Postsale Considerations
The completion of the foreclosure auction does not end the foreclosure process. As discussed in this chapter, a number of matters must typically be addressed after the sale itself, such as the filing of required informational returns to the IRS and the county clerk where the property was located, the distribution of the foreclosure sales proceeds to the proper parties, the evaluation of possible claims on private mortgage insurance, the redemption rights (if any) of the mortgagor, the state and federal protections for any residential tenants of the foreclosed property, the handling of utilities serving the property, and obtaining physical possession of the property.
§ 15.2Notices Required after Completion of Foreclosure Sale—IRS Forms 1096 and 1099-A
The Internal Revenue Code requires that a foreclosing lender file a special return with the Internal Revenue Service and a notice with the borrower. An information return (Form 1099-A, Acquisition or Abandonment of Secured Property) must be filed with the Internal Revenue Service on or before the last day of February following the calendar year in which a foreclosure takes place. However, the due date may vary if filing electronically with the IRS. See 26 U.S.C. § 6050J; see also IRS Form 1099-A, Instructions for Lenders. The person responsible for filing the return is any person who, in connection with a trade or business conducted by that person, lends money and, in full or partial satisfaction of the debt, acquires an interest in a property that is security for the debt or has reason to know that the property has been abandoned. 26 U.S.C. § 6050J(a). Form 1099-A (copy A), along with Form 1096, Annual Summary and Transmittal of U.S. Information Returns, is transmitted to the IRS. The person filing Form 1096 is also responsible for providing the borrower with copy B of Form 1099-A on or before January 31 following the calendar year of foreclosure. See 26 U.S.C. § 6050J(e). These forms are reproduced at forms 15-1 and 15-2 in this manual. IRS forms and instructions are also available online at https://www.irs.gov/. Note that the IRS will not accept photocopies of these forms.
The penalty for failure to file the information return is $50 per failure, up to an aggregate of $250,000 per calendar year. If the failure to file is due to intentional disregard of the filing requirement, the penalty is $100 per failure and the $250,000 annual cap on the penalties is not applicable. See 26 U.S.C. § 6721.
§ 15.3Receipt and Distribution of Sale Proceeds
In 2007, section 51.0075(f) was added to the Texas Property Code, which provides that “[t]he trustee or substitute trustee shall disburse the proceeds of the sale as provided by law.” Tex. Prop. Code § 51.0075(f). In 2009, section 51.0075(f) was amended to read: “The purchase price in a sale held by a trustee or substitute trustee under this section is due and payable without delay on acceptance of the bid or within such reasonable time as may be agreed upon by the purchaser and the trustee or substitute trustee if the purchaser makes such request for additional time to deliver the purchase price. The trustee or substitute trustee shall disburse the proceeds of the sale as provided by law.” Tex. Prop. Code § 51.0075(f).
In addition to following the statutes, the trustee should also review the deed of trust itself to determine what, if any, provisions address the receipt and distribution of sales proceeds. For example, many deeds of trust require that payment at the foreclosure sale be “in cash or other good funds.” In the absence of an express description of “other good funds” in the deed of trust, the cautious trustee will obtain prior written guidance from at least the mortgagee (if not also from the mortgagor, who, however, may be less than cooperative) about what types of payment are acceptable as “other good funds.” Otherwise, the trustee may become liable for either accepting a form of payment that ultimately falls through or rejecting a form of payment that results in a lower winning bid. For example, many prospective bidders at a foreclosure sale bring “bank checks” or “cashier’s checks” of various denominations issued payable to the bidder, which the bidder intends to endorse over to the trustee in the requisite amounts if the bidder wins the auction. However, because of the risk of fraud and forgery with such instruments, some mortgagees will not accept even “direct-issue” bank checks or cashier’s checks (particularly when drawn on out-of-county or out-of-state institutions that cannot be readily contacted from the auction site), much less accept payment by endorsement from an unknown third-party bidder. Does the mortgagee have the right to instruct the trustee to reject such forms of payment if the deed of trust is unclear or silent on this point? If the trustee unilaterally accepts a form of payment not clearly authorized by either the deed of trust or the parties, is the trustee then liable to the mortgagor or mortgagee if the payment falls through? If the trustee, without clear authority under the deed of trust or from the parties, rejects a form of payment as not being “other good funds,” has the trustee “chilled the bidding” to the detriment of the mortgagor? In the same circumstances, has the mortgagee been damaged by the trustee’s rejection of the proffered payment if the property ultimately sells for a lower auction price and the mortgagee never realizes the position it would have achieved had the trustee accepted the proffered payment? Property Code section 51.0074 does state that a trustee cannot be held to “the obligations of a fiduciary” to the mortgagor or mortgagee, but an aggrieved mortgagor or mortgagee might argue that any of the above acts constitute either ordinary or gross negligence under the particular facts of the foreclosure sale.
