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Texas Home Foreclosure Laws

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									Texas Foreclosure Law (Part 1)
Introduction
In Texas, unlike many other states, liens against real property may be foreclosed non-
judicially without suing for a judgment ordering foreclosure. Texas foreclosure procedure
has been described as “brutally short” from the consumer’s perspective. As lenders’
counsel, we believe it is efficient and economical, thereby lowering servicing costs and
ultimately making loans more readily available than they would be if foreclosure
procedure were more time-consuming and expensive.
When dealing with non-residential mortgage loans in Texas, a foreclosure may be
accomplished in 30 days or less. Because most residential lenders use Fannie Mae
(“FNMA”) forms which require a 30-day right-to-cure period before accelerating a debt
and posting the property for foreclosure, the typical mortgage foreclosure of residential
property in Texas may be completed in as little as 51 days.
A properly conducted foreclosure sale is final. Unlike most states with non-judicial
foreclosure procedures, in Texas, the borrower has no right to repurchase or “redeem” the
property after foreclosure. A borrower’s right in that regard is limited to paying all sums
owing under the note and deed of trust (including fees incurred in preparing for
foreclosure) at any time prior to the sale and have the lien released. If the note balance is
in dispute, the borrower may suspend the sale by paying the amount alleged to be owed
into the registry of the court.
I. Is Foreclosure Your Best Option?
It is not uncommon for default management personnel to be aggressive in collecting
defaulted assets. In fact, a “Rambo” attitude is usually seen as a desirable attribute in
those involved in collection work. A few experiences with protracted litigation,
bankruptcy proceedings or foreclosures of property with no value, (or which are net
liabilities) will usually result in a more circumspect attitude. The lesson learned is that
before plunging headlong to liquidate collateral through foreclosure it is advisable to
consider whether foreclosure is the most effective means for maximizing recovery.
There are a number of reasons why foreclosure may not be the best option. A property
with potential environmental problems may be more of a liability than an asset for
example. Similarly, ad valorem tax liens, prior liens, usage restrictions or the property’s
deteriorated condition, among other problems may make foreclosure economically
unattractive. Before rejecting what may seem to be an unreasonably low work-out or
settlement offer from the borrower, one must have reliable information as to the
property’s current value.
If you have reasonably accurate information concerning the property’s value, you will
probably reconsider foreclosure if the borrower offers a discounted payoff of the note in
an amount roughly equivalent to the property’s value - especially if there is little prospect
for collecting a deficiency judgment from the borrower. Foreclosure and R.E.O. (Real
Estate owned by the Lender after foreclosure, sometimes referred to as O.R.E. ) for
owned real estate management costs, the potential for litigation, and the time-value of
money tied up until the property is sold should be weighed when considering whether a
discounted payoff, work-out or forbearance agreement will yield a better recovery than
foreclosure.
A. Benefits of Workouts
Workout agreements usually take the form of a Modification Agreement. They generally
involve a compromise on the part of the lender to accept less than the terms of the loan
with the borrower would otherwise provide. Lenders may be willing to compromise and
enter into a workout because they believe they will recover more than they would through
liquidation of the collateral.
By their very nature, no two workouts are the same since their terms are dependent upon
the lender’s and borrower’s creativity in putting together a foreclosure alternative. Such a
plan will take into account any number of factors such as the loan’s debt to value ratio,
the borrower’s financial resources including present and projected cash flow, and the
borrower’s ability to pledge additional collateral. Workouts may involve a payment grace
period, a temporary or permanent reduction in the regularly required payments, a
principal and/or interest reduction, extension of the note term or the pledge of additional
collateral by the borrower. Whatever its terms, the goal of any workout from the lender’s
perspective is to maximize recovery of its loan.
B. Benefits of Forbearance Agreements
Forbearance agreements differ from workouts in that they are temporary arrangements to
maintain the status qua. They are also unlike workouts in that they do not involve long-
term rearrangement of debt or a compromise by the lender to accept significantly less
than it would receive under the terms of the original loan documents.
