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equity of redemption

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									 Vol. 2, No. 3                                          Law                                   Publication 652

                                A Reprint from the Real Estate Center Journal



Forced Sale Remedies
By Judon Fambrough                          Rules governing tax sales differ    34.015(c) of the Texas Tax Code
                                         from those governing mortgage sales.   (TTC).



F
       oreclosure sales for delin-       There is no equity of redemption          Also, effective October 1, 2003,
       quent mortgage payments           for delinquent taxes primarily be-     the officer conducting a tax sale
       and, to a lesser extent, tax      cause property taxes are not paid in   must name the successful bidder
       sales for delinquent property     installments, thus not accelerated.    as the grantee in the deed. The
taxes are commonplace in Texas.          However, a tax sale can be avoided     officer cannot execute the deed
Not so commonly known, however,          if the owner pays the delinquent       to any other person in any other
are the owners’ right to avoid a         taxes plus any interest and penal-     name. This means no one may
foreclosure sale and even the right      ties due before the sale.              act as the agent for another at
to redeem (or repurchase) property                                              a tax sale. However, the statute
sold at a tax sale.                      Right of Redemption                    specifically allows taxing units and
                                            The primary protection afforded     anyone acting on their behalf to
Equity of Redemption                     delinquent property taxpayers comes    bid at the sale.
                                         after the tax sale under a concept        Effective September 1, 2005, the
   One way to avoid a foreclosure                                               requirements set forth previously in
sale is an equity of redemption.         known as a right of redemption. It
                                         gives the former property owner        Section 34.0445 that took effect in
Designed by the courts to promote                                               2003, apply only to counties with
fairness, the equity of redemption       the right to repurchase (or redeem)
                                         the property for a given time after    a population of 250,000 or more
allows the debtor to stop foreclosure                                           or with a population of less than
anytime between the acceleration of      the tax sale. The redemptive price
                                         generally is the purchase or bid       250,000 where the commissioners
the underlying note and the foreclo-                                            court has adopted these require-
sure sale. To do so, the debtor must     price plus penalties, interest and
                                         other associated costs.                ments for tax sales.
pay the lender the entire underlying                                               The successful bidder takes title
indebtedness, interest and other costs      The right of redemption arises
                                         solely by statutory authority. It      subject to the former owner’s
due at that time.                                                               right to redeem (repurchase) the
   Although the equity of redemption     gives an incentive to the bidders
                                         to purchase the property at its        property for a limited time. The
was intended to aid the debtor, in                                              Texas Constitution establishes two
reality it did little because of the     fair market value, thus lessening
                                         the chances of the former owner’s      redemptive periods depending on the
magnitude of resources required.                                                type of property. A constitutional
If sufficient resources had been         redeeming it. In Texas, the right
                                         of redemption applies only to          amendment that passed in Sep-
available to retire the underlying                                              tember 2003 sets a third two-year
indebtedness, probably the debtor        delinquent tax sales. There is no
                                         right of redemption for mortgage       redemptive period for mineral
would not have defaulted on a                                                   interests.
much smaller installment payment.        foreclosure sales.
                                            Anyone contemplating purchas-          If the property is the residence
More protection was needed.                                                     homestead of the delinquent tax-
                                         ing property at a tax sale should
                                         be aware of the provisions in the      payer as defined in Section 11.13 of
Rights to Cure                                                                  the TTC, or if the land is designated
                                         Texas Constitution and the Texas
   Consequently, in 1987, Texas          Property Code as amended.              agricultural use (ag use) as defined
legislators passed a law permitting                                             in Section 23.51 of the TTC, the
the residential mortgage debtor a        Bidders and Purchasers                 redemptive period is two years. For
second way to stop foreclosure. It                                              all other property, the redemptive
differs from the equity of redemp-       at Tax Sales                           period is six months.
tion because is arises before the           Effective October 1, 2003, not
debt is accelerated and only the         everyone is eligible to purchase       Redemptive Price
amount in arrears must be paid           property at a tax sale. According to      The redemptive price for residen-
the lender.                              Section 34.0445 of the Texas Civil     tial or ag-use property (and possibly
   Effective January 1, 1988, the        Practice and Remedies Code (CPRC),     mineral interests) depends on when
Texas Property Code provides that if     the officer conducting the tax sale    the redemption occurs and if the
the deed of trust or other contract      may not execute and deliver a deed     property is sold to a third party
lien is on real property used as the     to the successful bidder unless he     at the tax sale. If the property is
debtor’s residence, the foreclosing      or she exhibits an unexpired written   sold, the redemptive price during
creditor must give the debtor at         statement from the local county        the first year is the total of:
least 20 days to cure the default        assessor-collector showing the
before acceleration may occur. This      person has no delinquent county,
                                                                                   • the amount bid at the sale;
gives the residential debtor-mort-       school or municipal property taxes.       • the recording fees for the
gagor an opportunity to stop the         The statement must comply with                deed;
foreclosure process by curing the        the information specified in Section       • the amount paid by the pur-
amount in arrears only.                                                                chaser as taxes, penalties,
                                                                                       interest and "costs" and

