Postsale Considerations
The completion of the foreclosure auction does not end the foreclosure process. A number of matters must be addressed after the sale, such as the filing of required informational returns to the IRS, the distribution of the foreclosure sales proceeds to the proper parties, the evaluation of possible claims on 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 chapter. IRS forms and instructions are also available online at 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
Most deeds of trust provide that the trustee (1) pay the expenses of the sale, (2) pay the mortgagee who is foreclosing the deed of trust the debt secured to the extent of the bid at foreclosure, (3) pay any amounts owed by law to be paid before payment to the mortgagor, and (4) render the balance of the proceeds, if any, to the mortgagor and the mortgagor’s heirs or assigns.
Tex. Prop. Code § 51.0075(f) provides:
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.
In addition to this statute, the trustee should review the deed of trust 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.” See section 14.4:3 in this manual for a discussion of accepting cash or cashier’s checks from third-party bidders.
Most forms of deeds 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. . . .
1 State Bar of Texas, Texas Real Estate Forms Manual ch. 8, form 8-1 (2024 ed.).
§ 15.3:1Expenses of Foreclosure
Tex. Civ. Prac. & Rem. Code § 38.001(8) provides for recovery of attorney’s fees on a contract, whether written or oral. There is one Texas case, Jeffreys v. McGlamery, 96 S.W.2d 572, 576 (Tex. App.—Amarillo 1936, no writ), that ruled that the loan documents must specifically provide for reimbursement of attorney’s fees and expenses incurred by the lender or the trustee. The best practice is to set out in the deed of trust the costs and expenses that constitute “the expenses of foreclosure” and “to Lender, the full amount of principal, interest, attorney’s fees, and other charges due and unpaid” 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 10 percent trustee’s fee is not recoverable when the deed of trust expressly states that the trustee’s fee is to be reasonable, and the trustee could not 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 was 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.”
An 1898 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. App. 1898, writ ref’d). In another case, the court held that provisions in the promissory note 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. 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.
§ 15.3:3Distribution of Net Proceeds to Lender
Deeds of trust usually 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
Prior Lienholders: Foreclosure of a junior deed of trust does not terminate a deed of trust that is senior. The purchaser at the foreclosure takes title to the property subject to the senior deed of trust. Conversion Properties, L.L.C. v. Kessler, 994 S.W.2d 810 (Tex. App.—Dallas 1999, pet. denied). If the foreclosure results in a surplus, the surplus funds are distributed to the inferior liens, if any, and, if none, to the mortgagor. However, in the case of Canfield v. Foxworth-Galbraith Lumber Co., 545 S.W.2d 583 (Tex. App.—Tyler 1976, writ ref’d n.r.e.), the trustee paid off the junior encumbrance that was foreclosed and also paid off the first lien deed of trust with the overage, which was not foreclosed. The deed of trust directed the trustee to pay the holder of the indebtedness secured and then to render the balance (surplus) to the mortgagor. The Dallas court of civil appeals held that the trustee had the power to pay off the senior encumbrance because the mortgagor waived and ratified the actions of the trustee even though the mortgagor was unaware of the payment at the time it was made and had assigned his rights to a third party who had attended the sale.
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). See section 13.6 in this manual for a discussion of bidding incident to wraparound secured debt.
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 chapter 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–Edinburg 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 their undivided interests subject to the lien of the foreclosing creditor. See form 15-4 in this chapter, 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.
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 mortgage insurance 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.
The Homeowners Protection Act of 1998, Pub. L. No. 105-126, 112 Stat. 897, effective July 29, 1999, also known as the PMI Cancellation Act, provides for canceling and terminating PMI by the mortgagor, sets disclosure and notification requirements, and requires the return of unearned premiums. It applies 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).
§ 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. The most significant consideration in determining whether to pursue a deficiency action is whether the amount reasonably expected to be collected justifies the costs incurred 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. App.—Fort Worth 1965, writ ref’d n.r.e.). Texas statutes 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. See section 24.8 (redemption rights for tax lien foreclosures) and section 30.5 in this manual (redemption rights incident to foreclosure of property owners’ association liens).
§ 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. 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
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. Foreclosure of a senior encumbrance on real property (such as a first lien deed of trust) extinguishes a junior encumbrance (such as a lease entered into after the date of the senior encumbrance). Conversion Properties, L.L.C. v. Kessler, 994 S.W.2d 810, 813 (Tex. App.—Dallas 1999, pet. denied). After foreclosure, the tenant becomes a tenant at sufferance. Coinmach Corp. v. Aspenwood Apartment Corp., 417 S.W.3d 909, 916 (Tex. 2013). 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.
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).
Texas law states that in a forcible detainer action “the only issue shall be as to the right to actual possession; and the merits of the title shall not be adjudicated.” Yarto v. Gilliland, 287 S.W.3d 83, 89 (Tex. App.—Corpus Christi–Edinburg 2009, no pet.). District courts have exclusive jurisdiction over title questions involving real property.
To prevail in a forcible entry and detainer or forcible detainer proceeding, the plaintiff must present sufficient evidence of ownership to demonstrate a superior right to immediate possession. The only issue that can be litigated in such suits is the right to actual possession; the right to title cannot be adjudicated. Justice courts may adjudicate possession when issues related to the title of real property are tangentially or collaterally related to possession. If, however, the question of title is so integrally linked to the issue of possession that the right to possession cannot be determined without first determining title, then the justice courts and, on appeal, the county courts, lack jurisdiction over the matter.