Forbearance agreements are typically used when the borrower defaults as the result of
what appears to be a short-term cash-flow problem or when the lender is willing to
provide the borrower with a set period of time to refinance the defaulted loan with
another lender. Forbearance agreements are structured so that the lender has the right to
foreclose immediately in the event the borrower fails to meet the terms of the forbearance
agreement within the specified time frame.
The following terms are commonly used in forbearance agreements:
1. Borrower agrees default has occurred and the loan has been properly accelerated and is
fully due and payable;
2. Lender agrees to forebear from foreclosing so long as borrower makes all payments
required by the forbearance agreement and otherwise complies with its terms;
3. Lender has the right to post the property for foreclosure and take all steps necessary for
foreclosure in the event borrower defaults under the terms of the agreement;
4. Borrower gives a full and complete release of lender; and
5. After the forbearance period has ended, lender may foreclose; or, depending on the
terms of the forbearance agreement, if borrower has fully complied, lender may reinstate
the loan.
A forbearance agreement is therefore used to provide the borrower one last chance to
become current or pay off the loan without significant compromise of the lender’s
position. If the loan has been accelerated, it remains in an accelerated state and if it
becomes necessary to foreclose, the forbearance agreement allows the lender to avoid
delays associated with having to provide another notice of default and intent to
accelerate.
C. Deciding Whether to Forebear, Workout or Foreclose
Whether to forebear, workout or foreclose is the lender’s business decision. In evaluating
how to proceed, the lender’s most significant tasks will be to: 1) reach a reasonably
accurate conclusion as to the value of the collateral securing the loan, (after deducting
any liens which will not be cut-off by foreclosure from the property’s value and after
taking into account any potential reduction in value resulting from other contingent,
unliquidated liabilities, such as environmental problems); 2) carefully evaluate the
borrower’s ability to meet the proposed financial requirements; 3) calculate the lender’s
total cost in entering into the proposed agreement (for the lost time-value of money, for
example); and 4) conclude whether the proposed arrangement is likely to yield greater
returns, or avoid greater losses than would be expected if straight liquidation through
foreclosure were pursued.
D. Deeds in Lieu of Foreclosure: Not Recommended
Borrowers seeking to avoid the stigma of foreclosure and a potential deficiency
sometimes ask if they may voluntarily deed the property to the lender in exchange for
release from the note. Such a transfer is referred to as a “deed in lieu of foreclosure”
(“Deed In Lieu”). Deeds in Lieu may be especially appealing in situations where the
lender has no intention of seeking a deficiency and where it would seem, therefore, that
the lender is giving up nothing by accepting a Deed in Lieu.
Lenders usually view acceptance of a Deed in Lieu as a quicker, less expensive
alternative to foreclosure. While this may be true in many states, because of the
streamlined non-judicial foreclosure process in Texas, accepting a Deed in Lieu is not
necessarily faster or less costly than non-judicial foreclosure. Accepting a Deed in Lieu
on the other hand, carries with it significant risks under Texas law.
When a deed of trust lien is properly foreclosed non-judicially, most liens, leases and
other intervening real property interests recorded or becoming enforceable after the deed
of trust, (with the exception of ad valorem tax liens, weed liens and other encumbrances
with special priority) are “cut off’ by operation of law. Title is effectively “wiped clean”
as to such interests from the effective date of the deed of the trust lien through the date of
foreclosure.
The problem with a Deed in Lieu is that it will not cut off any intervening interests. In
fact, the term “deed in lieu of foreclosure” is actually a misnomer – it is nothing more
than a deed given in consideration for release of the debt. Although the term has come to
mean a “voluntary” or “friendly” foreclosure as the result of common usage, Deeds in
Lieu have no legal significance in Texas real property law. In fact, the Texas Supreme
Court has gone so far as to say: “there is no such deed as a deed in lieu of foreclosure”.
In other words, Texas law does not recognize a deed given “in lieu of foreclosure” as a
specific category of deed affecting intervening liens any differently than a general or
special warranty deed would.
