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Mortgage foreclosures in Texas have been a part of the real estate industry for years, but the process can be so intricate and complex, it leaves many wondering exactly what they are and how they work. This is a critical concept for sellers, buyers, borrowers, and lenders to have. Whether you are facing a foreclosure or are an entity struggling to foreclose on a piece of real property, a knowledgeable real estate attorney is an asset you will need moving forward.

What Is a Foreclosure?

When someone buys a piece of property, they generally have to borrow money to do so either from a bank or mortgage company. Sometimes a seller will even make a loan, and then the buyer/borrower will sign a promissory note committing to make payments over a predetermined number of years and pay interest on it. Should those payments not be made, the buyer or borrower agrees their house can be foreclosed upon.

The instrument that allows a foreclosure to happen is often referred to as a deed of trust which acknowledges the real property in open records so the public can see that the lender has a lien on the property. This action protects some other lien or subsequent buyer of the property from declaring they were unaware about the mortgage or debt on the property because it is a matter of public record.

In a deed of trust there is something called a power of sale clause, which gives the holder of a mortgage the right to foreclose on a property if there is a default on the mortgage. These defaults can be considered breeches of the deed of trust and may take different forms, such as:

• Not making a required payment
• Not paying insurance on the property
• Not paying taxes on the property
• Not paying homeowners’ association dues
• Damaging or modifying the property in a way that affects the property’s value

If there is a default and the borrower and the lender have been unable to work out their differences, the lender may choose to go ahead and foreclose. If the property is a residence which is the primary residence or homestead of the owner, the mortgage company is required to give the borrower a limited window of time to cure a default. In other words, if the borrower has three payments to make up or taxes to pay, they may be able to do so in this window.

If the borrower fails to cure a default, then the mortgage company or holder of the note can accelerate the mortgage requiring the borrower to pay the entire balance of the note due immediately or else the property may be foreclosed upon in twenty-one days. At this time the lender will post the property in the county where the property is located.

How Foreclosure Sales Work

Foreclosure sales are typically set for the first Tuesday in every given month, with the exception being if the first Tuesday of the month falls on either January first or July fourth, in which case the sales would take place on Wednesday.

A foreclosure sale can in some ways be reminiscent of a wild west auction. In general, they occur in front of a county courthouse, although Harris County in Texas has been known to hold it at the Bayou Event Center. This event attracts a wide variety of people who attend with the intent to pay cash in the form of cashiers checks to the trustee or substitute trustee conducting the sale.

These sales are set within a 3-hour window usually between the hours of 10a.m. and 4p.m. on that first Tuesday of the month. A trustee will come forward and announce they have a property for sale along with some statutory required information. They will then verbally declare they will allow the property to be bid on and normally the mortgage company will start the bidding.

The mortgage company can bid the balance of their note as a credit bid, which means they do not have to come up with the money because they already have it. The balance of the note still generally includes attorney fees, interest that accrues, the principal balance of the note, other things a mortgage company may have had to do to secure or insure the property, and a reasonable commission for the trustee who sells the sale.

Once bidding opens, the high bid is often from the mortgage company. This is frequently why a property is foreclosed upon to begin with, because the property does not have enough value to cover the balance of the mortgage due to the lack of equity. If the mortgage company bids and no one else does, the trustee or substitute trustee will issue a substitute trustee’s deed to the mortgage company. The mortgage company then owns the property.

There are some cases in which after a mortgage company takes ownership that they may have to go through an eviction to take the house. However, in general, most mortgage companies do not like to hold on to houses and instead prefer to have someone fix up the property, list it with a realtor, and sell it as quickly as possible.

If there is some equity in the property and the bid by the creditor is low enough that other people want to bid too, they can. It is not uncommon to see groups of people who attend foreclosure sales every month in search of finding a property that is worth bidding on and then entering a bidding war. It is worth noting that these individuals and groups must have cash or cashiers checks ready to pay to the substitute trustee’s deed upon conclusion of the sale.

