A Guide to Texas Homestead Foreclosure

Category: Law

When you take a loan to purchase a home, the lender will ask you to sign two separate documents related to the amount given: promissory note & mortgage. These two documents differ significantly from each other in terms of roles, responsibilities and privileges granted to all concerned parties. Contrary to popular misconception, mortgage which is also known as deed of trust is not the contract signed between the lender and borrower to purchase the house against the borrowed amount. It is the promissory note that includes the promise to pay the loan amount and the manner in which it must be paid in the future. On the other hand, mortgage contains the steps that the lender could take in the event the borrower is not been able to pay the loan in the manner stated by the promissory note.

The various details contained in the promissory note include the name(s) of all the borrowers with the full address of the concerned property, interest rate and its nature, late charges levied, total principal amount, and the number of years in which it must be paid in full. Mortgage acts as a security for the loan taken and contains an extremely important clause known as the acceleration clause that legally entitles the lender to demand the outstanding loan amount in full from the borrower or sell the concerned property to satisfy the borrower’s indebtedness.

One other differentiating point between these two documents is that the promissory note, unlike mortgage, is not recorded in the county land records and it stays with the lender till the time loan obligation is not completed from the side of the borrower after which it is marked as paid in full and is given back to the borrower. Mortgage though has to be recorded in the county land records shortly after it has been signed by the borrower and is taken off the records only after the successful payment of the loan amount.

If you fail to pay 2-3 mortgage payments, the lender will send you letters and may also call you to ask for previously due payments. It is highly advisable not to ignore these letters & calls and you must contact the lender to discuss other possible options such as loan modification, forbearance, or a payment plan. It must be noted that the mortgage servicer has to wait for at least 120 days of non-payment before the first official notice to the borrower or any judicial or non-judicial measure for filling foreclosure could be made. Most mortgage documents have a clause that makes it necessary for the lender to first send the borrower a notice regarding the delinquency and apprising him/her that the loan will be accelerated if due payments are not made and foreclosure proceedings will also be initiated. This notice sent to the borrower is known as a breach or demand letter. Generally, it provides a time period of 30 days for the borrower(s) to cure the default. In Texas, if loan is not cured within this 30-day period, then the lender sends a notice of sale to the borrower(s) at least 21 days before the homestead foreclosure is scheduled to take place.