In Texas, a real estate lien given to a Bank pursuant to a deed of trust may be foreclosed and sold without the necessity of a judicial proceeding. Such foreclosures are referred as a non-judicial foreclosures. Absent special circumstances, a secured party or mortgagee will almost always choose to pursue a non-judicial foreclosure over judicial foreclosure.
Non-judicial foreclosure sales in Texas are held on the first Tuesday of each month. Notice of the sale must be given to each person obligated on the debt at least 21 days before the date of the sale (i) by certified mail to each debtor obligated to pay the debt, (ii) by filing notice of the sale in the office of the county clerk of each county in which the property is located and, if the county maintains an Internet website, the County must post a notice of sale filed on a page of that website that is publicly available for viewing without charge or registration, and (iii) by posting notice of the sale at the door (or other designated area) of the courthouse of the county in which the property is located.
The commissioner’s court of a county may designate a public place other than an area of the courthouse for the public sale if it is reasonably close to the courthouse. Notice should also be given to any party required by the loan documents to receive notice of the sale.
The foreclosure sale is conducted at the specified location by the trustee designated by the deed of trust. Most Banks will appoint their attorney as substitute trustee immediately before posting the foreclosure notice, and the foreclosure is then conducted by the substitute trustee. Appointment of a substitute trustee is done by filing notice of the appointment in the real property records.
Before beginning the foreclosure proceedings on commercial property, it is prudent for the Bank to make a formal demand upon the borrower for payment of the debt, to provide the borrower with a notice of intent to accelerate the debt (if the debt has not already been accelerated or is not already past due), and to provide the borrower and a period of at least ten days to pay the debt in full. After the expiration of the ten-day cure period and after the Bank has given notice of the acceleration of the debt (if applicable), the Bank may begin the foreclosure proceedings set forth below. Notice and opportunity to cure defaults on residential real estate are more complicated.
Texas statute provides that, in the event of a suit by a Bank to recover a deficiency resulting from a non-judicial foreclosure, the borrower or other person against whom recovery is sought (i.e., a guarantor) may request the court to determine the fair market value of the property as of the date of the foreclosure sale. A guarantor may waive this right in its guaranty. If the court determines that the fair market value of the property was greater than the sales price received at the foreclosure sale, the borrower or guarantor is entitled to an offset against the deficiency, equal to the amount of the disparity less the amount of any lien not extinguished by the foreclosure. It should be noted that the statute does not provide for a recovery by the borrower in excess of the amount of the offset against the deficiency. In other words, the maximum recovery of a borrower or, if it has not waived this right, a guarantor under the statute would be limited to an offset against the entire amount of the Bank’s deficiency claim.