When legal issues are the only consideration, Deeds in Lieu should not be used. It is
recognized, however, that notwithstanding advice to the contrary, lenders may be willing
to accept risks attendant in using Deeds in Lieu for business reasons. Such reasons
include preventing the property from being tied-up in bankruptcy or to preserve a valued
customer relationship. When a lender makes the business decision to use a Deed in Lieu,
certain precautions are recommended to minimize the lender’s risk.
Deeds in Lieu should not be utilized in Texas without first obtaining a “clean” title
commitment showing no intervening liens from the date of the deed of trust to the
present. In this respect, a title report is insufficient as it does not warrant title or insure
against defects. Lenders should recognize accepting a Deed in Lieu in reliance on a
“clean” title commitment is not without risk. However, in the event the title company
misses an intervening lien, for example, recovery under the policy is contingent on
meeting conditions precedent for recovery required under the terms of the policy (e.g.
providing timely notice to the title company of the possible claim). Title companies may
dispute coverage or go out of business. In short, intervening liens normally extinguished
through foreclosure may pose problems not otherwise encountered if a Deed in Lieu is
accepted.
E. Unilateral Reconveyance
Occasionally, creative borrowers will attempt to accomplish the goals of a deed in lieu by
unilaterally reconveying the property to the lender. If the lender gives no indication of
accepting the conveyance and if it gives notice that it does not accept the deed, the
attempted conveyance will be void.
II. Steps in Foreclosing Your Liens Against Real Property.
A. Careful Review of Loan File, Loan Documents and Correspondence
1. Review of lien documents. Although it may seem an obvious point, you must first have
a debt in order to enforce a lien. A change in the form of the debt (from note to judgment
for example) will not affect the lien. Filing suit does not bar a mortgagor from
subsequently pursuing nonjudicial foreclosure. The minimum requirements for properly
conducting a nonjudicial foreclosure sale are contained in the Property Code §51.02 (the
“Property Code”, set forth in the Appendix). Where the deed of trust has requirements
less stringent than the Property Code for notice, posting and other foreclosure procedures,
you must comply with the Property Code. Where the deed of trust’s requirements exceed
those of the Property Code, you must comply with the deed of trust. Some very old deeds
of trust, for example, may require publication in a newspaper. It is not unusual to
encounter deeds of trust which require notice of sale to be posted in three public places. If
posting in three public places is required and the trustee posts in only one public place,
even though he otherwise fully complies with the Property Code and the deed of trust and
even if the owner has actual knowledge of the sale and attends the sale, the foreclosure
sale will be invalid.
2. Renewals and extensions. When preparing to foreclose a lien which has been created
through renewal and extension of an earlier lien in title, it is highly recommended that the
foreclosure be of the original deed of trust lien which was renewed and extended. The
original deed of trust lien should be foreclosed to cut off any intervening liens which are
subject to termination by foreclosure. Even if a title policy was obtained at the time of
renewal and extension, it is still recommended that the original deed of trust lien be
foreclosed. After all, title companies sometimes miss liens and the rationale for not
relying on a title policy in the deed in lieu situation. The safest route therefore, usually is
to foreclose under the terms of the earliest power of sale granted.
3. Need all addresses. Sending notice to the borrower at the address specified in the deed
of Trust will not be sufficient if the lender’s records reflect a more recent address. While
a lender is required to send notice to the borrower’s address specified in the deed of trust
as well as every other address of the borrower of which the lender has actual notice,
failure to send notice to the borrower’s most recent address which was unknown to the
lender will not invalidate a sale.
4. Confirm no implied or actual “side agreements” between lender and borrower. A
significant amount of foreclosure litigation arises from oversight of either express written
agreements or correspondence between the lender and borrower which amount to express
or implied modifications of the loan documents. Such agreements may have been
effected years previously by a former mortgagor. Being out of the ordinary, such
agreements are frequently overlooked until they have been breached. Examples of these
kinds of agreements would be an agreement to provide an extended right-to-cure period,
to provide notice to certain guarantors in advance of taking action against the borrower or
to provide notice of default to a former owner of a property to be foreclosed who may or
may not continue as an obligor.
As an actual example of what may occur, several months after a foreclosure was
completed on a VA loan which had been assumed from the original obligor, the VA
contacted the original obligor and demanded payment of the deficiency. Under the terms
of the loan agreement between the original obligor and the VA, the VA had the absolute
right to collect this deficiency from whoever remained obligated on the debt.