At this point, the substitute trustee must then take their commission, pay the balance due to the mortgage company, and then the excess money can go to whoever has the next claim on the property. This may be the owner if there are no other liens on the property. In some situations, in which there is a sizeable amount of money left over, a trustee may choose to enter the money into the registry of the court and name others who may be on lien or title documents to have claim to it. This may be followed by the trustee having their legal fees paid and then stepping away from the lawsuit, leaving lien holders to fight it out for the money.

How Foreclosures Can Sometimes Be Halted

Just because a lender has posted the property for foreclosure does not necessarily mean they are going to actually foreclose. There are three specific situations in which foreclosures may be halted, such as:

1. A solution between the borrower and lender. It may be possible in the 21 days between the posting of the property and the actual foreclosing of the property for a borrower to work something out with the lender and either get caught up or have a buyer for the property.
2. Injunctions and TROs. Should there be a dispute between the borrower and lender due to the amount of equity in the property, the borrower may have a court enter an injunction enjoining the lender from foreclosing. This can take the shape of a TRO or temporary restraining order of 14 days. This often requires the borrower to post a bond, something they are frequently unable to do if paying the mortgage was already a challenge.
3. Bankruptcy. This is becoming increasingly common. On the day of or before the foreclosure, some people will file either Chapter 13, 11, or 7 bankruptcy that in turn places an automatic stay that prevents a foreclosure until the bankruptcy case is dismissed or the court enters an order to modify or lift the automatic stay.

How an Attorney Can Assist with the Foreclosure Process

Lawsuits can happen both before and after a foreclosure and typically a knowledgeable attorney’s assistance is needed to ensure a smoother process. Real estate attorneys can assist with:

• Getting temporary restraining orders
• Helping a client file bankruptcy to prevent a foreclosure
• Representing lenders if a borrower is not paying and refuses to vacate the property
• Representing buyers of loans who go through the process of negotiating with lenders and proceeding with foreclosures
• Helping with related title issues

Foreclosures do not just apply to houses, although that is the most common scenario. Foreclosures can also happen on high rise buildings, farms, raw land, oil and gas rights, or any interest in real property that is financed and has a lien on it. For assistance with all things related to foreclosure, ensure that your rights are protected with the help of a reputable attorney.

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Although it is not a welcome prospect, things to consider before a business owner dies are critical in the here and now. If you are a business owner who has not yet given thought to what will happen to the company you have worked so hard for, you risk losing everything for yourself as well as any potential beneficiaries. Estate planning is not just for individuals, it is essential for business owners as well. To protect all that you have built in assets, relationships, and more, it is advised for you to meet with an estate planning attorney as soon as possible so your legacy does not go unsecured.

What Happens to a Corporation When the Business Owner Dies?

In the unfortunate event that a business owner dies, one of the most frequently asked questions by personnel and relatives is, “What will happen to the business?” To a degree, this depends on how it is classified. For example, a corporation or limited liability company does not die, even if the owner does.

A corporation can live until it is either:

1. Voluntarily terminated by filing papers with the state of the corporation
2. Terminated by the state for issues with creditors, failure to file the proper forms, or failure to pay a state franchise tax

Aside from the above, a corporation should continue to exist even if the president or sole shareholder of the company dies.

Why Wills Are Important for Corporation Stocks

Corporations have stocks, and if the owner who owned all or even the majority of that stock dies, the stock then becomes an asset that is subject to probate. This means that the person’s will can determine who will get his or her corporation stocks in the event of their death.

In addition to having a will, some owners may choose to put corporate stock into a trust, as in some cases this can avoid probate and keep a business from ceasing to operate. If upon their death an owner wants to give stock to charity, that can be done through a will or a combination of a will and a trust. It is important to discuss this with your lawyers and accountants before taking action as sometimes there can be more advantage to making charitable contributions before death.

Giving advance thought to who will get the corporation stocks if a business owner dies is critical for both the individual’s and company’s wellbeing. Because life is unpredictable and we are not promised tomorrow, it requires both parties to be proactive now, regardless of the age or health of the owner.

The Importance of Securing a Successor Now

Business owners often have strong relationships with employees, customers, suppliers, and government agencies, and in the event that the owner passes, those relationships must be able to be maintained in their absence.

