Foreclosures & Short Sales

In Texas, there are two types of home mortgage foreclosure - judicial and non-judicial. Judicial foreclosure is also referred to as "In-Court Foreclosure," and the lender must file a lawsuit in court to foreclose on the borrowed property. The court then grants the foreclosure and the property is sold at auction. Non-judicial foreclosure is also known as "Out-of-Court Foreclosure." In this type, a Power of Sale clause is included in the mortgage which allows the lender to sell the property to pay off the defaulted loan without going to court first.

According to Foreclosure Law, lenders in Texas will often wait about 60 days after a missed mortgage payment to start the foreclosure process. During that time, the lender will typically send their borrower notices requesting payment. Sometimes lenders are willing to make arrangements for payment to avoid going through foreclosure proceedings. Once the proceedings have begun, they can be stopped if the borrower is able to pay off any back balances and fees or negotiate a payment arrangement with the lender. Sometimes property owners will refinance their original morgage loans to avoid foreclosure and get more affordable payments.

These days, many people in America are facing the threat of foreclosure. With this threat looming overhead, financially distressed property owners are looking for ways to avoid it. One option that is not extremely well known is a "Short Sale." Typically short sales have been reserved for stocks and other finance-related transactions, but they are becoming increasingly popular as an avoidance tactic from foreclosure.

In a short sale, the lender agrees to discount a loan balance due to an economic or financial hardship on the part of the property owner. The owner then sells the property for less than the outstanding balance of the loan and turns all of the proceeds over to the lender. A short sale is generally less expensive and quicker than a foreclosure.

Short sales can also be referred to as "Pre-foreclosure sales." As the name implies, it is a sale of the property before it is officially repossessed or foreclosed on by the lender. Though a short sale can be less damaging to a property owner than a foreclosure or bankruptcy, there are still negative effects associated. First of all, the owner's credit will still be adversely affected by settling with the lender. It has been shown that the effects on credit are about the same in foreclosures and short sales. They could equally drop a credit score by as much as 200-300 points. However, short sale sellers are viewed as "less risky" than foreclosed sellers.

When done correctly, a short sale can be quite beneficial for both the owner and the lender. For the property owner, it can provide the opportunity to avoid foreclosure and all of the negativity that comes along with it. On the other side of the coin, the lender will receive most of the value of the loan sooner than a foreclosure or continued non-payment and will avoid incurring any additional legal or carrying costs during the process.

More information:

Texas Foreclosure Laws

Texas Short Sales