Any lender who has worked on a foreclosure understands that a single mistake can be costly. Notices must be delivered on time in the exact manner specified by statute, and the procedures for conducting the sale must be strictly followed. An innocent mistake can result in an invalid foreclosure sale, which is in nobody's interest. Dealing with the aftermath of such a sale is time consuming, expensive and nerve wracking for all parties involved.
Two new laws passed by the Texas Legislature this spring that are now in effect give lenders tools to avoid dealing with invalid foreclosure sales in certain circumstances.
House Bill 2066 allows a lender to rescind a nonjudicial foreclosure within 60 days of the sale in certain cases. For example, imagine a borrower files bankruptcy immediately prior to the sale. The trustee does not learn about the bankruptcy filing until after she conducts the sale. The bankruptcy filing, of course, invalidates the sale. Under House Bill 2066, the lender now has a nonjudicial method to rescind the sale in this situation. The lender must serve notice on the borrower and purchaser of the property and record the notice in the real property records of the county where the property is located. Additionally, the lender/seller must return the bid amount plus interest to the purchaser within five days of the rescission. Once rescinded, the defects can be corrected and a new, proper sale can proceed.
House Bill 2067 gives lenders the ability to unilaterally abandon acceleration and stop the statute of limitations from running. Often, a lender will accelerate a defaulted note, initiate foreclosure proceedings, and then pass on the actual sale. Unless the acceleration has been formally rescinded, once the lender is again ready to foreclose the time between the original acceleration and the new foreclosure posting counts towards the four-year statute of limitations. House Bill 2067 allows a lender to rescind the acceleration by simply sending a notice to the borrowers in the method prescribed by statute.
There are two main takeaways here for lenders. First, if a careful review of a completed foreclosure sale reveals a defect, take action immediately to rescind the sale and try again. Second, if a lender anticipates that a foreclosure will be postponed indefinitely, consider rescinding the acceleration to stop the statute of limitations from running. The foreclosure process still requires strict compliance, but these two laws give lenders some new tools to mitigate some of the harsh consequences of foreclosure missteps.
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