Notice of Foreclosure Sale
After the noteholder has decided to proceed with a nonjudicial foreclosure sale of the Texas collateral (usually after the note has matured by its terms or the maturity date has been validly accelerated; see chapter 8 in this manual) and has engaged the deed of trust trustee (or a properly appointed substitute trustee) to conduct the sale (see chapter 11), the noteholder and its counsel (who may also be serving as the substitute trustee) must then give the requisite notices of the foreclosure sale in accordance with the governing loan documents (predominantly, the deed of trust) and applicable law (predominantly, chapter 51 of the Texas Property Code).
§ 12.2Contractual Requirements of Notice of Sale
If the mandatory notice of sale required by Texas Property Code section 51.02 will be used to document the appointment of a substitute trustee, a foreclosure professional must ensure that modification of a legacy notice of sale conforms to the specific requirements found in Property Code section 51.0076 for appointing a substitute trustee. See Acts 2015, 84th Leg., R.S., ch. 653, § 2 (H.B. 2063), eff. Sept. 1, 2015 (adding Tex. Prop. Code § 51.0076).
Similar to the establishment of a default and acceleration of the secured debt, notice of a proposed foreclosure sale, to be effective, must comply with all of the requirements set forth in the governing loan documents, including the deed of trust. The most common instance where the deed of trust might impose procedural requirements in addition to the minimum statutory requirements in chapter 51 of the Texas Property Code (although by now mostly a vestige of decades ago) involves where notice of the sale is to be posted. If the deed of trust requires that the notice be posted in three public places, the notice must both satisfy the current requirements of chapter 51 of the Texas Property Code and be posted in three public places as required by the deed of trust. Harwath v. Hudson, 654 S.W.2d 851, 853–54 (Tex. App.—Dallas 1983, writ ref’d n.r.e.). If the deed of trust requires that the notice be published in a newspaper, the notice must be so published in addition to being posted as required by the Property Code. See Rudolph v. Hively, 188 S.W. 721, 723 (Tex. Civ. App.—Amarillo 1916, writ ref’d) (sheriff’s sale voided; if mortgage required notice by publication in county newspaper, it was no excuse that county had no newspaper, and mortgagee’s only resort was to a court of equity). However, a provision in a deed of trust requiring that the notice of foreclosure sale be filed of record “in the deed records in the county in which the mortgaged property is located as required by law” may be disregarded as imposing no duty to take any action beyond that required by Property Code section 51.002. Thompson v. Chrysler First Business Credit Corp., 840 S.W.2d 25, 31–32 (Tex. App.—Dallas 1992, no writ).
§ 12.3Statutory Requirements to Post, File, and Serve (Mail) Notice of Sale
In addition to contractual requirements, section 51.002(b) of the Texas Property Code requires that notice properly posted at the courthouse door, filed with the county clerk, and served on the debtor (as discussed below) must be performed “at least 21 days before the date of the sale” in order for proper notice of a foreclosure sale to be given. Tex. Prop. Code § 51.002(b). The day on which the notice of sale is given is included, and the day of the foreclosure sale is excluded, in computing the twenty-one-day notice period. Tex. Prop. Code § 51.002(g). As a result, notice properly posted, filed, and mailed three weeks before the foreclosure sale date is timely (even if not the most risk-averse timing).
§ 12.3:1Posting at Courthouse Door
The notice of sale must be posted at the courthouse door of each county in which the property is located. Tex. Prop. Code § 51.002(b)(1). The term courthouse door is defined in Tex. R. Civ. P. 648 as meaning “either of the principal entrances to the house provided by the proper authority for the holding of the district court.” The customary bulletin boards, located near the courthouse door for posting notices of sheriff’s execution sales, have been approved for posting. Howard v. Fulton, 14 S.W. 1061, 1062 (Tex. 1891); Micrea, Inc. v. Eureka Life Insurance Co. of America, 534 S.W.2d 348, 358 (Tex. Civ. App.—Fort Worth 1976, writ ref’d n.r.e.); Matson v. Federal Farm Mortgage Corp., 151 S.W.2d 636, 640 (Tex. Civ. App.—Waco 1941, no writ); Heiner v. Homeland Realty Co., 100 S.W.2d 793, 794–95 (Tex. Civ. App.—Waco 1936, no writ). As practices and procedures vary across Texas counties as to where and by what means a foreclosure sale notice is to be posted, counsel for the mortgage servicer should determine the proper location in advance so as to be able to direct an agent handling the filing and posting accordingly. In that regard, satisfaction of the requirement to post at the courthouse door and file with the county clerk a notice of sale can be accomplished by someone designated by the trustee or substitute trustee, provided, however, that if the trustee or substitute trustee does not personally accomplish that task, an affidavit should be obtained from the individual posting the notice that includes a certification as to the time, date, place, and manner of the posting. If the courthouse or county clerk’s office is closed because of inclement weather, natural disaster, or other act of God, the notice may be posted or filed up to forty-eight hours after the courthouse or county clerk’s office reopens for business. Tex. Prop. Code § 51.002(b–1).
