Feb2009 Foreclosure Speech


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Basics of Texas Real Estate Foreclosure and Stopping Foreclosure

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Feb2009 Foreclosure Speech

  1. 2. February, 2008 Jeff Joyce Joyce, McFarland & McFarland LLP Mortgage Foreclosure and Stopping Foreclosure
  2. 3. Basic Concepts of Foreclosure <ul><li>Debt  Foreclosure </li></ul><ul><li>Collateral  Deficiency </li></ul>
  3. 4. Some New Concepts since the last bust <ul><li>Servicers – right to foreclose </li></ul><ul><li>Limitations </li></ul><ul><li>Tax liens </li></ul><ul><li>Deficiencies </li></ul>
  4. 5. Default <ul><li>Same concepts apply with real or personal property collateral </li></ul><ul><li>Defined by loan documents </li></ul><ul><ul><li>Strict compliance </li></ul></ul><ul><ul><li>Avoid sudden moves </li></ul></ul><ul><ul><li>Con si der the history </li></ul></ul><ul><ul><li>Waiver of loan document rights? </li></ul></ul>
  5. 6. <ul><li>Types of debt instruments -- be aware of “partial foreclosures” on matured portion of debt and need to accelerate </li></ul><ul><ul><li>Demand notes </li></ul></ul><ul><ul><ul><li>Debtor’s personal residence exception. Prop Code, Section 51.002(d) </li></ul></ul></ul><ul><ul><li>Term debt/Installment notes </li></ul></ul><ul><ul><ul><li>Debtor’s personal residence exception. </li></ul></ul></ul><ul><ul><ul><li>Monetary default </li></ul></ul></ul><ul><ul><ul><li>Non-monetary defaults </li></ul></ul></ul>Default
  6. 7. <ul><li>Notices </li></ul><ul><ul><li>Demand and opportunity to cure </li></ul></ul><ul><ul><li>Notice of intent to accelerate </li></ul></ul><ul><ul><li>Notice of acceleration </li></ul></ul><ul><ul><li>Waivers -- strictly construed </li></ul></ul><ul><li>Special notices </li></ul><ul><li>After acceleration </li></ul><ul><ul><li>the entire debt is presently due </li></ul></ul><ul><ul><li>care with partial payments </li></ul></ul><ul><ul><li>document events carefully </li></ul></ul><ul><ul><li>ready to foreclose </li></ul></ul>
  7. 8. Judicial Relief <ul><li>Suit on the debt </li></ul><ul><li>Request for judicial foreclosure </li></ul><ul><ul><li>Real estate -- election of exclusive remedy </li></ul></ul><ul><ul><li>Personal property -- cumulative, non-exclusive remedies </li></ul></ul>
  8. 9. Real Estate Foreclosure <ul><li>Lien theory </li></ul><ul><ul><li>No “repossession” before the sale </li></ul></ul><ul><ul><li>Mortgagee in possession </li></ul></ul><ul><ul><li>Creditor prejudgment remedies? </li></ul></ul><ul><li>Deficiency Issues </li></ul><ul><ul><li>Property Code rules -- Section 51.002 thru .005 </li></ul></ul><ul><ul><li>Fair market value “offset” </li></ul></ul><ul><ul><li>Value as of sale date </li></ul></ul><ul><ul><li>Counterclaim or defense for debtor </li></ul></ul><ul><ul><li>Waiver of the offset right? </li></ul></ul>
  9. 10. Real Estate Foreclosure <ul><li>Non-judicial sale </li></ul><ul><li>Minimum standards set by Section 51.002 </li></ul><ul><li>Public sale at the courthouse door </li></ul><ul><li>First Tuesday of the month </li></ul><ul><li>Posting and personal notice </li></ul>
  10. 11. Real Estate Foreclosure <ul><li>Preliminary considerations </li></ul><ul><ul><li>Title search </li></ul></ul><ul><ul><ul><li>Federal Tax liens </li></ul></ul></ul><ul><ul><ul><li>State ad valorem taxes </li></ul></ul></ul><ul><ul><ul><li>Other liens </li></ul></ul></ul><ul><ul><ul><li>Tenants? </li></ul></ul></ul>
  11. 12. Real Estate Foreclosure <ul><ul><li>Consider liability issues </li></ul></ul><ul><ul><ul><li>environmental </li></ul></ul></ul><ul><ul><ul><li>nuisance </li></ul></ul></ul><ul><ul><ul><li>bankruptcy </li></ul></ul></ul><ul><ul><ul><li>lien subordination </li></ul></ul></ul><ul><ul><ul><li>ADA </li></ul></ul></ul><ul><ul><ul><li>Forfeiture statutes </li></ul></ul></ul><ul><ul><ul><li>Limitations? </li></ul></ul></ul><ul><ul><ul><li>Deed in lieu of foreclosure? </li></ul></ul></ul>
  12. 13. Real Estate Foreclosure <ul><li>Trustee or substitute trustee </li></ul><ul><ul><li>Individual trustee has the power of sale </li></ul></ul><ul><ul><li>Resignations/appointments must strictly follow the deed of trust </li></ul></ul><ul><ul><li>Posting by trustee and sale by successor </li></ul></ul>