Most forms for deed of trust contractually provide for the means for applying the proceeds of a foreclosure sale. The Texas Real Estate Forms Manual’s form for deed of trust provides for distribution of sale proceeds as follows:
Trustee will . . .
D.3. from the proceeds of the sale, pay, in this order—
a. expenses of foreclosure, including a reasonable commission to Trustee;
b. to Lender, the full amount of principal, interest, attorney’s fees, and other charges due and unpaid;
c. any amounts required by law to be paid before payment to Grantor; and
d. to Grantor, any balance . . . .
2 State Bar of Tex., Texas Real Estate Forms Manual ch. 8, form 8-1 (3d ed. 2017).
The language in item c. above was not listed in the trustee’s duties in earlier versions of the form.
§ 15.3:1Expenses of Foreclosure
One Texas case, Jeffreys v. McGlamery, 96 S.W.2d 572, 576 (Tex. Civ. App.—Amarillo 1936, no writ), held that the loan documents must specifically provide for reimbursement of attorney’s fees and expenses incurred by the lender or the trustee in order to receive such reimbursement. It should be noted, however, that the Jeffreys case has not been cited by other Texas courts for this issue and that with respect to attorney’s fees, Tex. Civ. Prac. & Rem. Code § 38.001(8) provides for recovery of attorney’s fees on a contract, whether written or oral. The best practice is to precisely describe in the deed of trust the costs and expenses that constitute “the expenses of foreclosure” that may be deducted from the sales proceeds.
§ 15.3:2Trustee’s Fee as Expense of Foreclosure
The Texas Supreme Court has held that if the deed of trust provides for the recovery of fees and expenses incurred by the lender and the trustee in enforcing the covenants and agreements of the deed of trust, the lender and trustee are entitled to recover their fees and expenses of moving toward foreclosure even though the defaulting borrower pays off the loan before the foreclosure sale. Edwards v. Holleman, 862 S.W.2d 580 (Tex. 1993). No Texas Supreme Court authority exists as to whether a stipulated trustee’s fee (e.g., the trustee’s fee is set as specified percentage of the foreclosure sales price) is enforceable. There is, however, a court of appeals case that holds that a trustee will not be permitted to keep a 10 percent trustee’s fee when the deed of trust expressly states that the trustee’s fee is to be reasonable and the trustee cannot establish that such amount is reasonable. See Edwards v. Holleman, 893 S.W.2d 115 (Tex. App.—Houston [1st Dist.] 1995, writ denied) (trustee did not keep records of time spent preparing for foreclosure and testified that time not factor in calculation of fee). The same court held that it is a breach of the trustee’s fiduciary duty to the mortgagor if the trustee charges an unreasonable fee. Edwards, 893 S.W.2d at 119–20. Note that this holding about the trustee’s fiduciary duty has been altered by Tex. Prop. Code § 51.0074(b)(2), which states that a trustee may not be “held to the obligations of a fiduciary of the mortgagor or mortgagee.”
One very old case holds that a trustee is entitled to a reasonable fee to be deducted from the sale proceeds even if the deed of trust is silent on the issue. Harris v. First National Bank of Springfield, 45 S.W. 311 (Tex. Civ. App. 1898, writ ref’d). In another case, the court held that provisions in the promissory may permit payment of a trustee’s fee even if there is no retention from the sale proceeds. In Consolidated Capital Special Trust v. Summers, 737 S.W.2d 327, 332 (Tex. App.—Houston [14th Dist.] 1987), rev’d on other grounds, 783 S.W.2d 580 (Tex. 1989), the court awarded the trustee a 5 percent trustee’s fee out of the surplus sale proceeds, even though through a mistake of law the mortgagee and trustee believed no surplus existed.