The notice of sale posted at the courthouse door does not have to remain intact and visible during every one of the days of the posting period. The trustee is not required to ensure that the notices are kept posted or are visible on the posting board. First State Bank v. Keilman, 851 S.W.2d 914, 923 (Tex. App.—Austin 1993, writ denied); Chambers v. Lee, 566 S.W.2d 69, 73 (Tex. Civ. App.—Texarkana 1978, no writ). A substitute trustee does not need to repost the notice after the original trustee has already done so. Koehler v. Pioneer American Insurance Co., 425 S.W.2d 889, 891 (Tex. Civ. App.—Fort Worth 1968, no writ); see also In re Davis Chevrolet, Inc., 135 B.R. 29, 34 (N.D. Tex. 1992).
§ 12.3:2Filing with County Clerk
A copy of the notice of sale must be filed in the office of the county clerk in which the property is located. Tex. Prop. Code § 51.002(b)(2). The county clerk is required to keep all such notices in a convenient file available to the public for examination during normal business hours until after the date of sale specified in the notice has passed. Tex. Prop. Code § 51.002(f). These notices are typically disposed of by the county clerk following the date of the sale stated in the notices; therefore, the receipt for payment given by the county clerk and a file-stamped copy of the notice of sale should be retained as evidence of filing. Additionally, the person who files the notice with the county clerk should sign an affidavit as to the date and time of filing the notice. See form 11-4 in this manual for an affidavit of filing and posting of the notice of foreclosure sale.
If a county maintains an Internet website, the county must post notices of sale filed with its county clerk on that website on a page that is publicly available for viewing without charge or registration (as many larger Texas counties already do). See Tex. Prop. Code § 51.002(f–1).
Practice Tip: The attorney for the mortgage servicer, as soon as practicable before filing and posting a notice of foreclosure sale, should check with the mortgage servicer to verify that (1) the loan has not been paid and (2) reinstatement has not been granted or other forbearance arrangements have not been made by the mortgage servicer. Publicly posting the mortgagor’s property in error or contrary to an enforceable agreement by the mortgage servicer may expose the mortgage servicer to liability.
Practice Tip: Especially in a case where the collateral to be foreclosed is in a county or counties geographically remote from the person handling the foreclosure for the mortgage servicer (usually the attorney for the mortgage servicer) and a foreclosure posting service is being used for the filing and posting, it is advisable to arrange for the filing and posting to be accomplished no later than the Monday that is twenty-two days before the foreclosure sale date, leaving the mailing of the notice (preferably a file-stamped copy) to the debtor to be accomplished as early as possible the next day (but no later than the Tuesday twenty-one days before the foreclosure sale date).
§ 12.3:3Serving Notice on Debtor
Notice of the sale must be served by certified mail on each debtor who, according to the records of the mortgage servicer of the debt, is obligated to pay the debt. Tex. Prop. Code § 51.002(b)(3). Neither the term debtor nor the phrase each debtor who . . . is obligated to pay the debt is defined in chapter 51 of the Texas Property Code, and neither appears to have been the subject of a reported case as of the publication date of this manual. Although the party who signs the promissory note as a maker and a party who assumes liability to pay the promissory note as an assumptor indisputably are “obligated to pay the debt,” a guarantor of the debt has been held not to be entitled to the statutory notice of a nonjudicial foreclosure sale. See Bishop v. National Loan Investors, L.P., 915 S.W.2d 241, 245 (Tex. App.—Fort Worth 1995, writ denied), citing Long v. NCNB–Texas National Bank, 882 S.W.2d 861, 866 (Tex. App.—Corpus Christi 1994, no writ). Notwithstanding the case authority cited above, it is advisable to serve a notice of foreclosure sale on a guarantor in the same fashion as the notice is served on the debtor(s) who, according to the records of the mortgage servicer, is obligated to pay the debt.