Gibson v. Dynegy Midstream Services, L.P., 138 S.W.3d 518, 522 (Tex. App.—Fort Worth 2004, no pet.). Then, in 1939, the commission of appeals weighed in with Coughran v. Nunez, 127 S.W.2d 885 (Tex. 1939). The test was changed to ask if title to the real property was in question; if so, the district courts had exclusive jurisdiction. This did little to solve the incongruity. Finally, the Austin court of appeals set forth a new and better test in Merit Management Partners I, L.P. v. Noelke, 266 S.W.3d 637 (Tex. App.—Austin 2008, no pet.). “If the adjudication of the claims asserted in county court could arguably have claim preclusive effect on a question of title to real property, we think even the earliest case law reserved such claims for the district court’s jurisdiction.” Noelke, 266 S.W.3d at 650. See also Robert Harms Bliss, Eviction Jurisdictional Wars: District Courts and Justice Courts on “Jurisdiction” v. “Title,” in Advanced Real Estate Law Course, State Bar of Texas (2015).
Texas Property Code section 24.007 was amended in 2016 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. Before this amendment, such appeals could be taken in commercial eviction cases. Some Texas counties do not automatically set an eviction appeal lawsuit being appealed from a justice of the peace court for a de novo bench trial. Attorneys handling such an appeal should consult with the county civil central records about local requirements necessary to set the de novo appeal for a bench trial. In a de novo appeal, only the issues presented in the justice of the peace court hearing can be heard on appeal.
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); Coinmach, 417 S.W.3d at 918. See form 15-5 in this chapter for a letter to a tenant accepting a lease and form 15-6 for a letter to a tenant at sufferance.
Affirmation of Leases After Foreclosure:One problem that the purchaser at the foreclosure sale needs to address is the possible affirmation of lease with the tenant at suffrage. Depending upon the conduct of the buyer at the foreclosure sale and the former tenant, the parties may enter into a new implied lease based upon the terms of the old lease. In Twelve Oaks Tower I, Ltd. v. Premier Allergy, Inc., 938 S.W.2d 102 (Tex. App.—Houston [14th Dist.] 1996, no pet. h.), the court held that the postforeclosure conduct of the buyer and tenant created a new lease (not a continuation or ratification) on the same terms as the old lease. However, one should be aware of language in Coinmach, where the court states: “If the tenant remains in possession and continues to pay rent, and the landlord, having knowledge of the tenant’s possession, continues to accept the rent without objection to the continued possession, the tenant is a tenant at will, and the terms of the prior lease will continue to govern the new arrangement absent an agreement to the contrary.” Coinmach, 417 S.W.3d at 916.
§ 15.9:1Residential Evictions Following Foreclosure
See chapter 34 in this manual, “Residential Evictions Following Foreclosure,” for the procedures to follow incident to this topic.
§ 15.9:2Texas Protections for Military Servicemembers
See chapter 33 in this manual, “Servicemembers Civil Relief Act,” for discussion of the protections for military-connected individuals and their families.
§ 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–Edinburg 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.)
PTFA applies to a tenant occupying a manufactured home located on the property that is foreclosed. See section 29.16 in this manual.
Baggett, W. Mike. “Foreclosure Update Including Foreclosing Home Equity Loans.” In Advanced Real Estate Law Course, 2003. Austin: State Bar of Texas, 2003.
———. “Real and Personal Property Foreclosures.” In Collections Practice Course, 2003. Austin: State Bar of Texas, 2003.
———. “Sign of the Times: Foreclosures and Workouts.” In Residential Real Estate Construction Law Course, 2008. Austin: State Bar of Texas, 2008.
Baucum, Don Michael. “Post Foreclosure Title Issues: How to Keep from Being Called after the Foreclosure.” In Advanced Real Estate Drafting Course, 1998. Austin: State Bar of Texas, 1998.
Bliss, Robert Harms. “Eviction Jurisdictional Wars: District Courts and Justice Courts on ‘Jurisdiction’ v. ‘Title.’ ” In Advanced Real Estate Law Course, 2015. Austin: State Bar of Texas, 2015.
———. “Affirmation of Leases After Foreclosure.” In The Bernard O. Dow Leasing Institute, 2012. Austin: University of Texas School of Law, 2012.
Combs, Lorin Williams, et al. “Annotated Guaranty.” In Mortgage Lending Institute, 2011. Austin: University of Texas School of Law and Texas Mortgage Bankers Association, 2011.
Guerin, Charles A. “A Nonrecourse Lending Carveout Checklist.” In Advanced Real Estate Drafting Course, 2003. Austin: State Bar of Texas, 2003.
Hunter, Janet L. “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).” Note, Texas Tech Law Review 21, no. 2 (1990): 873–96.
Morrison, Portia Owen, and Mark A. Senn. “Carving Up the ‘Carve-Outs’ in Nonrecourse Loans.” Probate & Property 9, no. 2 (1995): 8–11.
Myers, William L. “The Use of Bankruptcy-Remote Entities in Real Property Securitizations and Structured Financings.” California Real Property Journal 15, no. 2 (1977): 24.
Stein, Joshua. “Nonrecourse Carveouts: How Far Is Enough?” Real Estate Review 27, no. 3 (May/June 1995): 8–12.
Sullivan, Kevin A. “A Guide to Dealing With a Conduit Lender.” In Mortgage Lending Institute, 2001. Austin: University of Texas School of Law and Texas Mortgage Bankers Association, 2001.
Weiner, Sanford A., and John C. Ale. “Making Choice of Law a Contact Sport: Contractual Choice of Law in Texas.” Texas Bar Journal 54 (1991): 262–65.
Weller, Philip D. “Bankruptcy in Terrorum Clauses.” In Mortgage Lending Institute, 1995. Austin: University of Texas School of Law and Texas Mortgage Bankers Association, 1995.