The Bank or the Bank’s counsel must carefully review the note, deed of trust and other loan documents in order to determine the procedures required with respect to notices to be given and the conduct of the foreclosure sale. In their haste to get the matter to a sale as soon as possible, Banks often overlook this crucial step. Failure to comply with requirements of the note and deed of trust or Texas law may result in the need to re-post the property in order to meet the contractual requirements, or subject the Bank to grounds that a debtor may utilize to invalidate the sale.
The deed of trust and applicable law must be followed to the letter, or the foreclosure sale may be voided. There may be requirements relating to notice contained in the deed of trust which are different from and more stringent than the notice of sale requirements set forth in the Texas Property Code. For example, the deed of trust may require that notice of default or demand give the debtor a thirty day right to cure its default, prior to the Bank’s acceleration of the note - - even though the Texas Property Code does not require a thirty day right to cure. Alternatively, the deed of trust may require that the notice of default contain a notice to the debtor of a right to reinstate the note after acceleration. Sometimes the additional requirements are contained in the note or in the loan agreement, rather than, or in addition to, those contained in the deed of trust.
The review of the deed of trust is necessary to determine what property can be sold at foreclosure. A Bank foreclosing on an apartment complex, for example, would want to make certain that it foreclosed upon the dishwashers, disposals, and washer/dryers on which it took its lien, in addition to the real property. If personal property is covered by the lien, a properly conducted foreclosure of the lien will have the effect of foreclosing the UCC lien on the personal property incident to the real property. The notice of trustee’s sale and the substitute trustee’s deed must include in both the real property described in the deed of trust and any personal property described in the deed of trust.
CAUTION: Reg AA forbids the taking of a lien on “household goods” of a consumer in connection with a lien on residential property. The Bank should not foreclose on any such goods.
In addition, the Bank should review its files to determine whether the Bank has released any of the collateral from the lien of the deed of trust. This determination should prevent the unlawful sale of property owned by the debtor or other third party that is not subject to the Bank’s lien.
Finally, the Bank should review its loan funding files to confirm that all of the amounts stated in the note and loan agreement were actually advanced to the debtor. If, for example, the Bank were not aware that a tenant finish holdback had not been disbursed, the Bank or the Bank’s counsel might prepare a demand letter that wrongfully made demand of an excessive amount from the debtor, leaving the Bank open to a charge of usury by the debtor. Furthermore, the Bank might wrongly calculate the full amount of the outstanding indebtedness due and owing and might create, by a too high bid at the foreclosure sale, excess proceeds which have to be paid to junior lienholders or to the debtor.