Other parties held not entitled to the statutory notice of a nonjudicial foreclosure sale (absent a contractual agreement to do so) include (1) a junior lienholder (see Hampshire v. Greeves, 143 S.W. 147, 150 (Tex. 1912); Chandler v. Orgain, 302 S.W.2d 953, 956 (Tex. Civ. App.—Fort Worth 1957, no writ)); (2) an owner of the property who is not the borrower, including an owner who purchases subject to the debt (see Lawson v. Gibbs, 591 S.W.2d 292, 295 (Tex. Civ. App.—Houston [14th Dist.] 1979, writ ref’d n.r.e.)); (3) a purchaser who assumes a secured seller’s debt in an agreement with the seller but does not obtain the mortgagee’s approval in violation of a due-on-sale clause (Saravia v. Benson, 433 S.W.3d 658 (Tex. App.—Houston [14th Dist.] 2014, no pet.)); (4) a maker of a separate note that is cross-defaulted and cross-collateralized with the defaulted note (see National Commerce Bank v. Stiehl, 866 S.W.2d 706, 708 (Tex. App.—Houston [1st Dist.] 1993, no writ)); and (5) a purchaser under contract for deed with the mortgagor (see In re Riviera, 358 B.R. 688, 693 (Bankr. S.D. Tex. 2007)). There may, however, be good reasons for the mortgage servicer’s counsel to serve the notice of sale on parties without a legal or contractual right to receive the notice, in case any such party, especially a junior lienholder, would be motivated to purchase the property at foreclosure.
Service of a foreclosure notice by certified mail is complete when the notice is deposited in the U.S. mail, postage prepaid, and addressed to the debtor at the debtor’s last known address. Tex. Prop. Code § 51.002(e); Stanley v. CitiFinancial Mortgage Co., 121 S.W.3d 811, 817–18 (Tex. App.—Beaumont 2003, pet. denied). For property other than a debtor’s residence, “debtor’s last known address” means the debtor’s last known address as shown by the records of the mortgage servicer unless the debtor provided the current mortgage servicer a written change of address before the date the mortgage servicer mailed the notice of foreclosure sale. See Tex. Prop. Code § 51.0001(2). A debtor is obligated to inform the mortgage servicer in a reasonable manner of any change of the debtor’s address. Tex. Prop. Code § 51.0021. If properly mailed, the fact that a debtor did not actually receive notice does not render the notice of sale invalid. Hausmann v. Texas Savings & Loan Ass’n, 585 S.W.2d 796, 799–800 (Tex. Civ. App.—El Paso 1979, writ ref’d n.r.e.). If not properly mailed, actual notice may be sufficient if timely received. See Forestier v. San Antonio Savings Ass’n, 564 S.W.2d 160, 163 (Tex. Civ. App.—El Paso 1978, writ ref’d n.r.e.); contra Mitchell v. Texas Commerce Bank-Irving, 680 S.W.2d 681 (Tex. App.—Fort Worth 1984, writ ref’d n.r.e.). If the mortgage servicer’s records indicate husband and wife debtors have the same residence, a single letter to both spouses is sufficient. Martinez v. Beasley, 616 S.W.2d 689 (Tex. Civ. App.—Corpus Christi 1981, no writ). Separate enclosures containing the required statutory notice need not be sent to obligors having the same address. Hausmann, 585 S.W.2d at 799–800; Forestier, 564 S.W.2d at 163.
The affidavit of a person knowledgeable of the facts to the effect that service of notice was completed is prima facie evidence of service. Tex. Prop. Code § 51.002(e). This statute probably has contributed to the widespread use of and requirement for (especially by title companies being asked to insure title at or after foreclosure) affidavits on various aspects of the foreclosure posting and noticing procedures being prepared contemporaneously (and, in some cases, attached to the foreclosure sale deed). See form 11-5 in this manual for an affidavit of mailing of the notice of foreclosure sale. See also 2 State Bar of Tex., Texas Real Estate Forms Manual §§ 14.5:6, 14.5:7, forms 14-8, 14-9 (3d ed. 2017), for forms for an affidavit of filing and posting and an affidavit of mailing, respectively. In Ackley v. FDIC, 981 F. Supp. 457, 460 (S.D. Tex. 1997), the court held that affidavits of the mortgagee’s employee and attorney who actually mailed notice of acceleration and notice of foreclosure sale established proof of notice being given.
