Non-judicial foreclosures in Texas are governed by Chapter 51 of the Texas Property Code, which outlines the foreclosure process for residential property, or the property used by borrowers as their principal residence . Foreclosures of non-residential property follow different procedures.
The majority of Texas foreclosures are non-judicial. They require a trustee’s deed (alternately called a foreclosure deed or substitute trustee’s deed, if applicable) to convey foreclosed property at a trustee’s sale.
Trustee’s deeds identify three primary parties: the grantor, who is the trustee in the deed of trust; the beneficiary, who is the lender and grantor in the deed of trust; and the buyer, who is the grantee and purchaser of the property at the foreclosure sale.
In a deed of trust, a trustee (the grantee under the original deed of trust instrument), appointed by the lender, holds the deed to the property as collateral for a loan to be repaid by the borrower (the trustor under the deed of trust). If the borrower fails to fulfill the terms of the deed of trust, the lender can direct the trustee to enforce the terms of the deed or begin the foreclosure process. This starts with a notice mailed to the borrower, now debtor, of the intent to accelerate. Notice of sale is also recorded and posted in the county where the subject property is located, as directed by Tex. Prop. Code § 51.002 et seq.
A trustee’s deed may sometimes be called a substitute trustee’s deed, but it is functionally the same thing. The lender may appoint a substitute trustee if the original trustee is unable to administer the sale of property at public auction. A substitute trustee is a person named by the lender under the terms of the security instrument (deed of trust) to exercise the power of sale (Tex. Prop. Code § 51.0001(7)). The power to appoint a substitute trustee must be expressly designated by the lender in the deed of trust, otherwise the appointment is invalid. A substitute trustee can be appointed at any time during the foreclosure process, so long as notice of the appointment is recorded. The foreclosing trustee, regardless, is generally an attorney for the lender . The trustee should identify in the deed whether they are serving as a trustee or substitute.
The trustee delivers the deed to the highest bidder at the foreclosure sale. In addition to meeting the format and content requirements for a standard deed (warranty, quitclaim, etc.), the trustee’s deed “recites that all prerequisites to the sale were satisfied, identifies [the] foreclosing entity, purchaser, sale price, sale date and time” and must be signed by the trustee and notarized before it is recorded and filed in the county where the property is located . Tex. Prop. Code § 51.009 stipulates that the buyer at a foreclosure sale “acquires the foreclosed property ‘as is’ without any expressed or implied warranties, except as to warranties of title, and at the purchaser’s own risk” .
Property under a deed of trust differs from real property in a living trust, which is used in estate planning. Rather, the deed of trust functions as a mortgage equivalent. In living trusts, a quitclaim deed or special warranty deed is used to convey property into and out of the trust.
Because foreclosures can be complicated, contact a lawyer with any questions or for help regarding your unique situation.
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