At the time of the assumption, the original obligor, recognizing his continuing liability
and endeavoring to protect himself, obtained a written agreement with the lender that he
would be notified promptly upon the borrower’s default and that he would be given an
opportunity to cure the default, purchase the note or take other steps to protect his
interest. Years later, when the then current owner went into default, the default manager
handling the matter was unaware of the side agreement with the original obligor because
the servicer’s database software provided no field for the entry of such information.
Several months after foreclosure, the lender received a demand letter from counsel for the
original obligor making demands under the Texas Deceptive Trade Practices Act (the
“DTPA”), and common law fraud among other causes of action. Upon review of their
files, the lender found the side agreement. The lender had clearly erred in not providing
notice of default and intent to accelerate to the original obligor as required in the
agreement. The lender reimbursed the VA to the full extent of the deficiency
(approximately $60,000) and reimbursed the original obligor for his attorney’s fees in the
amount of $2,000. This example should clearly illustrate the need to review files for side
agreements prior to foreclosure. Similarly, it serves as an example for why right to cure
notices should be sent to all obligors regardless of whether they are currently in title.
B. Notice of Right to Cure and Intent to Accelerate
It is generally a perquisite to foreclose that the debt secured by the real estate must have
matured by its own terms or by acceleration. Acceleration usually occurs after a default
in payment although it may result from any non-monetary default under the terms of the
note or deed of trust. Failing to properly accelerate the debt is probably the most common
foreclosure defect and will serve to void a foreclosure sale.
1. When is notice of right to cure necessary? To properly accelerate a debt there must
first be a default under the terms of the loan documents. While the most common default
is failure to make payments, non-payment of property taxes, failure to maintain the
condition of the property or to maintain insurance, for example, are usually also defaults
under the loan documents.
If the most common FNMA form deed of trust is used, once default is declared, a
consumer is entitled to thirty days to cure the default. If a deed of trust secured by the
borrower’s residence does not specify a right to cure period, Texas law requires 20 days
written notice to the borrowers of their right to cure the default. Tex. Prop. Code Ann.
§51.002(d) (Vernon 1996). Beyond requiring thirty-days notice, the FNMA deed of trust
requires the lender to provide specific notices to the borrower including notifying the
borrower of his or her right to reinstate the debt after acceleration.
Texas law requires that notice of intent to accelerate must be given prior to acceleration
of the entire balance of an installment debt. In addition, the Texas Supreme Court
requires that the notice of intent to accelerate be clear and unequivocal to the extent that
the “mortgagee must bring home to the [mortgagor] that failure to cure will result in
acceleration of the note and foreclosure under the power of sale.”
As soon as the bankruptcy stay is lifted, it is not uncommon for lenders to give
instructions to proceed with foreclosure notwithstanding that the Borrower has made
payments since the loan was previously accelerated and some or all of such payments
have been applied to the loan.
As a general rule, we strongly recommend that a new N.O.I. be provided to the borrower
when payments are accepted and applied by the lender after a loan has been accelerated.
This is because in the absence of a written agreement between the parties, application of
payments may create the appearance that the loan has been reinstated.
In the event a forbearance arrangement is intended, then we strongly recommend the use
of a written agreement which clearly states that the loan has not been reinstated and that
the loan will remain in an accelerated state during the term of forbearance
notwithstanding that payments will be made and applied. Even though the circumstances
(i.e. oral agreements, notes in the file, course of dealing between the parties) indicate that
a loan has not reinstated, absent a properly drafted forbearance agreement executed by
the parties, there is a very real possibility that a fact finder may conclude that the loan had
reinstated because, as discussed below, fact issues tend to be resolved in favor of the
borrower in foreclosure litigation.