Practice Tip: See chapter 8 for recommended procedures to follow in mailing notices. These procedures are useful to counter the argument that notice was never received by the debtor. See Hensley v. Lubbock National Bank, 561 S.W.2d 885, 891 (Tex. Civ. App.—Amarillo 1978, no writ) (sworn denial of receipt of notice is some evidence of non-notification of sale); see also WTFO, Inc. v. Braithwaite, 899 S.W.2d 709, 720 (Tex. App.—Dallas 1995, no writ).
See form 12-1 for a letter to the debtor that advises of the maturity of the secured indebtedness and transmits the notice of foreclosure sale. See form 12-2 for a letter to the debtor that advises the debtor that the maturity of the secured indebtedness has been accelerated and transmits the notice of foreclosure sale.
§ 12.4Contents of Notice of Sale
The cases construing the relevant sections of chapter 51 of the Texas Property Code and its predecessor statutes tend to impose only general descriptive requirements and have upheld notices of sale deemed to have sufficiently informed the public of the nature and condition of the property so as to attract bidders. See Hutson v. Sadler, 501 S.W.2d 728, 732 (Tex. Civ. App.—Tyler 1973, no writ); Stone v. Watt, 81 S.W.2d 552, 555 (Tex. Civ. App.—Eastland 1935, writ ref’d).
With the foregoing case law latitude and the express requirements of chapter 51 of the Texas Property Code in mind, it is recommended that the notice of sale should, at a minimum, contain the following: (1) a description of the security instrument, including recording information, the matured debt, and the property to be sold at foreclosure, including any personal property in which a security interest is granted in the deed of trust; (2) a statement that a default under the secured debt exists; (3) a statement that the mortgage servicer has authorized the enforcement of the power of sale granted in the deed of trust; (4) a statement of the earliest time and date for, and the location of, the foreclosure sale; (5) the name and street address (and signature) of the trustee or substitute trustee; (6) a statement that the described property will be sold by public auction to the highest bidder for cash; (7) for any security instrument that also constitutes a security agreement, a statement that, under the authority of section 9.604(a) of the Texas Business and Commerce Code, the foreclosure sale will cover both real property and personal property in which a security interest is granted under the security instrument; (8) if the security instrument is being serviced by a mortgage servicer, disclosure of the existence of a servicing agreement between the mortgagee and the mortgage servicer, the name of the mortgagee, and either the address of the mortgagee or the address of the mortgage servicer if there is a servicing agreement for the security instrument; (9) the military rights disclosure; and (10) if the property to be foreclosed is located in the covered area along the Gulf Coast, an open-beach disclosure.
See form 12-3 in this manual for a notice of foreclosure sale (which is designed to be used whether the sale is being administered by the mortgagee or by the mortgage servicer pursuant to a written servicing agreement with the mortgagee). See also 2 State Bar of Tex., Texas Real Estate Forms Manual ch. 14, forms 14-12 (no servicing agreement), 14-13 (servicing agreement) (3d ed. 2017), for other forms for notice of foreclosure (trustee’s) sale.
§ 12.4:1Descriptions of Security Instrument, Secured Debt, and Property to Be Sold
Practice in Texas varies as to how fulsome a description of the security instrument to be foreclosed is advisable to be included in the notice of sale. Some drafters of notices include not only a description of the security instrument by title, date, parties, and recording information, but also a description of at least some of any modifications thereof, recorded or not (which is the approach contemplated in form 12-3 in this manual). Description of the security instrument merely by reference to the applicable recording information has been upheld. See Miller v. Gibraltar Savings & Building Ass’n, 132 S.W.2d 606, 608 (Tex. Civ. App.—Beaumont 1939, writ dism’d). An earlier case found that setting forth the recording data of the deed of trust was not mandatory if the notice otherwise sufficiently described the lien. See Mortimer v. Williams, 262 S.W. 123, 125 (Tex. Civ. App.—Dallas 1924, no writ). A Houston court of appeals held a notice of sale sufficient because it identified the trustee and the land, even though the notice identified the deed of trust with a wrong date and recording data. See Mercer v. Bludworth, 715 S.W.2d 693, 700 (Tex. App.—Houston [1st Dist.] 1986, writ ref’d n.r.e.), disapproved on other grounds, Shumway v. Horizon Credit Corp., 801 S.W.2d 890 (Tex. 1991).
