FORECLOSURES AND SHORT SALES IN FREDERICKSBURG, TX AND THE TEXAS HILL COUNTRY
The Texas Attorney General's office has halted all foreclosures, all sales of properties previously foreclosed upon, and all evictions of persons residing in previously foreclosed upon properties, until mortgage companies have completed a review of their processes, including whether employees or agents "robosigned” affidavits and other documents recorded in Texas.
With the recent state of the national economy, the question of foreclosures in the Hill Country, Fredericksburg, Mason, Llano, etc. often comes up. Is it a “problem” in our area? Are there opportunities for investors to pick up “bargains” at foreclosure sales?
While the Fredericksburg, TX and Hill Country markets are not immune to the foreclosure phenomenon, we have to a very large degree not been subject to the rash of forced sales more common on the east and west coasts. Have there been foreclosures? Sure. Very many? Not really. Bargains? Depends. See the foreclosure postings for June of 2010
. The foreclosure listings are updated around the 20th of the month preceding the actual sales...check back frequently!
Lenders in our area have tended heavily towards the conservative. Additionally, Texas home equity lending laws have been a tremendous help in preventing the kind of ridiculous, sub-prime lending you hear so much about in the media today.
If you believe, however, that our economy will continue to suffer through a quarter (or several quarters) of recession, it could benefit you to know the basic of foreclosure law should you (as a property owner) find yourself faced with financial hardship. Conversely, fortunes have been made by savvy investors who follow foreclosure trends and are able to acquire real property at “discounted” prices.
Foreclosure sales (and auctions) pose unique considerations for real estate buyers. Among these are the fact that a potential buyers ability to inspect a property can be negligible or extremely limited AND after completion of the sale a buyer may have to initiate legal action to evict the occupants. Additionally, buyers may be responsible for paying any outstanding liens (hint: pay a title co. for a preliminary title search once you i.d. a property you'd like to pursue) and buyers may not receive a clear title (see previous hint)
The nationwide foreclosure boom has focused more attention on a transaction referred to as a “short sale”. In an attempt to avoid the time-consuming (and often times expensive) foreclosure process, lenders are increasingly agreeing to “short sell” a mortgaged property. The Texas Association of Realtors has even prepared a "short sale addendum" for use with contracts for this type of transaction.
By agreeing to sell the property for less than the current balance owed on the note, a lender “comes up short” on recovering the full amount. The “short” part of the term also applies to the timeline generally associated with the process as these attempts are often limited to an amount of days roughly equivalent to the time it take to process a “regular” foreclosure. A “short sale” can be a win-win for the property owner and the lender. "Short sale” properties are often listed with realtors and heavily promoted. There are, however, potential tax consequences for those "short-selling" a property. Review the IRS website and Q&A's for more information.
Are “short sales” common in Fredericksburg and/or the Hill Country? Not as common as in the major metropolitan areas, but they do occur. It is my opinion that this process will become increasingly more frequent as our market corrects and lenders and borrowers opt to try an avoid foreclosures.
FORECLOSURES IN TEXAS
The following is a primer on Texas Foreclosure laws and processes. Keep in mind that I am not an attorney. Foreclosure law is very complex and is ever-changing. You are strongly advised to consult qualified, licensed legal counsel for definitive advice, counsel, updates, etc. on foreclosures in the State of Texas.
The Real Estate Center at Texas A&M provides an excellent publication
for understanding the basics of this process. After you have review this and my notes below, be sure to take the “foreclosure quiz”
also provided by TAMU. Better yet, try the quiz first!
Texas is a state that allows both Judicial and non-Judicial foreclosures. The typical legal instruments foreclosed upon are mortgages or Deed’s of Trust.
The foreclosure process typically takes 60 days. Additionally, there is no “right of redemption” (essentially, a right to “re-buy” the foreclosed property at the foreclosure sale price for a certain period of time) in Texas. There is allowed, however, a right of equity redemption that allows a borrower to repay (in full) the accelerated balance of the note prior to the foreclosure sale.
Deficiency judgments are allowed in the State of Texas (see below).
The judicial process of foreclosure occurs when the legal documents governing the mortgage or Deed of Trust do not contain a “power of sale” clause. Generally, after the court declares a foreclosure, the property will be auctioned off to the highest bidder (see below).
The non-judicial process of foreclosure is used when a “power of sale” clause does exist in a mortgage or deed of trust. A "power of sale" clause is the clause in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of the 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.
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:
- 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.
- 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 Gillespie county clerk; 2) mailed to the borrower at their last known address; and 3) posted on the Gillespie County courthouse door (posting are actually stapled to a bulletin board just inside the main courthouse doors, on your left as you enter).
- 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 Gillespie County 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. Of course, “fair market value” can be a very subjective term so the 72nd Texas Legislature addressed this issue in detail and limits deficiency judgments to non-judicial foreclosures only….MORE