Many companies mistakenly do not consider that it could take some time for the business to recover from the death of an owner because that person may have acted as the primary agent in:

• Bringing in business
• Collecting monies owed
• Fulfilling contracts

The result is that in some cases a business owner can be difficult to replace. At the very least it may require time and money to do so. For this reason, it can be beneficial to have insurance or enough cash stored away that this can be handled without waiting.

For some businesses such as sales, accounting, and such, the owner’s personal relationship with a client or customer base is critical to the company’s success. In situations like these, when an owner passes it is not uncommon for employees or staff to panic and try to grab the business, form their own business, or take the practices and relationships to a new employer who will reward them.

To keep the business from ending up this way after the owner’s death, it is important to make good use of covenants not to compete, as well as consider the following questions now, before it becomes an issue:

• Who is going to take over the company?
• Will it be a family member?
• Will it be a current employee?
• Will it be someone from the outside?
• Is there anybody able to take over?
• Is selling the business a better way to go?

Doctor’s offices, in particular, can struggle with this type of situation because of the nature of their practice. Over time a doctor typically builds up a practice that might have value to another doctor. If the owner/doctor passes, it is critical to move swiftly in getting an executor appointed to facilitate selling their book of business to another doctor before it is taken over.

This can be true of non-medical businesses too, as if there is no one in the family or business ready and willing to take over the role of owner, it is possible the business will end up being sold to an existing competitor or someone who wants to get into that business.

A corporation needs to make sure it is governed properly in the event of the owner’s passing. If there is not someone such as a Vice President who might be designated to automatically take over, there should be a shareholders meeting. If the shareholder is dead, a probate estate should be established, and an executor or administrator appointed. The appointed party would then act as the shareholder and be able to do tasks such as taking paperwork to the bank to show the corporation is now changing the authorized signer on the account.

Determining the Valuation of a Company

It can be complex to determine the valuation of a company because there are multiple concepts for doing so.

• Sometimes a company will have value because it owns something such as process, machine, or brand name recognition. In these situations, the company has goodwill that has some value that the company will want to preserve.
• In other cases, goodwill can be more personal if the founder or owner of the company’s relationships are key in getting people to come to them to do business. In other words, a person or entity is in relationship with the business specifically because of the owner, not the company, per se.

 

What to Do Now If Your Business’ Success Centers Around You as the Owner

While it can be quite the compliment to have business come to you because of your personal reputation and character as a business owner, it can also be responsible for the fast demise of your company after your passing or retirement.

A company earning millions of dollars annually because an owner has made a name for himself and established and maintained critical relationships will be in trouble when the owner dies and the people they had relationships with no longer feel obligated to work with their business.

This type of set up can make a business owner almost impossible to replace unless they take action now. Ensuring a balance between the relationships they have with the customers and other people within the company is key.

For a law or accounting firm, this may look like bringing in some of the younger company executives during the process of meeting and developing clients so that if a senior partner retires, dies, or decides they want to do something entirely different, the junior partners are able to then continue the owner’s legacy.

 

Prepare for Changes in Existing Business Relationships After an Owner Passes

Business owners typically have unique relationships with key players such as banks and suppliers, and it is common for these relationships to change after their passing. Some examples of this can be:

• Bankers who may have felt quite comfortable in loaning a dollar a day and getting paid back the next
• Suppliers who would willingly ship goods in August and not get paid until September

Without that relationship with the owner, banks and suppliers can be much less comfortable with the state of things, which can then negatively impact the company. If a bank has your operating account and capital line, it may freeze the account and use it to pay their note if they are feeling insecure. A supplier who may not have thought twice about shipping twenty thousand dollars of goods to the business each month may reconsider if they want to move forward in the same way.

No matter how healthy or young a business owner is, it is critical to anticipate the unthinkable so that the business and beneficiaries do not suffer. Key questions for an owner to consider now include:

• Who are the shareholders?
• Who are potential purchasers?
• Who are competitors you might be willing to sell to?
• Who will take over?
• Who will have authority?
• Functionally, who will be able to take over the business?
• What is the business worth?
• How will the customer base be maintained?
• How will employee and supplier relationships be handled?
• How will the value of the business be maintained in the event of disability or death of the owner?

Because life and business can change so rapidly, these questions should be evaluated on a near constant basis. Take action today to protect all that you’ve built for tomorrow.