What Happens to Excess Assets When a Home Is Foreclosed in Texas?
Financed Texas properties have either a recorded deed of trust or a mortgage lien and a foreclosure is the enforcement of that lien. If the proceeds of a foreclosure sale aren't sufficient to pay off the mortgage, the Texas lender has two years to file for a deficiency judgment against the personal assets of the borrower. This enables the lender to try and collect the difference between the fair market value of the property at the time of the sale and the unpaid loan balance.
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Liens
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A lien is recorded on a property as evidence of a debt owed to a creditor. Liens are usually positioned by the date and time of recording, although there are a few exceptions to this. Property taxes and other government liens have a higher priority than a lender's lien. In Texas, either a mortgage or a deed of trust is recorded after a mortgage loan is funded, and this lien has a higher priority than a mechanic's lien or a special assessment.
Creditors
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A foreclosure is the enforcement of a lien. Different types of entities are allowed to record a lien on Texas property: the county for property taxes, contractors for unpaid work, a city or association for unpaid special assessment, a homeowners or condo association for unpaid maintenance fees, and sellers and lenders who provided financing and have not received the monthly mortgage payment. Clear title can't be conveyed until all the liens are paid off.
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Foreclosure Auction
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A Texas foreclosure auction takes place in the county where the property is located on the first Tuesday of the month, between 10 a.m. and 4 p.m. The property is conveyed to the highest bidder who pays in cash. The buyer isn't responsible for paying liens recorded after the mortgage or deed of trust -- known as junior liens -- but the buyer at an auction is responsible for paying any senior liens.
Deficiency Judgment
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If the proceeds of the auction are greater than the senior liens -- including the mortgage or deed of trust lien -- the excess money may be used to satisfy the junior liens. On the other hand, if the money isn't sufficient to pay off the lender, the lender may go to court and file for a deficiency judgment against the delinquent mortgagor's personal assets. The lender must do this within two years of the foreclosure sale.
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References
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