November 1993 (Revised September 2005)                                                      REAL ESTATE CENTER JOURNAL
   • a 25 percent redemptive premi-               percent redemptive premium          Texas residential mortgage debtors
        um based on the aggregate total           during the second year.          can save their homes from foreclo-
        of the first three items.              The redemptive price for all         sure in two ways. They must act
   If the same property is redeemed        other property parallels that paid      before the foreclosure sale occurs,
the second year, the redemptive            for residential or ag use. The only     however. After a tax sale of a
price remains constant except a 50         exceptions are the:                     residential homestead or agricultural
percent, not 25 percent, redemp-               • redemptive period is 180 days     land, prior owners have up to two
tive premium is assessed.                         after the deed is filed and       years to repurchase their property.
   The term "costs" is defined                                                     The redemption period for all other
                                               • redemption premium to a           property is six months.
in Section 34.21 of the TTC to                    purchaser other than a taxing
mean the reasonable amount the                                                        During the 77 th and 78 th Tex-
                                                  unit cannot exceed 25 percent    as Legislatures, two new rights
purchaser spent for maintenance,                  (Section 34.21[d]).
preservation and safekeeping of                                                    of redemption were added. The
                                              Note. The statute contains some      first deals with the foreclosure of
the property during the redemption
                                           discrepancies between Section           residential property by a property
period including the cost of:
                                           34.21(d) cited above and Section        owners association for nonpayment
    • insurance;                           34.31(b). The latter provides that if   of assessments. The other grants
    • repairs or improvements re-          property other than residential or      landowners the right to repurchase
        quired by local ordinance or       ag use is sold at the tax sale, the     condemned land when the public
        building code, or by a lease       redemptive price is the great of:       use expires.
        in effect on the date the              • the amount of the judgment,
        property was sold;                                                         Redemption from Property
                                               • the "costs" and
    • discharging a lien imposed                                                   Owners Associations
        by a municipality to remedy
                                               • an amount equal to 25 percent
                                                  of the first two items, or          Effective January 1, 2002, own-
        a health or safety hazard on
        the property and                       • the amount of the bid price       ers whose residences are taken
                                                  and                              by foreclosure for nonpayment of
    • impact or standby fees im-
        posed under the Texas Local            • an amount equal to 25 percent     assessment fees have 180 days to
        Government or Water Code                  of the bid price.                redeem the property after receiving
        that are paid to a political          If the first list of items exceed     notice from the property owners
        subdivision.                       the second and the purchasesr re-       association. The redemptive price
                                           ceives more than 125 percent of         depends on whether the property
   If the residential or ag-use property                                           owners association or a third party
is not sold at the sale because of         the bid price, the excess goes to
                                           the taxing units.                       purchases the property at the sale.
an insufficient bid, it is "bid off"                                               For more information, see Center
to a taxing unit that is a party              When the property is sold, the
                                           redemptive price is paid to the         publication number 1548, “Legisla-
to the judgment (Section 34.01 of                                                  ture Limits POA Power.”
the TTC). The property may still           purchaser. However, if the purchaser
be redeemed. The price though, is          cannot be found or is uncooperative,
the total of:                              the former owner can tender the         Redemption
    • the amount of the judgment           necessary amount to the county          from Condemnors
                                           assessor-collector. The assessor-          Effective January 1, 2004, land-
        against the property or the
                                           collector will give the former owner    owners whose real property is con-
        market value as specified in
                                           a signed receipt witnessed by two       demned by a political subdivision
        the judgment, whichever is
                                           persons. The recording of the receipt   have the right to repurchase if the
        less;
                                           gives notice to all persons that the    public use for which it was taken
    • the recording fees for the           property has been redeemed.
        decuments and                                                              expires within ten years. The land-
                                              The right of redemption is a         owner must repurchase within nine
    • the amount of the "costs"            nonpossessory interest in the land.     months after receiving notice of the
        outlined earlier.                  It does not give the former owner       expiration of the public use. The
   Finally, if the residential or ag-      the right to use or possess the         redemptive price is the fair market
use property is "bid off" to a taxing      property nor the right to receive       value of the land at the time of
unit and the taxing unit sells it to       rents, income or other benefits from     the reacquisition. For more details,
a third party, the redemptive price        the property while the redemptive       see Center publication number 394,
is a total of:                             right exists.                           “Understanding the Condemnation
    • the amount paid the taxing              Not addressed is the purchaser’s     Process in Texas.”
        unit by the purchaser,             right to recover the value of im-          This article is for information
                                           provements added to the property
    • the recording fees for the                                                   only; it is not a substitute for
                                           during the redemption period not        legal counsel.
        documents;
                                           included by "costs." No constitu-
    • the amount paid by the pur-          tional, statutory or case law appears
        chaser as taxes, penalties,                                                Fambrough is an attorney, member of the
                                           to authorize such recovery. Conse-      State Bar of Texas and a senior lecturer with
        interest and "costs" and           quently, the purchaser should be        the Real Estate Center and in agricultural
    • a 25 percent redemptive pre-         hesitant to add improvements until      economics at Texas A&M University.
        mium during the first year on       the redemptive period ends.
        the first three items or a 50
                                                               MAYS BUSINESS SCHOOL
                  Texas A&M University                                                                                 http://recenter.tamu.edu
                       2115 TAMU                                                                                             979-845-2031
             College Station, TX 77843-2115