Texas Courts have historically taken the view that non-judicial foreclosure procedure in
Texas is swift in process and harsh in result, particularly when it involves consumer
borrowers, (e.g. loss of a home with no right of redemption). One reason is that jurors
naturally tend to identify more with consumers than with lending institutions. Another
reason is that the lender is typically well-represented throughout the foreclosure process
while the consumer, on the other hand, is rarely represented. Lenders may be seen by
juries, therefore, as having an unfair advantage and any action or failure to act that works
to the disadvantage of the consumer will not be well-received by the jury, especially if
they perceive that such action would have benefited the consumer at little cost to the
lender.
Jurors may find it unfair, for example, if a lender elects not to send a new N.O.I. in order
to be able to foreclose 30-45 days sooner. When it comes to someone losing their home,
regardless of whether they have any viable means of making mortgage payments, and
regardless of a lender’s good faith and fairness in its dealing with the consumer, a good
plaintiff’s attorney can paint a picture of the lender as being a villain by questioning their
actions on the most trivial of foreclosure procedures.
Additionally, juries in foreclosure litigation between a consumer and lender are well
aware that while a decision in favor of the consumer will have little or no impact on the
lender’s business as a whole a decision in favor of the lender, on the other hand, has
immediate drastic consequences for the consumer and his family.
For the foregoing reasons among others, therefore, when deciding foreclosure litigation
between lenders and consumers Texas Courts have a pronounced tendency to resolve
doubts on factual issues in favor of consumers and generally to give consumers the
benefit of the doubt while holding the lender to a strict standard of compliance with
foreclosure procedures. It is this tendency which leads us to recommend the use of a
properly worded forbearance agreement whenever a lender agrees to accept and apply
payments to a loan which has been accelerated but not reinstated.
2. Waiver of notice of intent to accelerate. Notice of default and notice of intention to
accelerate may be waived by agreement in non-residential, non-consumer transactions, if
the waiver clauses are very specific in their wording. Notice of default and notice of
intent to accelerate may not, however, be waived in residential or consumer transactions.
Tex. Prop. Code Ann. §51.002(d) (Vernon 1994). Similarly, the provisions of the federal
Fair Debt Collection Practices Act (discussed below) may not be waived.
3. Impact of Fair Debt Collection Practices Act on consumer loans. In addition to the
FNMA 30-day right to cure requirement, the Fair Debt Collection Practices Act
(“FDCPA”), 15 U.S.C. §§1692 et seq, requires that a debt collector (a term which
generally includes attorneys) provide the borrower 30 days in which to request
verification of the debt. Recent case law has interpreted this provision of the FDCPA to
mean that a debt collector may not take any action during this 30-day notice period. (See
§II.L. below for further discussion of FDCPA).
The FDCPA 30-day period and the FNMA notice periods may overlap, however. For
example, if an attorney sends the FNMA right-to-cure demand letter and includes the
FDCPA Debt Verification Notice in the same letter, both 30-day periods run
concurrently. The time necessary prior to foreclosure will be extended, however, if the
attorney’s initial correspondence is the 21-day Notice of Sale. This situation will occur if
the lender sends the FNMA 30-day right-to-cure notice before referring the matter to the
attorney. The 21-day Notice should be increased under these circumstances to 30 days to
assure that foreclosure does not occur before the expiration of the FDCPA 30-day debt
verification period.
C. Examining Title for Potential Problems
At the time the notice of default and right to cure are provided, or shortly thereafter, it is
recommended that a title report be ordered. This should allow time to receive the report
and review it prior to the deadline for sending notice of federal tax liens and prior to
acceleration and posting notice of sale.
1. First lien. It is important to review title to determine if the lien sought to be foreclosed
is in fact a first lien. In some cases, a prior lien may have been foreclosed and cut off the
lien you seek to foreclose, making any attempts to foreclose wasted at best and possibly
creating a cloud on title at worst. If you find that the lien you seek to foreclose is a junior
lien, it is prudent to determine the outstanding balance secured by the senior lien and
estimate the property’s value to determine if there is sufficient equity in the property to
justify the expense of foreclosure. It may be necessary to contact the first lienholder to
determine if the first lien is also in default and if the lienholder plans to foreclose. If so,
the mortgagee should be consulted to determine if they have the inclination or resources
to purchase the first lien obligation or bring it current in order to protect their second lien
position.