A description of the secured debt merely by reference to the deed of trust was also upheld. See Mortimer, 262 S.W. at 125. However, the balance of the debt need not be stated. See Gooch v. Addison, 35 S.W. 83 (Tex. Civ. App. 1896, writ ref’d).
The description in the notice of sale of the property to be sold at foreclosure is legally sufficient if it refers to records that contain information sufficient to apprise interested parties of the property that will be sold at foreclosure. See Miller, 132 S.W.2d at 608 (recording data on deed of trust held sufficient). Form 12-3 contemplates a complete legal description of the real property to be sold by including, in addition to recording information for the deed of trust, a sufficient legal description of the real property initially covered by the deed of trust and, if any property has subsequently been released from the deed of trust, then describing the released property, resulting in an accurate description of the real property to be sold at foreclosure. The Myrad case discussed in section 12.5 below is an important case for what is and isn’t a sufficient description in the notice of sale of the property to be sold, and it highlights the importance of the attorney for the mortgage servicer paying careful attention to including in each notice of sale a complete and sufficient description of the property to be sold at foreclosure.
After the attorney for the mortgage servicer has verified that at least one provable default exists under the governing loan documents (that has not been waived by the mortgage servicer either expressly or by course of conduct), it is advisable to include a statement, at least broadly, that default exists and the foreclosure has been authorized by the mortgage servicer as a consequence of the default. See Gooch v. Addison, 35 S.W. 83 (Tex. Civ. App. 1896, writ ref’d).
§ 12.4:3Authorization to Foreclose
After the attorney for the mortgage servicer has verified that the mortgagee or the mortgage servicer (if different) has sufficient ownership of the lien to be foreclosed and the indebtedness secured thereby or has the right to administer the foreclosure on behalf of the mortgagee, as applicable, it is advisable to include in the notice of sale a recitation of the requisite authority to direct the foreclosure. That recitation may well need to include a description of relevant transfers of the secured indebtedness and liens securing same so that constructive notice is afforded to those interested in confirming the requisite authority, especially title companies called upon to insure title to the foreclosed property.
Section 51.0001 of the Texas Property Code was enacted in 2004 and amended in 2007 to introduce much-needed definitions that enabled the recognition and functioning of Mortgage Electronic Registration Systems, Inc., and the exploding securitization of mortgages, both residential and nonresidential. Section 51.0001 added definitions for “book entry system,” “debtor’s last known address,” “mortgage servicer,” “mortgagee,” “mortgagor,” “security instrument,” “substitute trustee,” and “trustee.” See Tex. Prop. Code § 51.0001.
A mortgage servicer may administer a foreclosure on behalf of a mortgagee if two requirements are met. First, there must be an agreement between the mortgagee and the mortgage servicer granting the current mortgage servicer authority to service the mortgage. Second, the notice of sale must disclose the information detailed in section 12.4:8 below. See Tex. Prop. Code § 51.0025.
§ 12.4:4Date, Time, and Location of Sale
Foreclosure sales must be conducted on the first Tuesday of the month unless the first Tuesday is January 1 or July 4, and then the sale must be held on the first Wednesday of the month. See Tex. Prop. Code § 51.002(a), (a–1); Tex. Civ. Prac. & Rem. Code § 34.041(c); Tex. Tax Code § 34.01(r–1), (r–2). A sale not held on the first Tuesday or Wednesday of the month is void. McLaren v. Jones, 33 S.W. 849, 850 (Tex. 1896); Durkay v. Madco Oil Co., 862 S.W.2d 14, 17 (Tex. App.—Corpus Christi 1993, writ denied). In addition, see Behrens Lofts, Ltd. v. Martinez, W-03-CA-176 (W.D. Tex. Feb. 12, 2004), in which the federal district court held that a foreclosure on the second Wednesday of the month, instead of the first Tuesday as required under Texas law at the time, was proper when the Department of Housing and Urban Development (HUD) was the mortgagee and foreclosed under the procedures set out in the Multifamily Mortgage Foreclosure Act, 12 U.S.C. §§ 3701–3717; 24 C.F.R. § 27.2(a); 24 C.F.R. pt. 207; see also United States v. Victory Village, Inc., 662 F.2d 488, 497–98 (8th Cir. 1981). In Behrens Lofts, the deed of trust encumbered a forty-seven-unit apartment project in Waco, Texas, and secured a loan made by a bank that was insured by HUD. After delinquency, the loan was assigned by the bank to HUD. Even though the deed of trust specified that the Texas Property Code would govern foreclosure proceedings, the court held that once the loan was assigned to HUD, the department could, in lieu of following the deed-of-trust procedures, follow the procedures set out in the Multifamily Mortgage Foreclosure Act. Except for January 1 or July 4, the sale may be conducted on a courthouse holiday. Koehler v. Pioneer American Insurance Co., 425 S.W.2d 889, 891 (Tex. Civ. App.—Fort Worth 1968, no writ); Stewart v. Stewart, 357 S.W.2d 492, 493–94 (Tex. Civ. App.—Texarkana 1962, no writ).
