief orders. However, protections against foreclosure proceedings for federally backed mortgages, like FHA loans, are set to expire June 30, 2021. Some major lenders like Bank of America and Chase plan to follow the federal timeline. This means that people who are behind in their mortgage payments may see their foreclosure process begin as soon as July. Homeowners in forbearance programs may also be worrying that foreclosure is not far away.
What is the foreclosure process like in Texas?
In both a judicial and non-judicial foreclosure, the foreclosure process requires the trustee (the person who holds the deed of trust and is attempting to seize the property) to follow certain steps.
Because it’s written into the contract already and was agreed to by the person who took the loan for the property, the non-judicial foreclosure process is relatively straightforward. This can seem like bad news for borrowers already overwhelmed with job loss, health issues, or other life stresses that contributed to falling behind on payments. Knowing the process, however, can help you see where and how you can stop foreclosure before it’s too late.
Here are the basic steps of a non-judicial foreclosure process:
- Notice of default
Once the period of time required for default, as outlined in the mortgage paperwork, has passed, the lender can decide to go through with foreclosure. If they do so, they are required by law to send a written notice allowing you 20 days to “cure” (pay in full the amount owed), which means to bring the defaulted loan current. For certain loans, like FHA loans and VA loans, this time period is increased to 30 days.
- Notice of sale
The next step is the notice of sale, which is the second (and last) notice the law requires your lender to send to you. This notice of sale must give you at least 21 days’ written notice of the date of the foreclosure sale. Make sure you know whether the 21 days begins from the date the notice is mailed and not the date you receive it. If you are not home to receive this certified letter and do not go collect it from the post office, that will not stop the auction of your home. This foreclosure notice is also posted at the courthouse as well as filed with the county clerk.
- Foreclosure sale
In Texas, foreclosure auctions are held at the county courthouse on the first Tuesday of every month, even on holidays. Anyone may bid on these properties. Some people hope that they can buy the property back from the new owner after the auction, but in Texas you do not have a legal right to buy back your property from the new owner unless it was sold by the government, by a tax lender, or for non-payment of HOA fees. Even then, there are time limits to buy it back, and doing so can come with expensive fees.
Because of when the notices must be mailed to you by law, a foreclosure can go from the notice of default to the auction block in as little as 41 days. This makes the months between when you start missing payments and when the mortgage company decides to foreclose a crucial time in stopping the foreclosure from happening.
What is loss mitigation, and how does it work?
Loss mitigation is a term for all the ways mortgage servicers work with borrowers to avoid foreclosure from happening. Loss mitigation can start before you even miss a payment, or it can happen at virtually any point along the way through the foreclosure process. It’s important to know that the original notice of sale sent by the lender may also include what is known as a “notice to accelerate,” which can be scary to homeowners and make them think they no longer have options to avoid foreclosure.
An acceleration clause is the part of a mortgage contract that makes foreclosure a very real possibility versus a scare tactic. Acceleration means that defaulting on the loan by missing your payments will result in you owing the entire balance on the loan rather than just the amount of your missed payments. That means that missing a few thousand dollars in payments can leave you owing hundreds of thousands due to the mortgage company — and that is how foreclosure happens.
The intent to accelerate might be the moment where hopelessness really kicks in, but it does not mean there is no chance of saving your home (if that is what you want). Generally speaking, most lenders would still rather work with you than lose money on a foreclosure sale; even if they would not, they may not have a choice if you take other steps to delay or prevent the foreclosure.
Even before your lender files a notice of default, they have to offer you ways to get current on your loan. Keep in mind that the mortgage company stands to lose in the event of a foreclosure, too, and not every loss mitigation option will benefit you as much as it will them. These options may include
- Forbearance. This is temporary relief from paying your mortgage, such as paying at a lower rate without penalties or even pressing pause on payments. Keep in mind that you will owe the difference at the end of a forbearance period, so if you are experiencing more than a very temporary loss of income or will not have a way to put together a lump sum, this might not be best for you.
- Repayment plan. A repayment plan is like a forbearance in that your lender will personalize a solution for you. With a repayment plan, you might pay a portion of the missed payments on top of your regular mortgage payments until you are caught up. A repayment plan can be ideal when a temporary loss of income or unexpected expenses caused missed payments but you’ve gotten back on track.