2. Probate. In the event a probate proceeding is noted in the title report, it is likely the
foreclosure proceeding will need to be postponed until the property is determined to be
outside of probate or the probate court has given permission to foreclose.
3. Bankruptcy. Title should be reviewed to determine if a bankruptcy has been filed
which would affect the interest of anyone with an ownership interest in the property. The
bankruptcy stay will prevent foreclosure when any bankrupt entity has an ownership
interest in the property of which they would be deprived through the foreclosure.
4. Stranger in title. When reviewing the title report, it is necessary to determine if the
original owner/mortgagor continues to hold title to the property. It is not uncommon for
financially distressed individuals or corporations to transfer title to mortgaged property to
another entity without consulting the lender. Any third party who has title to the property
without the lender’s knowledge and consent is not entitled to notice of the foreclosure.
However, in the event the third party is in bankruptcy, the stay will prevent the
foreclosure from proceeding or void a sale which occurs even when the lender and trustee
were unaware title to the property was held by one in bankruptcy.
5. All necessary assignments. Title must also be reviewed to determine if the necessary
assignments of lien have been recorded to show the current note holder as lienholder of
record. In the event such assignments have not been filed, they should be obtained and
recorded prior to appointing the substitute trustee.
6. Federal tax liens. When ordering a title report prior to foreclosure, it is critical to
specifically request that the title company also search the mortgagors’ names to
determine if there are any federal tax liens filed against them. The IRS must be provided
notice of the impending foreclosure sale at least 25 days prior to the foreclosure sale date.
IRC §7425(b)(1) (see discussion below at §IIJ).
7. State tax liens. Local governmental taxing authorities that obtain revenue by taxing
real property are granted a lien superior to almost all pre-existing liens. Tex. Tax Code §
32.05(b). Taxes assessed against the value of property are commonly referred to as “ad
valorem” taxes. “Ad valorem” literally means “against the value”. If ad valorem taxes are
not paid and discharged, regardless of any other encumbrances against the property, a tax
foreclosure sale may be held and the property sold to pay the taxes. Any proceeds
received beyond what is owed for ad valorem taxes (plus court costs, interest and
penalties) will be distributed to other lien holders in order of priority. Upon completion of
the sale and distribution of proceeds, lien holders lose all rights in the property. General
state tax liens such as for sale and use taxes, excise taxes, occupational taxes and gasoline
taxes are subordinate to contractual liens unless recorded prior to the contractual liens.
Tex. Tax. Code §113.01.
8. Weed liens and the like. Some junior liens such as weed liens and paving liens, for
example, are not cut off by foreclosure. Generally weed liens arise from the local
government’s determination that it must take action for public safety as the result of the
owner’s failure to remove a hazard (e.g. clear a property of weeds and brush).
Consequently, the cost of such hazard removal is assessed against the property having the
hazardous condition. For public policy reasons, such liens are not cut off by foreclosure.
Other similar liens in favor of a governmental subdivision such as for demolition of the
property and/or for removal of other hazardous conditions are also generally not cut off
by foreclosure for public policy reasons. Any time an unusual lien of this nature is
encountered, the relevant law should be reviewed prior to foreclosure to determine if the
lien is subject to being cut off by foreclosure. In many cases, it maybe prudent to pay the
lien prior to foreclosure to avoid the imposition of penalties and to enable the lender to
add sums paid to discharge the lien to the loan’s unpaid principal balance.
9. Mechanics’ and Materialmans’ liens. Texas has historically sought to protect the rights
of tradesmen and laborers to compensation for their labor and materials. This right to
compensation goes back to the earliest days of Texas history and is secured by a
constitutional grant of lien rights which provides:
Mechanics, artisans and materialmen of every class, shall have a lien upon the building
and articles made or repaired by them for the value of their labor done thereon, or
material furnished therefore; and the legislature shall provide by law for the speedy and
efficient enforcement of said liens.
Tex. Const. Art XVI, §37
In addition to the self-executing constitutional lien, which is rarely relied upon, the
legislature has provided mechanics and materialmen with a statutory procedure for
securing and fixing liens against real estate improved by the lien claimants. Tex. Prop.