The notice of sale must include a statement of the earliest time at which the sale will begin between 10:00 a.m. and 4:00 p.m. Tex. Prop. Code § 51.002(a), (b). The sale must begin at the time stated in the notice or not later than three hours after that time. Tex. Prop. Code § 51.002(c).
Historically, real estate foreclosure sales have typically taken place at the county courthouse of the county in which the real property is located. Section 51.002(a) of the Texas Property Code directs the commissioners court of each county to designate the area at the county courthouse where foreclosure sales are to take place and to record the designation in the real property records of the county. The sale is required to occur in the designated area. If no area is designated by the commissioners court, the notice of sale must designate the area at the courthouse where the sale covered by the notice is to take place, and the sale must occur in that area. Tex. Prop. Code § 51.002(a). However, a county commissioners court may designate an area for real estate foreclosure sales that is not at the county courthouse if the area designated is in a public place within reasonable proximity to the county courthouse and is as accessible to the public as the courthouse door. The commissioners court must record the designation in the real property records of the county, and real estate foreclosure sales in that county must be held at that designated area if the sales are held on or after the ninetieth day after the date the designation is recorded. See Tex. Prop. Code § 51.002(a), (h).
See Appendix B in this manual for designated areas for foreclosure sales in Texas counties.
The foreclosure sale must take place in the county in which the real property is located. Wylie v. Hays, 263 S.W. 563, 569 (Tex. 1924). If the real property is located in more than one county, the sale may occur in one of the counties designated as the place of sale in the publicly posted notice of foreclosure sale. Notice of the sale must be filed and posted in all counties in which the real property is located. Tex. Prop. Code § 51.002(a), (b). Apparently, if the deed of trust covers property that lies across county boundary lines, in contiguous counties or in noncontiguous counties, a sale of all parcels may be held in any one of the counties. Bateman v. Carter-Jones Drilling Co., 290 S.W.2d 366, 370 (Tex. Civ. App.—Texarkana 1956, writ ref’d n.r.e.) (where multiple noncontiguous tracts in Gregg and Rusk counties, which are contiguous counties, sale of land in different county from that in which land located upheld, even though land not contiguous to tract in county of sale) (interpreting language of 1915 version of foreclosure statute, Tex. Rev. Civ. Stat. art. 3759); Dall v. Lindsey, 237 S.W.2d 1006, 1009–1010 (Tex. Civ. App.—Amarillo 1951, writ ref’d n.r.e.) (where land in Hale County and Lubbock County, which are contiguous counties, sale in Lubbock County upheld, although deed of trust designated Hale County as place of sale); Lewis v. Dainwood, 130 S.W.2d 456, 457 (Tex. Civ. App.—San Antonio 1939, writ ref’d) (where part of land in Nueces County and part in Jim Wells County, which are contiguous counties, sale in either county authorized).
§ 12.4:5Name and Street Address of Trustee; Signature of Trustee
Section 51.0075 of the Texas Property Code requires that a notice of sale contain the street address and name of the trustee. Tex. Prop. Code § 51.0075(e).
Chapter 51 of the Texas Property Code does not expressly require the notice of foreclosure to be executed by the trustee or acknowledged, but execution of the notice is and has been for years the norm in Texas. For a thought-provoking discussion about electronic filing of notices of sale and the suggestion that electronic filing may be more acceptable to county clerks in Texas if trustees quit signing notices of sale, see G. Tommy Bastian, Texas Foreclosures: Myths and Reality, in Advanced Real Estate Law Course, 2011, State Bar of Texas (2011).
