A nonjudicial foreclosure is a public sale of real property (and related personal property), conducted by a trustee appointed by the Bank. It is a means for the Bank to realize upon the collateral which secures the indebtedness owed to it without having to go to court. After a debtor has defaulted on its indebtedness and proper notice has been given to the debtor by the Bank, the sale is conducted as an auction in the county courthouse or at a public place near the courthouse designated by the county commissioners court in the county in which the property is located. The Bank typically purchases the property at the sale by bidding a credit against the indebtedness owed by the debtor equal to the lesser of (i) the fair market value of the property purchased or (ii) the amount of the indebtedness (but in any event no less than 70% of the fair market value).
The Texas Property Code governs the conduct of nonjudicial foreclosures in Texas. Additionally, federal regulations require that the Bank give additional notices in certain instance. The terms of the deed of trust, the promissory note, the loan agreement and other loan documents also govern the content and manner of the notices to be given and the conduct of the sale.
A “friendly foreclosure” is a nonjudicial foreclosure where the debtor has agreed (informally or formally) not to enjoin the foreclosure, stop the foreclosure by taking bankruptcy, or challenge the foreclosure after the sale, because the Bank and the debtor have either negotiated a deficiency or agreed that no deficiency will be pursued.