Code Ann. §53.001, et seq (Vernon 1992). The policy behind allowing these liens to be
created is that mechanics and materialmen contribute value to the real estate by providing
labor and material and therefore should have a preferential claim to payment out of the
value contributed by them.
A Mechanics’ and Materialmans’ Lien (“M&M lien”) claimant may achieve priority over
a previously recorded mortgage lien on the real estate via two methods. First, a
mechanic’s lien is entitled to priority if it has its “inception” before the recordation of a
competing lien or mortgage. Second, an M&M lien claimant has a “super priority”
position as to any other lien holders, regardless of “inception” as to improvements that
are “removable”. In fact, an M&M lien claimant with a lien on removable has the right to
“self-help” and may “repossess” materials provided to the construction site.
An improvement is “removable” if it can be removed without material injury to itself or
to the realty to which it is attached. Therefore, items normally associated with becoming
part of the land once installed, such as fixtures, remain subject to M&M liens so long as
they fit the removable criteria. Texas cases have variously found carpeting, appliances,
air conditioning and heating components, smoke detectors, burglar alarms, light fixtures,
door locks, doors and door trim, and windows to be removable. Items held not to be
removable once installed include brick veneer, roofing tiles and window frames.
Surprisingly, an M&M lien claimant is not necessarily limited to asserting his rights
against removable items he installed. Some cases and commentators, as well as the
controlling statute itself, suggest that a claimant may be entitled to “self-help” even as to
removable supplied by others.
10. Corporate franchise taxes. Corporate mortgagors are subject to franchise tax liens for
unpaid franchise taxes. Tex. Tax Code Ann. §171.357. To determine if there are franchise
tax liens, the title company should be instructed to search the county records where the
corporation has its principal place of business as well as where the property is located. Id
§171.357(a) et seq. A properly recorded franchise tax lien is superior to a deed of trust
lien regardless of order of recording. Id §171.356.
11. Property association liens. Title should also be reviewed to determine if property
association liens, condominium maintenance liens or other similar liens may be superior
to the deed of trust lien sought to be foreclosed. Such liens may be superior to a deed of
trust lien in two ways: 1) the provisions of the property association are typically recorded
of record at or near the time of commencement of construction of a subdivision or
condominium as the case may be. Therefore, any deed of trust or other contractual lien
filed thereafter will be inferior and subject to being cut off by foreclosure of the property
association lien unless the provisions of the property association specifically subordinate
their liens to those liens securing purchase money loans or unless there is a separate
subordination agreement filed by the property association subordinating their lien to the
lien of the deed of trust sought to be foreclosed.
12. RTC and FDIC liens. The Federal Deposit Insurance Corporation (the “FDIC”) and
the Resolution Trust Corporation (the “RTC”) may be entitled to prior notice of an
anticipated foreclosure sale depending upon their ownership or lien rights in the property
to be foreclosed. Both the RTC and FDIC claim to have the right to require a mortgagee
to obtain their consent prior to foreclosure of a lien against property to which they hold
title. This right is claimed pursuant to 12 U.S.C. §1825b(2). Each have promulgated their
own policy in this area which are subject to change from time to time and should be
reviewed in the event one is confronted with an inferior RTC or FDIC lien or RTC or
FDIC ownership of the property.
a. FDIC liens. The FDIC requires written consent to all foreclosures where the FDIC
holds an inferior lien or owns the property. The FDIC further claims the right under 28
U.S.C. §210 to redeem the property for one year after foreclosure in the event it holds an
inferior lien in its capacity as the FDIC (although it does not claim such right if it holds
an inferior lien in its capacity as conservator or receiver).
b. RTC. Where the RTC holds title to property to be foreclosed, it requires notice at least
30 days prior to the foreclosure stating the time, date, place, and manner of sale. The
RTC has 60 days to respond and in the event it does not respond within 60 days, it will be
deemed to have consented to the sale. There are exceptions and variations on the RTC’s
requirement of notice and in the event either RTC ownership or an inferior RTC lien are
discovered in preparing for any foreclosure proceeding, the most recent statement of
policy should be reviewed.

								
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