§ 12.4:6Sale at Auction for Cash
Even though the foreclosing lienholder is entitled at common law and almost certainly expressly under the deed of trust to, as purchaser at foreclosure, apply the purchase price as a credit against its secured debt (see Thomason v. Pacific Mutual Life Insurance Co. of California, 74 S.W.2d 162 (Tex. Civ. App.—El Paso 1934, writ ref’d)), the lienholder and its counsel may wish to apprise interested bidders through the publicly posted notice of sale of the auction nature of the sale (in accordance with section 51.002(a) of the Texas Property Code) and that the property is being sold for cash (in accordance with the deed of trust being foreclosed). Although chapter 51 of the Texas Property Code does not require that a foreclosure sale be for cash, most Texas deeds of trust require that the sale be to the “highest bidder for cash.” This contractual requirement has been upheld. See Kirkman v. Amarillo Savings Ass’n, 483 S.W.2d 302, 308–09 (Tex. Civ. App.—Amarillo 1972, writ ref’d n.r.e.). In any event, the foreclosure sale purchase price is due and payable without delay on acceptance of the bid or within such reasonable additional time as may be agreed upon by the purchaser and the trustee if the purchaser makes such request for additional time. Tex. Prop. Code § 51.0075(f).
§ 12.4:7Sale of Real and Personal Property
If the deed of trust includes a security agreement for personal property, the real property foreclosure sale can include the personal property in which a security interest is granted in the deed of trust. See Tex. Bus. & Com. Code § 9.604(a). If personal property is sold in connection with the foreclosure sale of real property, the commercially reasonable standard of chapter 9 of the Texas Business and Commerce Code does not govern the sale. Huddleston v. Texas Commerce Bank–Dallas, 756 S.W.2d 343 (Tex. App.—Dallas 1988, writ denied).
§ 12.4:8Servicing Agreement; Information about Mortgage Servicer
If the foreclosure is being administered by a mortgage servicer, section 51.0025 of the Texas Property Code requires that the notice of sale disclose (1) that the mortgage servicer is representing a mortgagee under a servicing agreement, (2) the name of the mortgagee, and (3) the address of the mortgagee or the address of the mortgage servicer if there is an agreement granting the mortgage servicer the authority to service the mortgage. Tex. Prop. Code § 51.0025(2).
§ 12.4:9Statutory Notice of Servicemember Rights
All foreclosure notices served on a debtor under Texas Property Code section 51.002 must include a military rights disclosure that is substantially similar to the promulgated language found in subsection (i). Tex. Prop. Code § 51.002(i). Note that the prescribed notice is included in each of forms 12-1 through 12-3 in this manual.
§ 12.4:10Open-Beach Disclosure
An open-beach disclosure must be included if the interest in real property to be foreclosed is located seaward of the Gulf Intracoastal Waterway to its southernmost point and then seaward of the longitudinal line also known as 97 degrees, 12′, 19″ that runs southerly to the international boundary from the intersection of the centerline of the Gulf Intracoastal Waterway and the Brownsville Ship Channel. This disclosure is required in all executory contracts for conveyance. Tex. Nat. Res. Code § 61.025. The Texas attorney general opined that this notice requirement is applicable to foreclosure sales and requires the trustee to give the statutory notice to third-party purchasers and to mortgagee-purchasers. Tex. Att’y Gen. Op. No. JM-834 (1987). This disclosure should be included in the publicly posted notice of foreclosure sale, in the foreclosure sale deed, and in a separate written statement, the receipt of which is acknowledged by each bidder at the foreclosure sale before bidding.
§ 12.5Immaterial Errors in Notice
Certain errors in notices of foreclosure sale have been held to be immaterial. See RTC v. Summers & Miller Gleneagles Joint Venture, 791 F. Supp. 653 (N.D. Tex. 1992) (transposition in notice of foreclosure sale of “save and except” clauses as to two mortgaged properties being foreclosed not defect sufficient to set aside foreclosure sale if no evidence introduced that bidding chilled or bidders misled other than evidence that less than fair market value of property bid at sale and no evidence offered causally connecting defect and bid); Maupin v. Chaney, 163 S.W.2d 380 (Tex. 1942) (error in data of deed incorporated by reference in describing property being sold found to be immaterial, as false part of reference could be rejected and effect given to remainder); Alkas v. United Savings Ass’n of Texas, 672 S.W.2d 852 (Tex. App.—Corpus Christi 1984, writ ref’d n.r.e.) (court reformed deed of trust, notices of foreclosure sale, and foreclosure sale deed to add 2.1467-acre tract erroneously omitted from deed of trust but contained in prior deed of trust renewed by deed of trust being foreclosed); Diversified Developers, Inc. v. Texas First Mortgage REIT, 592 S.W.2d 43 (Tex. Civ. App.—Beaumont 1979, writ ref’d n.r.e.) (notice of foreclosure sale including previously released land with property still available to be foreclosed held to be insufficient to set sale aside because trustee explained that released tract not included in sale, and nobody misled as result); Hutson v. Sadler, 501 S.W.2d 728 (Tex. Civ. App.—Tyler 1973, no writ) (error in mortgagee’s name found to be immaterial); Wilson v. Armstrong, 236 S.W. 755 (Tex. Civ. App.—Beaumont 1921, no writ) (error in date of notice of sale found to be immaterial).