Trustee’s Fee Subject to Challenge? Few appellate court decisions address whether a trustee’s fees are subject to challenge in the same manner as are attorney’s fees. The court of appeals opinion in the Edwards v. Holleman case discussed above did address this question and accepted a challenge to the trustee’s fees when the deed of trust itself required that the fee be reasonable. See also F.R. Hernandez Construction & Supply Co. v. National Bank of Commerce, 578 S.W.2d 675 (Tex. 1979); Summers, 737 S.W.2d at 332. In Airline Commerce Bank v. Commercial Credit Corp., 531 S.W.2d 171 (Tex. Civ. App.—Houston [14th Dist.] 1975, writ ref’d n.r.e.), the trustee’s fees were deemed to be part of the contract between the noteholder and the debtor and as such became part of the indebtedness secured by the deed of trust. However, there did not appear to have been any challenge to the contractual trustee’s commission of 5 percent of proceeds of sale provided for in the deed of trust. In Airline Commerce Bank, the challenge was based on a federal statute extending the priority enjoyed by any lien over a federal tax lien to cover the attorney’s fees incurred in enforcing the superior lien. Airline Commerce Bank, 531 S.W.2d at 175.
In Realtex Corp. v. Tyler, 627 S.W.2d 441 (Tex. Civ. App.—Houston [1st Dist.] 1981, no writ), defendants to a usury claim sought an appeal to modify the trial court’s judgment on their counterclaim to include a trustee’s fee. The court of appeals denied recovery of the trustee’s fee because the defendants had failed to assert the claim in their pleadings before the trial court.
§ 15.3:3Distribution of Net Proceeds to Lender
Deeds of trust invariably state that the net foreclosure sales proceeds remaining after deduction of the allowable expenses of foreclosure are to be applied to payment of the secured debt, in preference to any other claim.
§ 15.3:4Any Amounts Required by Law to Be Paid before Mortgagor
Distribution to Prior Lienholders: No requirement exists that surplus sales proceeds be distributed to prior lienholders, and some risk is involved in paying these parties before paying junior lienholders or the mortgagors since the prior lienholders are not required by law to be paid before payment to the mortgagor.
If the deed of trust so provides, the mortgagor is generally entitled to any surplus proceeds remaining after satisfaction of a junior-lien foreclosure made subject to prior liens. Conversion Properties, L.L.C. v. Kessler, 994 S.W.2d 810, 813–14 (Tex. App.—Dallas 1999, pet. denied); Mortgage & Trust, Inc. v. Bonner & Co., 572 S.W.2d 344, 351(Tex. Civ. App.—Corpus Christi 1978, writ ref’d n.r.e.); Pearson v. Teddlie, 235 S.W.2d 757, 759 (Tex. Civ. App.—Eastland 1950, no writ). However, if the debtor relinquishes his right to surplus by failing to object properly to the trustee’s distribution of partial surplus proceeds to the senior lienholder that has not foreclosed, the debtor is deemed to have ratified and waived the deviation from the terms of the deed of trust.
Payment to a prior lienholder has been approved if made with the mortgagor’s consent. See Canfield v. Foxworth-Galbraith Lumber Co., 545 S.W.2d 583 (Tex. Civ. App.—Tyler 1976, writ ref’d n.r.e.).
Application to Wraparound Mortgages: For wraparound mortgages, in the absence of an express agreement to the contrary, Texas courts will imply a covenant of the trustee to pay sale proceeds on the prior-lien debt. See Summers v. Consolidated Capital Special Trust, 783 S.W.2d 580 (Tex. 1989); see also Janet L. Hunter, Note, Texas Adopts the “Outstanding Balance” Method of Calculating the Deficiency or Surplus After Foreclosure of a Wraparound Deed of Trust: Summers v. Consolidated Capital Special Trust, 783 S.W.2d 580 (Tex. 1989), 21 Tex. Tech L. Rev. 873, 875–77, nn. 22–23 (1990).
