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Texas has three methods for lenders to foreclose on homes — non-judicial foreclosures, judicial foreclosures, and quasi-judicial foreclosures. Since most of the foreclosures these days are non-judicial, that will be the subject of this article.
Generally, Texas has a “one, two, punch!” approach to foreclosing on real estate properties in default. Lenders first give the homeowner a “Notice of Default” in which they inform you that you have defaulted on your mortgage. They also at this point give you notice that unless you take action to bring the loan out of default, they will also accelerate the debt (meaning that if you do not bring your account current [or work out a compromise with the bank], it will no longer ask you for monthly payments, and instead it will demand that you to pay the entire amount of the mortgage balance owed).
After 20 days, the lender will send you a second notice — a “Notice of Sale,” telling you the time and place where they will sell your home at a foreclosure sale. This usually takes place the first Tuesday of the following month.
At any point before the foreclosure sale, a home owner can always negotiate what is typically called a “work out” or a “loan modification.” We are not referring to the federal government’s program which has had questionable results; we are talking about an honest conversation with the bank about what you can pay, and coming up with a mutually acceptable plan which will keep you in the home and will keep them from selling your home at the foreclosure sale. Regardless of whether you agree to a loan modification where certain terms are altered or extended, or whether you agree to a payment plan to bring your payments current, you always have the chance to save your home. Remember that at every point, it is advisable to have an attorney at your side at the very least to look over the documents and to advise you because banks typically materially alter the terms of your loan to your detriment when writing up a loan modification agreement. More on this another time.
The last alternative which often feels extreme and makes the homeowner feel as if they’ve been destroyed and that they are a failure is to file bankruptcy. From a non-emotional point of view, there is nothing immoral about filing for bankruptcy if all else has failed. Bankruptcy is a tool that has been used by many both rich and poor to restructure their debts and allow the home owner to have some breathing room to get their finances and their home in order. As soon as bankruptcy is filed, the foreclosure STOPS, end of story.
However, bankruptcy is not an online form that can be filled out in under four minutes. It requires a consultation with a bankruptcy attorney who, among other things, can guide the homeowner through what is called a “means test” to determine how the homeowner will be best advised to proceed under the bankruptcy laws.
Also, a bankruptcy is only useful if the homeowner together with his attorney will be able to create a plan which the homeowner will be able to afford which will allow him to resume payments to the lender, and which will also allow the homeowner to bring the amount the homeowner is behind on his mortgage up to date over time (generally this must be done within a five year period). The unemotional benefit of bankruptcy here is whatever plan the court approves, the lender is FORCED to accept. So if the lender is being less-than-cooperative, sometimes going down this path is the responsible way for a homeowner to keep his home and bring his mortgage payments up to date without losing his home to a foreclosure sale.