Foreclosure Converts Former Owners Into Tenants At Sufferance Who Can Be Evicted

Trey Wilson San Antonio Texas Real Estate Attorney, Trey Wilson Real Estate Lawyer in San Antonio wrote:

Most home buyers attend closing and are surprised to see the large stack of documents requiring their signatures --   affidavits, verifications, disclosures, contracts, etc.  Sometimes after affixing multiple signatures, buyers go into "auto mode" and sign each document slid across the table to them without even reading or understanding the implications.  This is a mistake, and can have far-reaching implications if things do not go as planned.

Perhaps the most important documents signed by the Buyer at any closing are the Note and Deed of Trust. The Note is a promise to repay a borrowed sum on specified terms (interest rate, payment dates, maturity, etc.), while the Deed of Trust is the "Security Instrument" that contains the loan conditions and lender's remedies in the event of buyer/borrower default. 

Most Deeds of Trust provide that one of lender's remedies is the "power of sale," meaning that the mortgaged property can be sold to a high-bidder to satisfy an outstanding mortgage loan which has been declared to be in default. Such a sale is called a "Trustee's Sale," "Substitute Trustee's Sale" or "foreclosure sale," and is subject to Texas law, but does not require the lender to first file a lawsuit or obtain a judgment. This is why Texas is referred to as a "non-judicial foreclosure" or "title" state.

But what physically happens when the property is sold pursuant to a Deed of Trust, and the buyer/former owner refuses to vacate or surrender possession?  The answer to this question is usually buried deep in the Deed of Trust -- usually on one of those pages that the buyer never bothered to read at the closing table.

Most Deeds of Trust contain a "tenant at sufferance" clause  These tenant-at-sufferenace clauses operate to create a landlord-tenant relationship once a property is foreclosed, with the foreclosure purchaser (purchaser at the Trustee's Sale") acting as "Landlord" and the former owner acting as "Tenant." See Pinnacle Premier Props., Inc. v. Breton, 447 S.W.3d 558, 564-65(Tex.App.-Houston [14th Dist.] 2014, no pet. h.) (op. on reh'g). Obviously, no lease exists, and therefore, there is no demonstrable legal instrument supporting the former owner's right to occupy the property.

The existence of this constructive landlord-tenant relationship can provide grounds for the foreclosure sale purchaser to file and eviction/forcible detainer action against the former owner who has remained in possession of the property. See Chinyere v. Wells Fargo Bank, N.A., 440 S.W.3d 80, 82 (Tex. App.-Houston [1st Dist.] 2012, no pet.). Further, this alleged landlord-tenant relationship suffices as a basis for the eviction action even though the deed of trust may later be set aside for wrongful foreclosure or other reasons. See Villalon v. Bank One, 176 S.W.3d 66, 71 (Tex. App.-Houston [1st Dist.] 2004, pet. denied) (citing Dormady v. Dinero Land & Cattle Co., 61 S.W .3d 555, 559 (Tex. App.-San Antonio 2001, pet. dism'd w.o.j.)).

Under these circumstances, a  justice court will have jurisdiction to hear the forcible detainer / eviction action, even if the former owner has alleged that the lender botched the foreclosure, or that there were deficiencies in the foreclosure process ("wrongful foreclosure") that cast doubt on the sufficiency of the "new owner's" title.  Stated simply, if a deed of trust provides that in the event of foreclosure, the previous owner will become a tenant at sufferance if he does not surrender possession, the justice court (or county court on appeal) can resolve possession. Salaymeh, 264 S.W.3d at 436.Rice, 51 S.W.3d at 712.  

Under these circumstances, a purchaser at a Trustee's Sale can generally prevail in evicting the former owner by providing documentary evidence regarding (1) the existence of a deed of trust containing a tenancy-at-sufferance clause, and (2) the occurrence of a foreclosure sale, which triggered the tenancy-at-sufferance clause.

Understanding the Foreclosure Time Line in Texas

As a real estate lawyer, one frequesntly-asked question I receive from both lenders and homeowners is "How Fast Can a Residential Property Be Foreclosed?"

The answer to this question is generally set out in 2 sources: (i) the documents a borrower signs at closing, including the "promissory note" and "deed of trust;" and (ii) Chapter 51 of the Texas Property Code.

Though often ignored or rushed-through in the excitement of buying a new home, the documents signed at closing are legal instrucments with very serious implications. These documents evidence the buyer's personal promise to pay the mortgage lender, and serve as a legal grant to the lender (called the "mortgagee") of a security/collateral interest in the property being purchased. They also empower the lender to sell the collateral throgh a foreclosure sale when a default occurs. This power is the basis for foreclosure sales following a homeowner's default in his promise to pay the mortgage lender.

Chapter 51 of the Texas Property Code, and Section 51.002 in particular, is the State's way of regulating how the process authorized by the clsoing documents occurs.

Section 51.002(a) provides that a sale of real property pursuant to a deed of trust or other contract lien must be a public sale at auction held between 10 a.m. and 4 p.m. of the first Tuesday of a month. The sale must take place at the county courthouse in the county in which the land is located at a designated area at the courthouse.

In practical terms, Section 51.002(a) means that there is only ONE DAY EACH MONTH upon which foreclosure sales, as known as "Trustee's Sales" take place. The remaining deadlines prescribed by Chapter 51 are triggered by the sale date.

For 2011, Trustee's Sale / Foreclosure Sale Dates are as follows:

January 4, 2011
February 1, 2011
March 1, 2011
April 5, 2011
May 3, 2011
June 7, 2011
July 5, 2011
August 2, 2011
September 6, 2011
October 4, 2011
November 1, 2011; and
December 6, 2011.

Section 51.002(b)requires the foreclosing lender to provide at least 21 days written "Notice of Sale" by: (1) posting notice at the courthouse door of each county in which the property is located; (2) filing a copy of the notice with the county clerk; and (3) serving written notice of the sale by certified mail on each debtor who is obligated to pay the debt. NOTE: Service by of certified mail is complete when the notice is deposited in the United States mail, postage prepaid and addressed to the debtor at the debtor's last known address. Failure or refusal of the borrower to accept the letter has no bearing on the timeline.

However, Section 51.002(b) is not the beginning of the notice period. Instead, Section 51.002(d) requires a mortgage lender or its servicer to FIRST serve a debtor in default under a deed of trust with written notice by certified mail stating that the debtor is in default under the deed of trust and giving the debtor at least 20 days to cure the default. This notice, often referred to as a "notice of Default and Acceleration" must be given at least 20 days before the "Notice of Sale" is given under Subsection (b). This notice must be sent by certified mail, return receipt requested, and the right to receive such notice cannot be waived.

Thus, the timeline may be calculated as follows:

1.date that a debtor in default is sent a Notice to Cure/Notice of Acceleration under Setion 51.002(d).

ADD MINIMUM 20 DAYS.

2. lender to send "Notice of Sale" under Section 51.002(b).

ADD MINIMUM 21 DAYS

3. Trustee's Sale/Foreclosure Sale to take place (MUST BE FIRST TUESDAY OF A CALENDAR MONTH).

It is important to realize that the trustee must strictly comply with Chapter 51 and any other requirements set forth both in the deed of trust and the promissory note to ensure a valid foreclosure.

If insufficient notice of either the Acceleration or the Sale is provided, the sale may be halted by issuance of a Temporary Restraining Order. Also, if the sale does not occur on the date for which notice is provided, the entire process of sending, posting and filing notices must be repeated.

Given the fact that there is only one FORECLOSURE DAY each month, this can significantly delay the sale of the property.