Distribution to Junior Lienholders: The liens of junior lienholders attach to surplus sale proceeds in the same order of priority as their liens attach to the property foreclosed. Diversified Mortgage Investors v. Lloyd D. Blaylock General Contractor, 576 S.W.2d 794, 807–08 (Tex. 1978); Jeffrey v. Bond, 509 S.W.2d 563, 565 (Tex. 1974); Baccus v. Westgate Management Corp., 981 S.W.2d 383, 385–86 (Tex. App.—San Antonio 1998, pet. denied) (third lienholder entitled to “leapfrog priority” over second lienholder, but only to extent of balance owing on first lien purchased and foreclosed by it, and proceeds in excess of first-lien debt belong to second-lien creditor); Mortgage & Trust, 572 S.W.2d at 351.
If there are conflicting demands between subordinate lienholders or between the mortgagor and a subordinate lienholder, it is recommended that the trustee interplead the sale proceeds in question into the registry of the court, rather than potentially assume personal liability for misdirection of the funds. See form 15-3 in this manual for a petition to interplead funds.
§ 15.3:5Distribution to Mortgagors
If there are excess proceeds after payments of the expenses of sale, the secured debt, and the other claims required by law to be paid before the mortgagor, the excess belongs to the mortgagor. Bonilla v. Roberson, 918 S.W.2d 17, 23 (Tex. App.—Corpus Christi 1996, no writ). If there are competing mortgagor claimants to the sales proceeds, the trustee may be forced to interplead the proceeds into the registry of the court. For example, the mortgaged property may be owned by several persons as cotenants and one or more of the cotenants may have federal tax liens or judgment liens filed against them, or a cotenant may have granted deed-of-trust liens against his undivided interests subject to the lien of the foreclosing creditor. See form 15-4 in this manual, a foreclosure sales proceeds distribution agreement, which concerns the distribution by the trustee of a portion of the net sales proceeds to several cotenants and the interpleader of the balance of the proceeds with the court.
§ 15.4Claim on Private Mortgage Insurance
If private mortgage insurance (PMI) was carried on the secured debt and a deficiency on the debt remains after foreclosure, the mortgagee should submit a claim for recovery under the PMI. While the exact claims process is obviously dependent on the precise terms of the insurance policy, in general the mortgagee will submit to the insurer documentation evidencing the debt payment history, the default on the debt, the foreclosure timeline, a current appraisal of the collateral, and a description of the mortgagee’s collection efforts. The PMI insurer will then process the claim, and payment is usually made in about sixty days.
The Homeowners Protection Act of 1998, Pub. L. No. 105-126, 112 Stat. 897, effective July 29, 1999, provides for the automatic termination of PMI on loans consummated on or after July 29, 1999, that pertain to single family residences used as the borrower’s principal residence once the loan-to-value on the home reaches 78 percent. The Act is not applicable to mortgage insurance issued under the National Housing Act, title 38 of the U.S. Code, or Title V of the Housing Act of 1949 (pertaining to FHA loans and Veterans Administration loan guarantees). A fuller description of the Homeowners Protection Act has been issued by the Board of Governors of the Federal Reserve at https://www.federalreserve.gov/boarddocs/caletters/2004/0405/CA04-5Attach1.pdf.
If the collateral property is covered by mortgage insurance (whether public or private), the lender should carefully examine the terms of the policy as such policies may require notice to the insurer when the lender begins the collection process against the borrower (which may be defined either in terms of giving notice of default or giving notice of foreclosure). Under a typical PMI policy, the lender is protected up to policy limits against covered losses arising from default and foreclosure of a debt, which typically include losses pertaining to delinquent interest, property taxes, homeowner’s insurance, costs of collection efforts, and appraisal fees. Mortgage insurance policies typically do not cover late charges or assessments like homeowner association penalties. It is important to note that the insurer will subrogate to the position of the lender with respect to the debt, so payment by the insurer to the lender will not release the obligor from the debt.
§ 15.5Evaluate Deficiency Suit against Obligor
In the event the net sales proceeds from the foreclosure that is credited to the secured debt is less than the balance of the secured debt, the mortgagee has the option of pursing collection of the deficiency from the obligors on a recourse note. Normally, the most significant consideration in this regard is whether the amount reasonably expected to be collected justifies the cost and time of pursing collection. See chapter 17 in this manual for a discussion of pursuing collection of a deficiency.