Director, Dr. R. Malcolm Richards; Associate Director, Gary Maler; Chief Economist, Dr. Mark G. Dotzour; Communications Director, David S.
Jones; Associate Editor, Nancy McQuistion; Assistant Editor, Kammy Baumann; Assistant Editor, Ellissa Brewster; Art Director, Robert P. Beals II;
Graphic Designer, JP Beato III; Circulation Manager, Mark W. Baumann; Typography, Real Estate Center.

                                                                Advisory Committee
      Tom H. Gann, Lufkin, chairman; Douglas A. Schwartz, El Paso, vice chairman; Joseph A. Adame, Corpus Christi; David E. Dalzell, Abilene;
  Celia Goode-Haddock, College Station; Joe Bob McCartt, Amarillo; Catherine Miller, Fort Worth; Nick Nicholas, Dallas; Jerry L. Schaffner, Dallas;
                                 and Larry Jokl, Brownsville, ex-officio representing the Texas Real Estate Commission.

    Tierra Grande (ISSN 1070-0234) is published quarterly by the Real Estate Center at Texas A&M University, College Station, Texas 77843-2115.
    Subscriptions are free to Texas real estate licensees. Other subscribers, $20 per year. Views expressed are those of the authors and do not imply
 endorsement by the Real Estate Center, Mays Business School or Texas A&M University. The Texas A&M University System serves people of all ages,
                               regardless of socioeconomic level, race, color, sex, religion, disability or national origin.

								
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