Underinclusion of Property in Notice: In Myrad Properties, Inc. v. LaSalle Bank N.A., 300 S.W.3d 746 (Tex. 2009), the notice of substitute trustee’s sale omitted one of two apartment complexes in its definition of the real property secured by the deed of trust. At the sale, the trustee read aloud the description of only one of the complexes and subsequently executed and recorded a foreclosure sale deed for only one of the complexes. The court of appeals found that the notice provided adequate notice of sale of both complexes and that the foreclosure sale foreclosed the mortgagee’s lien on both complexes. Myrad, 252 S.W.3d 605 (Tex. App.—Austin 2008). The court of appeals based its holding in part on the fact that the notice of foreclosure sale included a statement that the mortgagee could proceed against both real and personal property described in the deed of trust:
The Deed of Trust may encumber both real and personal property. Notice is hereby given of Holder’s election to proceed against and sell both the real property and any personal property described in the Deed of Trust in accordance with the Holder’s rights and remedies under the Deed of Trust and Section 9.604 of the Texas Business and Commerce Code.
Myrad, 252 S.W.3d at 616 (emphasis added). The court of appeals noted that the notice of foreclosure sale did not fail to provide any notice that both complexes would be sold but, rather, contained an internal inconsistency regarding what property would be sold. Myrad, 252 S.W.3d at 617.
The supreme court reversed and rendered the holding of the court of appeals. First, the supreme court held that a correction deed that purports “to convey additional, separate properties not described in the original deed” is void as a matter of law, as a correction deed is appropriate in only limited circumstances to correct defects and imperfections in the original deed. Myrad, 300 S.W.3d at 750–51. The supreme court went on, however, to equitably rescind the original trustee’s deed for mutual mistake of the trustee and the mortgagee (but not of the borrower). While the supreme court based this rescission on the borrower’s failure to present contrary evidence in the lower courts, the supreme court also noted “[w]e are not blind to the equities of this dispute[,]” and indeed the effect of the court’s decision in voiding the correction deed and rescinding the original trustee’s deed was to restore the status quo ante foreclosure and allow the lender to reforeclose on the deed of trust. Myrad, 300 S.W.3d at 752–53.
Prior Texas courts have not regarded inconsistencies in foreclosure sale property descriptions necessarily fatal. See Mercer v. Bludworth, 715 S.W.2d 693 (Tex. App.—Houston [1st Dist.] 1986, writ ref’d n.r.e.), disapproved on other grounds, Shumway v. Horizon Credit Corp., 801 S.W.2d 890 (Tex. 1991). Mercer involved a notice of sale that “identified a different date of the deed of trust and an incorrect recording reference” but included a correct metes-and-bounds description of the property and also correctly named the trustee. The court stated that “[a]nyone interested in bidding at the sale could readily have contacted the trustee to clear up any confusion that may have been created by the notice.” Mercer, 715 S.W.2d at 700.
In reaction to the court of appeals and supreme court decisions in the Myrad case, the 2011 legislature added Texas Property Code sections 5.027 through 5.031 concerning correction deeds. Section 5.027(b) expressly provides:
A correction instrument may not correct an ambiguity or error in a recorded original instrument of conveyance to transfer real property or an interest in real property not originally conveyed in the instrument of conveyance for purposes of a sale of real property under a power of sale under Chapter 51 unless the conveyance otherwise complies with all requirements of Chapter 51.
Bastian, G. Tommy. “Texas Foreclosures: Myths and Reality.” In Advanced Real Estate Law Course, 2011. Austin: State Bar of Texas, 2011.