§ 15.6Equity of Redemption after Foreclosure
The common law rule in Texas is that a regularly and validly conducted trustee’s sale cuts off both junior liens and any equity or right of redemption in favor of the mortgagor. Scott v. Dorothy B. Schneider Estate Trust, 783 S.W.2d 26, 28 (Tex. App.—Austin 1990, no writ); Rogers v. Fielder, 392 S.W.2d 797, 799–800 (Tex. Civ. App.—Fort Worth 1965, writ ref’d n.r.e.). However, Texas statutes do grant the foreclosed property owner (and, in specific situations, the assignees and heirs of the property owner and junior lienholders) a statutory right of redemption in situations involving foreclosure of (1) ad valorem tax liens against residential homesteads, nonresidential property, land used for agricultural purposes, and mineral interests (see Tex. Tax Code § 34.21); (2) property owners association assessment liens (see Tex. Prop. Code § 209.011); and (3) a condominium association’s assessment lien against a residential condominium that was purchased at foreclosure by the condominium association (see Tex. Prop. Code § 82.113). These statutory rights of redemption (1) are for prescribed periods that may be as short as ninety days or as long as two years, depending on the particular collateral and type of lien involved; (2) are normally conditioned on the foreclosed property owner paying to the foreclosure sale purchaser an amount that includes not only the winning bid amount, but also a redemption premium and various statutorily enumerated “carrying costs” of the property incurred by the purchaser during the interim between foreclosure and redemption; (3) often expressly address the allocation of income (e.g., rents) realized from the foreclosed property during the interim period between foreclosure and redemption; and (4) may restrict transfers of interest in the foreclosed property before the expiration of the redemption period.
§ 15.7Property Tax Considerations after Foreclosure
Property foreclosed on during the first three months of the calendar year can be rendered by the foreclosure sale purchaser for the current tax year. The purchaser should confirm the proposed valuation of the property as soon as possible after the sale to permit a timely, informed decision on the steps to be taken in the appraisal process. The mortgagee is not entitled to sue the mortgagor for reimbursement for taxes paid by the mortgagee after foreclosure for a period accruing from January 1 of the year of the foreclosure sale to the date of the sale. Jackson v. Stonebriar Partnership, 931 S.W.2d 635, 638–39 (Tex. App.—Dallas 1996, writ denied).
§ 15.8Utility Charges and Services Following Foreclosure
A utility cannot refuse service to a foreclosure sale purchaser merely because the former owner failed to pay for utility services. Section 25.29(d)(1) of the substantive rules of the Public Utility Commission of Texas provides: “Disconnection prohibited. Electric utility service may not be discontinued for any of the following reasons: . . . (1) delinquency in payment for electric utility service by a previous occupant of the premises.” 16 Tex. Admin. Code § 25.29(d)(1) (Pub. Util. Comm’n of Tex., Disconnection of Service). It is not known if this rule would prohibit the telephone company from changing a telephone number in an attempt to force the foreclosure purchaser to pay the prior owner’s bill. See Price v. South Central Bell, 313 So.2d 184 (Ala. 1975); see generally City of Houston v. Lockwood Investment Co., 144 S.W. 685 (Tex. Civ. App.—El Paso 1912, writ dism’d). The deed of trust and the foreclosure sale deed and bill of sale should list all right, title, and interest in all telephone numbers, excess utility capacity, or other utility rights of the mortgaged property.
§ 15.9Foreclosure Purchaser’s Right of Possession
If the owner or other occupant of the mortgaged property refuses to vacate after the foreclosure sale, then (subject to the state and federal laws protecting certain tenancies and other interests discussed below) the purchaser at the foreclosure sale may bring forcible-detainer proceedings to evict the occupant pursuant to chapter 24 of the Texas Property Code. The purchaser at foreclosure sale is entitled to recover possession of the mortgaged property after a foreclosure sale from a person in possession of the mortgaged property if the purchaser can show sufficient evidence of ownership to demonstrate a superior right to immediate possession. Rice v. Pinney, 51 S.W.3d 705, 709 (Tex. App.—Dallas 2001, no pet.); see Tex. Prop. Code § 22.001. Because a judgment of possession in a forcible-detainer action is a determination only of the right to immediate possession, it does not determine the ultimate rights of the parties to any other issue in controversy relating to the realty in question. AAA Free Move Ministorage, LLC v. OIS Investments, Inc., 419 S.W.3d 522, 528 (Tex. App.—San Antonio 2013, pet. denied).