  13. 14. Real Estate Foreclosure <ul><li>Notice -- 21 days before the sale </li></ul><ul><li>Posting -- follow deed of trust </li></ul><ul><ul><li>filing with County clerk </li></ul></ul><ul><li>Personal notice </li></ul><ul><ul><li>Grantor of deed of trust </li></ul></ul><ul><ul><li>Debtor (does not include guarantors) </li></ul></ul><ul><ul><li>Certified mail </li></ul></ul><ul><ul><li>Addressed per creditor’s up to date records </li></ul></ul>
  14. 15. Real Estate Foreclosure <ul><li>Notice contents </li></ul><ul><ul><li>Property description </li></ul></ul><ul><ul><li>Date, place and time (within 3 hours) </li></ul></ul>
  15. 16. Real Estate Foreclosure <ul><li>The Sale </li></ul><ul><ul><li>Courthouse door or designated area </li></ul></ul><ul><ul><li>Cash bidding (time to procure) </li></ul></ul><ul><ul><li>Parcel or bulk sale? </li></ul></ul><ul><ul><li>Recess and reconvene but don’t stop and start over </li></ul></ul><ul><ul><li>Debt covered </li></ul></ul><ul><ul><ul><li>principal </li></ul></ul></ul><ul><ul><ul><li>interest </li></ul></ul></ul><ul><ul><ul><li>reasonable trustee fees </li></ul></ul></ul><ul><ul><ul><li>reasonable attorneys fees </li></ul></ul></ul>
  16. 17. Real Estate Foreclosure <ul><ul><li>Price at sale deemed market if fair sale </li></ul></ul><ul><ul><li>Trustee’s Deed -- a quitclaim </li></ul></ul><ul><ul><li>Trustee distributes proceeds </li></ul></ul>
  17. 18. Real Estate Foreclosure <ul><li>Wrongful foreclosure </li></ul><ul><ul><li>Defect in process/grossly inadequate price </li></ul></ul><ul><ul><li>Election of remedies </li></ul></ul><ul><ul><ul><li>cancel sale with tender of debt </li></ul></ul></ul><ul><ul><ul><li>damage claim </li></ul></ul></ul><ul><ul><li>Recovery of real estate </li></ul></ul><ul><ul><ul><li>tender debt </li></ul></ul></ul><ul><ul><ul><li>BFP cuts off right (not original sale buyer) </li></ul></ul></ul><ul><ul><ul><li>Limitations -- void or voidable issue </li></ul></ul></ul>
  18. 19. Real Estate Foreclosure <ul><ul><li>Damages for wrongful foreclosure </li></ul></ul><ul><ul><ul><li>the debtor’s equity -- value above the debt </li></ul></ul></ul><ul><ul><ul><li>exemplary damages </li></ul></ul></ul><ul><ul><ul><li>causation required </li></ul></ul></ul><ul><ul><ul><li>limitations -- 4 years after sale </li></ul></ul></ul>
  19. 20. Personal Property Related to Real Property <ul><li>Election </li></ul><ul><ul><li>Real Estate Process </li></ul></ul><ul><ul><li>UCC Process </li></ul></ul><ul><li>Fixtures </li></ul>
  20. 21. STOPPING FORECLOSURE Emergency Practice Pointers <ul><li>Do right -- it’s about equity </li></ul><ul><li>Why will a damage claim not suffice? </li></ul><ul><li>Don’t create the emergency </li></ul><ul><li>Get it right -- tie goes to the Judge </li></ul><ul><li>Read the statute and rules -- no matter how pressed for time </li></ul><ul><li>Bond requirement -- get started on it first </li></ul>
  21. 22. STOPPING FORECLOSURE Venue <ul><li>Section 65.023 -- Civil Practice and Remedies Code </li></ul><ul><li>If primary relief is injunction -- where the defendant is domiciled </li></ul><ul><li>If not primary relief -- follow standard venue rules </li></ul>
  22. 23. STOPPING FORECLOSURE TRO vs. Temporary Injunction <ul><li>TRO </li></ul><ul><ul><li>Without notice </li></ul></ul><ul><ul><li>No evidentiary hearing -- on papers </li></ul></ul><ul><ul><li>14 days </li></ul></ul><ul><li>Temporary Injunction </li></ul><ul><ul><li>Notice required </li></ul></ul><ul><ul><li>Evidence required </li></ul></ul><ul><ul><li>Until trial on the merits </li></ul></ul>
  23. 24. STOPPING FORECLOSURE Status Quo -- the sole function <ul><li>Only to maintain the status quo </li></ul><ul><li>No mandatory relief </li></ul><ul><li>“ the last actual, peaceable, non-contested status preceding the pending controversy” </li></ul>
  24. 25. STOPPING FORECLOSURE Procedure <ul><li>Verified pleading </li></ul><ul><li>Bond </li></ul><ul><ul><li>Mandatory -- cannot be waived </li></ul></ul><ul><ul><li>Condition of bond -- pay damages if dissolved in whole or in part </li></ul></ul><ul><li>Order </li></ul><ul><ul><li>Reason for issuing -- meaning why injured </li></ul></ul><ul><ul><li>No separate findings/conclusions </li></ul></ul><ul><ul><li>Parties bound </li></ul></ul>
  25. 26. STOPPING FORECLOSURE Equity <ul><li>Probable right </li></ul><ul><li>Probable injury </li></ul><ul><li>Inadequate remedy at law </li></ul>