Texas Voluntary Foreclosure Laws
In the State of Texas consumers have the option, when their property is in danger of foreclosure, of voluntarily surrendering their property, as opposed to having it forcibly repossessed by the lender. This process of voluntary foreclosure is more commonly referred to as a "deed in lieu of foreclosure." In order for the deed in leu of foreclosure to be considered legal, specific rules must be followed.
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Acceptable Title Transfer
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The title of a property conveys ownership of the property. Texas foreclosure laws require the current owner of the property to sign over the deed (property ownership rights) to the lender. The lender must also sign off on the deed to accept the property.
This process must be overseen and monitored by a disinterested third party, such as a title company or a real estate attorney, who also must notarize the documents before a court will consider them legal and binding. Indeed, a Texas court will not file the deed paperwork until these requirements have been been met.
Loan Laws
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Once a deed has been signed over to the lender, there are Texas loan laws that provide guidelines for the lender's handling of the mortgage balance. Since the lender's requirements are considered satisfied upon the completion of the transfer of ownership and property rights from the borrower back to the lender, the lender will then mark the debt as paid and not pursue any collection activity or a deficiency judgment against the borrower at a later point.
In a traditional foreclosure the lender has an option to engage in collection activities for the outstanding mortgage balance, which is the difference between the previous mortgage balance minus the amount that the property is resold for (typically less than the mortgage balance). However, when a voluntary surrender of a property takes place, the lender is legally restricted from such activity.
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Property Rights
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The party that holds the deed to the property holds all rights to the property. In a voluntary foreclosure in Texas, once the deed to the property has been signed back over to the lender, the owner must vacate the property immediately. The previous owner has no current or future rights to the property or any stake in its present or future value. Additionally, the owner has no obligation to the property once a voluntary foreclosure has taken place, and is no longer required to maintain such items as home owner's insurance, home owner association dues, maintenance fees or property taxes. As the property rights are extinguished, so are the responsibilities for anything having to do with the property from the date of signing it over to the lender, moving forward. Upon signing, these responsibilities are transferred to the lender, along with complete right of ownership.
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References
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