Alleged defects in the foreclosure process or the purchaser’s title to the property cannot be considered in a forcible-detainer action. Those types of defects must be pursued in a wrongful foreclosure or quiet-title suit. Williams v. Bank of New York Mellon, 315 S.W.3d 925, 927 (Tex. App.—Dallas 2010, no pet.). The justice court and county court must assume that a foreclosure sale was proper and that a mortgagor holding over in possession is a tenant at sufferance. Reynolds v. Wells Fargo Bank, N.A. ex rel. Freemont Investment & Loan, 245 S.W.3d 57, 60 (Tex. App.—El Paso 2008, no pet.); Dormady v. Dinero Land & Cattle Co., 61 S.W.3d 555, 557 (Tex. App.—San Antonio 2001, pet. dism’d w.o.j.) (alleged lack of foreclosure notice and opportunity to cure did not defeat jurisdiction of county court to determine immediate possession); see also Scott v. Hewitt, 90 S.W.2d 816, 818–19 (Tex. 1936) (determination of claim for wrongful foreclosure may be brought in district court and is independent of county court’s determination in forcible-detainer proceeding); AAA Free Move Ministorage, 419 S.W.3d at 526 (forcible-detainer action is cumulative of other remedies that a party may have); Villalon v. Bank One, 176 S.W.3d 66, 70 (Tex. App.—Houston [1st Dist.] 2004, pet. denied) (forcible-detainer action is not exclusive, but cumulative, of any other remedy a party may have in the courts, and displaced party may bring separate suit in district court to determine question of title).
During the 84th legislative session, Texas Property Code section 24.007 was amended to provide that a final judgment of a county court in an eviction suit may not be appealed on the issue of possession unless the premises in question are used for residential purposes only. See Acts 2015, 84th Leg., R.S., ch. 1113, § 1 (H.B. 3364), eff. Jan. 1, 2016. Before this amendment, such appeals could be taken in commercial eviction cases.
Effective January 1, 2016, new Texas Property Code sections 24.00511 and 24.00512 address the form and substance of appeal bonds in a residential eviction suit for nonpayment of rent tried in a justice court, with special procedures for determining the sufficiency of appeal bonds issued by persons that are not a corporate surety authorized by the Texas Department of Insurance to engage in business in Texas. See Acts 2015, 84th Leg., R.S., ch. 1027, § 1 (H.B. 1334), eff. Jan. 1, 2016. One significant provision is that if the justice court refuses to accept an appeal bond as sufficient under the statute and that decision is appealed to the county court, a writ of possession may not be issued before the county court issues a final decision on the sufficiency of the appeal bond. See Tex. Prop. Code § 24.00512(d)–(f). House Bill 1334 also added new Texas Property Code section 24.00521, which provides that a contest over the sufficiency of the appeal bond under section 24.00512 does not preclude a party from contesting the appeal bond in the county court once the county court has jurisdiction in the eviction suit and that the county court may modify the amount or form of the bond. See Acts 2015, 84th Leg., R.S., ch. 1027, § 2 (H.B. 1334), eff. Jan. 1, 2016. Finally, House Bill 1334 amended Texas Property Code section 24.0053 to provide (1) that the written court notice given to a tenant filing a pauper’s affidavit must also be given in connection with the filing of an appeal bond (see Tex. Prop. Code § 24.0053(a–1)); (2) that within five days of filing the appeal bond to appeal an eviction for nonpayment of rent, the tenant must deposit the amount of rent to be paid in one rental pay period with the justice court (see Tex. Prop. Code § 24.0053(a–3)); and (3) that failure to tender such rent gives the landlord the right to obtain a writ of possession immediately and without hearing (see Tex. Prop. Code § 24.0053(a–3)). On sworn motion and hearing, the plaintiff in the eviction suit may withdraw money deposited in the court registry before final determination of the case. See Tex. Prop. Code § 24.0053(a–4)). See the related discussion at section 15.9:1 below concerning pauper’s affidavits on appeal.
