What happens when I miss my mortgage payments?
Foreclosure may occur. This is the legal means that your lender(s) can use to take your home. When this happens, you must move out of your house. How Does the Foreclosure Process Work in Texas?
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 law states that the lender must mail the borrower a “demand letter,” informing the buyer he has twenty (20) days to pay the past-due payments or foreclosure proceedings will begin.
- At some point after the borrower’s twenty (20) days have expired, but at least twenty one (21) days before the foreclosure sale, a foreclosure notice must be: a) filed with the county clerk; b) mailed certified to the borrower at their last known address; and c) posted on the county courthouse door.
- The foreclosure sale must take place on the first Tuesday of any month, even if that 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.
Please note: If a borrower’s property is not their homestead, the lender can ultimately give a notice of trustee/foreclosure sale combining both the acceleration and the foreclosure period into one notice.
Unlike some states, in Texas there is no “redemption period” for residential properties after foreclosure; in other words, the homeowner loses all rights to the property under the Deed of Trust and mortgage agreement signed previously, and has no recourse or way to get the property back once the property has gone to foreclosure.
How Many Payments Can I Miss Before the Bank Will Foreclose on Me?
This is lender specific, meaning it varies from lender to lender. For Texas homesteads, some lenders will wait until three or more payments have been missed before initiating foreclosure. But they are not OBLIGATED to wait beyond the 20-day notification (mentioned above) to foreclose. This is why time is of the essence when a homeowner is facing foreclosure.
What is a Short Sale?
A Short Sale is an excellent option for some homeowners who are facing foreclosure.
A Short Sale occurs when a homeowner owes more on their property than the market value of the property, but their bank agrees to accept less than what is owed (through a purchase offer from a qualified buyer) as “payment in full,” in an effort to avoid the foreclosure process. In other words, under certain circumstances, if the homeowner is approved into the lender’s Short Sale Program, the lender may agree to “write-off” the portion of the mortgage that is higher than the value of a home.
What Other Options Do I Have?
If you are facing foreclosure, then you have several other options, besides a Short Sale:
- You may pay off the past-due amount of your mortgage before the foreclosure sale begins. This is known as an "equity of redemption" (not be confused with a "right of redemption" following tax sales only).
- Refinancing the mortgage debt with another lender is another possibility; however, those with poor credit scores may not be able to pursue this option. Another drawback may be the time it takes to get this done. All the while, the clock is ticking toward foreclosure.
- You may sell the property in a normal transaction and pay off your mortgage. However, timing is critical, and when you sell your own home, you have to pay commissions and closing costs, plus any other liens against the property.
- You can arrange for a “Workout Program” with your lender. Usually, this means making the regular monthly mortgage payment plus some portion of the payment(s) that have been missed. I often find that the lender is less forgiving for those who pursue this option, and later cannot keep these payments going. (In the lender’s mind, this constitutes a second failure to keep your commitment to making these payments, and they seem more likely to move toward immediate foreclosure.)
- A “Deed in Lieu of Foreclosure” occurs when the homeowner conveys the property back to the lender. Mortgage brokers tell me that this option will impact your credit in the same way a foreclosure would, but encourage homeowners to do their own research.
A Short Sale prevents the homeowner from paying any fees related to the sale of the home, including commissions, closing costs (including a title search and appraisal), and usually, other liens against the property.
Please note: All short sale applicants have to be approved into the program by the homeowner’s lender. The lender will evaluate the owner’s financial situation, the value of the property, the cost of foreclosure, and any offer to purchase the property that is less than the amount owed.
What about Bankruptcy?
I think most of the homeowners I’ve worked with who either have filed bankruptcy or who are thinking of filing bankruptcy, do so because it gives them a sense of control over their situation. It also gives them a little relief from the feeling that someone is bearing down on them and getting ready to take their home away.
However, there are terms to every bankruptcy, and those terms have to be met in order for the bankruptcy to remain in full force and effect. In other words, if the judge sets up a payment plan for you, and you fall behind again for some reason beyond your control, the “stay” will be lifted and your lender and other creditors will move in to collect. The other issue is your credit. A bankruptcy will not help that.
If you are currently in a bankruptcy situation, you may still be able to qualify for the Short Sale remedy. Please call me to discuss.
For more information, please call CARMEN PARKER for a no-obligation, confidential consultation.