- Loan modification. Unlike a repayment plan, which keeps the same mortgage terms but allows you to address missed payment, a loan modification is designed to help you now and in the long term by actually changing the terms of your mortgage, like adding years to the term of the loan or reducing the interest rate. Sounds too good to be true, right? Unfortunately, while they might be right for some people in some situations, loan modifications usually hurt your credit by appearing as a debt settlement, which is hard evidence that you did not honor the terms of your loan. Refinancing before you get behind on payments is generally a better idea, if you’re able. If you decide a mortgage modification is right for you, it’s best to make sure you speak to a debt management lawyer before committing to the new terms.
- Short sale. Called a short sale because it will leave you “short” of what you owe on your mortgage, a short sale is not a foreclosure sale, but it does mean you have to leave your home. Sometimes, lenders will agree to accept whatever you can sell your home for in a short sale, and sometimes you will still have to pay the difference. In Texas, borrowers can even be held responsible for the deficiency if the house is foreclosed on and auctioned off, so a short sale can look pretty good when you know you simply will not be able to catch up.
- Deed-in-lieu of foreclosure. Like the voluntary repossession of a car, a deed-in-lieu of foreclosure is just as it sounds. Rather than be subjected to the foreclosure proceedings and have that on your credit, you can voluntarily give your home back to the lender. Like a short sale, you would want to try to get your lender to waive your responsibility for the deficiency. This can sound like a great option when you feel like you have a massive mountain to climb to get right on your home loan, but don’t be too quick to voluntarily give your home back unless you truly have considered all options.
What steps can a homeowner take to stop or avoid a foreclosure?
Life changes, and sometimes there is very little you can do about it. At any moment, medical expenses, job losses, or unexpected expenses can flip your financial world upside down. Most mortgages are five months behind before they are ever referred to foreclosure and 10 months behind before the foreclosure sale, so you almost always will have time to find a solution.
Unfortunately, 69% of borrowers never even contact their lender before the foreclosure sale. If you are worried you will fall behind in your mortgage payments and will have a difficult time navigating the situation, consider asking for help from a trusted friend or family member to help you stay proactive in avoiding the worst-case scenario. Here are a few ways to do so:
- Always open your mail. Mortgage companies will call you, but they also are required by law to send you important notices in the mail. In a digital world, many people tend to ignore snail mail, but it is absolutely crucial that you know what steps your mortgage company is taking and when. Too many people have had their homes sold out from under them because they simply missed the notice in the mail and thought they had more time.
- Ask your lender for a loss-mitigation packet. In most cases, a loss mitigation application received at least 37 days before the foreclosure sale must stop all foreclosure activities.
- Speak with a housing counselor. Many cities, counties, and even the federal government offer housing counseling assistance. A housing counselor will not solve the problem for you, but they can be an objective source of information if you are concerned that your mortgage company may not have your best interest in mind.
- Call a bankruptcy lawyer. “Bankrupt” is a powerful word. Say it aloud, and you might even think it feels like a word so terrible you can’t spit it out fast enough. Many people believe the myth that bankruptcy is a sign of failure or weakness, but the reality is that it’s simply a solution to a problem, especially if you want to keep your home. Filing for a Chapter 13 bankruptcy to restructure your debts can give you an opportunity to stay in your home and have a healthier financial outlook. When the alternative is foreclosure, which is still a stain on your credit report, bankruptcy might just be the better alternative.
What steps won’t stop a foreclosure?
The most obvious non-solution to stopping foreclosure on your home is continuing to avoid the mortgage company’s calls and hoping you can catch up in time. Unfortunately, this is what many people do. Acknowledging that you are in a financial hole is difficult, and you may not even be aware of the solutions that are out there to help you save your home.
In some cases, though, you might just want to be done with it. Maybe life changed drastically, and you cannot, or do not want to, continue fighting to make the mortgage payments. Chapter 7 bankruptcy will probably not provide a way for you to catch up with your mortgage, but it will put a stop to the foreclosure proceedings. That means more time for you to stay in your home while you make a plan for the next steps — all without the sting of a mortgage payment out of your reach. In the event that you are able to seek a Chapter 7 bankruptcy, you will also not be liable for Texas’ deficiency after the foreclosure sale, giving you a truly fresh start.
If you are worried that your finances need critical attention, consider speaking with an experienced debt management and bankruptcy attorney in Texas. A lawyer can help you consider the options for your unique circumstances and, if needed, can educate you about how bankruptcy — which is a federal process — might impact your Texas foreclosure proceedings.
When your future is on the line, knowing how to stop foreclosure in Texas is a crucial first step. To learn more, schedule your consultation with Farmer Law today.