The Eighty-fourth Legislature also amended Texas Property Code section 24.0061 by adding subsection (d–1). See Acts 2015, 84th Leg., R.S., ch. 355, § 1 (H.B. 1853), eff. Sept. 1, 2015. Section 24.0061(d–1) states that a municipality may provide, without charge to the landlord or to the owner of personal property removed from a rental unit pursuant to section 24.0061(d), a portable, closed container into which the removed personal property shall be placed by the officer executing the writ or by the authorized person. The municipality may remove the container from the location near the rental unit and dispose of the contents by any lawful means if the owner of the removed personal property does not recover the property from the container within a reasonable time after the property is placed in the container. See Tex. Prop. Code § 24.0061(d–1).
Tenants under leases inferior to the lien of the foreclosed deed of trust may be treated as tenants at sufferance, unless they are residential tenants, whose right of possession may be protected by the state and federal statutes discussed immediately below. To remove a tenant at sufferance, the foreclosure sale purchaser must file a forcible-detainer suit. Lighthouse Church of Cloverleaf v. Texas Bank, 889 S.W.2d 595, 603 (Tex. App.—Houston [14th Dist.] 1994, writ denied). See form 15-5 in this manual, Letter to Tenant Accepting Lease, and form 15-6, Letter to Tenant at Sufferance.
In Federal Home Loan Mortgage Corp. v. Pham, 449 S.W.3d 230, 235–36 (Tex. App.—Houston [14th Dist.] 2014, no pet.), the court held the following:
[A] new and independent cause of action for forcible detainer arises each time a person refuses to surrender possession of real property after a person entitled to possession of the property delivers a proper written notice to vacate. Accordingly, res judicata would not bar a second suit based on the commission of a subsequent forcible detainer.
§ 15.9:1Texas Protections for Residential Tenants
Texas Property Code section 24.005(b) provides protections to certain tenants of a foreclosed property, providing in part the following:
If a building is purchased at a . . . trustee’s foreclosure sale under a lien superior to the tenant’s lease and the tenant timely pays rent and is not otherwise in default under the tenant’s lease after foreclosure, the purchaser must give a residential tenant of the building at least 30 days’ written notice to vacate if the purchaser chooses not to continue the lease. The tenant is considered to timely pay the rent under this subsection if, during the month of the foreclosure sale, the tenant pays the rent for that month to the landlord before receiving any notice that a foreclosure sale is scheduled during the month or pays the rent for that month to the foreclosing lienholder or the purchaser at foreclosure not later than the fifth day after the date of receipt of a written notice of the name and address of the purchaser that requests payment. Before a foreclosure sale, a foreclosing lienholder may give written notice to a tenant stating that a foreclosure notice has been given to the landlord or owner of the property and specifying the date of the foreclosure.
Tex. Prop. Code § 24.005(b). See Russell v. American Real Estate Corp., 89 S.W.3d 204, 208–09 (Tex. App.—Corpus Christi 2002, no pet.) (discussing rights of tenant holding in possession as tenant at sufferance after foreclosure sale and liabilities incurred by foreclosure sale purchaser exercising “self-help” repossession).
Texas Property Code section 24.0054 provides that with respect to eviction suits filed on or after January 1, 2012, if the tenant files a pauper’s affidavit during the tenant’s appeal of an eviction for nonpayment of rent and the tenant fails to either (1) tender the initial rent deposit into the court registry within five days of filing a pauper’s affidavit under Texas Rule of Civil Procedure 749b(1) and Property Code section 24.0053 or (2) pay rent under the lease as rent comes due during the appeal period, upon application by the landlord the court shall immediately issue a writ of possession without a hearing. See Tex. Prop. Code § 24.0054.
Effective September 1, 2015, chapter 24A was added to the Property Code, setting forth a detailed procedure by which a person unable to enter his residence or former residence to retrieve personal property may apply to a justice court for an order to enter the residence in the company of a peace officer to retrieve specific items of personal property listed on the application. See Acts 2015, 84th Leg., R.S., ch. 1076, § 1 (H.B. 2486). The chapter provides that a landlord or land’s agent who permits or facilitates entry into the residence in accordance with the court order cannot be held civilly or criminally liable for an act or omission arising in connection with permitting or facilitating the entry. See Tex. Prop. Code § 24A.004. It is a class B misdemeanor to interfere with a person or peace officer entering the residence under authority of a court order issued under chapter 24A. See Tex. Prop. Code § 24A.005.
§ 15.9:2Texas Protections for Military Servicemembers
Effective January 1, 2012, Texas Property Code section 24.0051(d) provides that, in a forcible-detainer suit, the first page of the citation must provide the defendant tenant a statutorily prescribed notice (in both English and Spanish) advising that if the tenant or the tenant’s spouse is serving on active military duty, the tenant and spouse may have special rights with regard to the eviction action under federal law (such as the Servicemembers Civil Relief Act) and Texas law (such as Property Code section 92.017 regarding the tenant’s right to vacate the premises and avoid liability for subsequent rent). See Tex. Prop. Code § 24.0051(d); see also Tex. Prop. Code § 92.017.
§ 15.9:3Texas Law Concerning Person in Possession under Contract for Deed
If the foreclosure sale purchaser has a common source of title with the party in possession, such as in the case of a contract-for-deed purchaser and a mortgage lien granted by the title holder, the foreclosure sale purchaser may prevail if it can establish that the mortgage lienholder acquired its lien as a bona fide lienholder for value and without notice of the contract-for-deed purchaser’s claim. See, e.g., United Savings Ass’n of Texas v. Villanueva, 878 S.W.2d 619, 622 (Tex. App.—Corpus Christi 1994, no writ). Section 22.021(d) of the Texas Property Code limits a prevailing foreclosure sale purchaser’s damages for injuries or for the value of the use and occupation of the mortgaged property to the two-year period before the filing of the trespass-to-try-title action. See Tex. Prop. Code § 22.021(d).
§ 15.9:4Federal Protections for Residential Tenants
The Protecting Tenants at Foreclosure Act (PTFA), which is Title VII of The Helping Families Save Their Homes Act of 2009, Pub. L. No. 111-22, 123 Stat. 1632, codified at 12 U.S.C. § 5220 note, protects certain classes of tenants from immediate eviction following foreclosure of the properties they occupy. The PTFA took effect on May 20, 2009, and was originally scheduled to expire on December 31, 2012, but section 1484 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010) (codified at scattered sections of 12 U.S.C. and 15 U.S.C.), extended the expiration date to December 31, 2014. On May 24, 2018, Senate Bill 2155 was signed into law, repealing the PTFA’s sunset provision and restoring notification and other requirements related to the eviction of renters in foreclosed properties. See Economic Growth, Regulatory Relief, and Consumer Protection Act, Pub. L. No. 115-174, 132 Stat. 1296 (2018).
The tenant protection provisions apply in the case of any foreclosure on a “federally related mortgage loan” (which is given the same meaning as in section 3 of the Real Estate Settlement Procedures Act of 1974, 12 U.S.C. § 2602) or on any dwelling or residential real property. See PTFA § 702(a). They provide that “any immediate successor in interest” in such a foreclosed property, including a bank that takes title to a house upon foreclosure, will assume the interest subject to the rights of any bona fide tenant and will need to comply with certain notice requirements. See PTFA § 702(a). The protections of this law apply to tenants under a bona fide lease or tenancy. A lease or tenancy is bona fide only if: (1) the mortgagor or a child, spouse, or parent of the mortgagor under the contract is not the tenant; (2) the lease or tenancy was the product of an arm’s-length transaction; and (3) the lease or tenancy requires the receipt of rent that is not substantially less than fair market rent or the rent is reduced or subsidized due to a federal, state, or local subsidy. See PTFA § 702(b).
Under this law, the immediate successor in interest of a dwelling or residential real property must provide the tenants with a notice to vacate at least ninety days before the effective date of such notice. Residential tenants must also be permitted to stay in the residence until the end of their leases, with two exceptions: (1) when the property is sold after foreclosure to a purchaser who will occupy the property as a primary residence or (2) when there is no lease or the lease is terminable at will under state law. See PTFA § 702(a). (Even when these exceptions apply, the tenants must still be given the ninety-day notice to vacate.)
See section 29.16 in this manual for further discussion of the PTFA.
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