An Expert Guide to Buying Foreclosures in Texas
Buying a foreclosure in Texas can be an excellent opportunity to acquire a property at a discounted price. In fact, recent data shows that home foreclosures are on the rise in the Lone Star State.
While buying foreclosure properties is an excellent way to get a significant return on investment, you must pick and choose the right units and ensure legal compliance to avoid potential pitfalls.
Read on to learn how real estate foreclosures in Texas work, how to get started, and laws and regulations to be aware of.
Key Takeaways
- In Texas, foreclosures can be judicial or non-judicial, with non-judicial being more common.
- Ensure you assess the property’s condition, investigate outstanding liens or unpaid taxes, and review foreclosure documents to avoid potential pitfalls.
- Explore traditional mortgages and alternative financing options to be prepared for foreclosure purchases.
- Utilize online platforms, real estate agents, foreclosure auctions, and networking to locate potential foreclosure properties.
- Understanding key Texas laws and regulations for a legally compliant investment.
How Do Foreclosures Work in Texas?
In Texas, foreclosures can be either judicial or non-judicial, with non-judicial foreclosures being more common.
A judicial foreclosure involves filing a lawsuit to obtain a court order to foreclose, while a non-judicial foreclosure allows the lender to foreclose on the property without going through the court system.
For non-judicial foreclosures, the process typically begins when a borrower defaults on their mortgage payments. The lender will then send a notice of default and intent to accelerate, giving the borrower a specified period (usually 20-30 days) to cure the default.
If the default is not cured, the lender will send a notice of sale, which must be posted at a Texas county courthouse and filed with a county clerk at least 21 days before the sale date.
The foreclosure sale is held at a county courthouse on the first Tuesday of the month between 10:00 a.m. and 4:00 p.m. The property is sold to the highest bidder. If the lender buys the property, it becomes known as real estate owned (REO).
In Texas, there is no right of redemption for borrowers after a foreclosure sale. This means they can’t reclaim the property by paying the outstanding debt. However, if the proceeds from the sale exceed the debt owed, a borrower is entitled to the excess funds.
The Texas Foreclosure Market
The Texas foreclosure market has experienced fluctuations in recent years that have been influenced by various economic factors and housing market trends. Despite these changes, Texas remains a popular state for real estate investors and homebuyers seeking foreclosure opportunities, with 2,977 foreclosure starts in the first quarter of 2024.
Texas areas with the highest foreclosure rates include Houston, Dallas-Fort Worth, San Antonio, and the coastal areas such as Corpus Christi and Galveston.
How to Find Foreclosures in Texas
Finding foreclosures in Texas requires research and utilizing various resources. Some effective methods for locating foreclosed properties include:
Step 1: Checking Online Resources
Online listing services all have Texas foreclosure pages, including Zillow, Redfin, and Realtor.com. Additionally, many banks and lenders maintain online listings of their REO properties such as Bank of America in Texas
Plus, you can find Texas foreclosure properties on government websites such as the Department of Housing and Urban Development and the Department of Veterans Affairs. Local Texas county websites also have foreclosure listings, such as the Travis County Tax Office.
Step 2: Working with Real Estate Agents
Some Texas real estate agents specialize in foreclosures and can help you find properties that match your criteria. Additionally, agents with access to the Multiple Listing Service can identify foreclosed properties listed for sale, some of which aren’t publicly available.
Step 3: Attending Foreclosure Auctions
Foreclosure auctions are held at county courthouses on the first Tuesday of each month. However, some counties may conduct foreclosure auctions online, allowing buyers to bid remotely.
To prepare for a foreclosure auction, thoroughly research the properties, their market values, and any liens or back taxes owed, and secure financing beforehand. Additionally, understand the auction rules, and procedures, and be prepared with the required deposit.
Step 4: Networking and Word-of-Mouth:
Joining local real estate investor groups can provide access to foreclosure opportunities and valuable insights from experienced investors. The Texas Real Estate Investors Association (REIA) contains a list of all the local REIAs across the state.
Additionally, building relationships with Texas real estate attorneys and title companies involved in the foreclosure process may lead to early access to foreclosure listings.
Step 5: Buying a Pre-Foreclosure Home in Texas
A pre-foreclosure is a property in the early stages of the foreclosure process, where the homeowner has defaulted on their mortgage but the lender has not yet completed the foreclosure sale.
There are many advantages of pre-foreclosure homes for both buyers and distressed homeowners, including:
- Potential for a lower purchase price compared to market value
- Opportunity to inspect the property before making an offer
- Possibility of negotiating directly with the homeowner
- Less competition compared to foreclosure auctions
However, the disadvantages of buying a pre-foreclosure include:
- Homeowners may be uncooperative or difficult to contact
- The property may have significant outstanding liens or unpaid taxes
- The pre-foreclosure process can be complex and time-consuming
- There is no guarantee that the sale will be completed, as the homeowner may cure the default
Before purchasing a pre-foreclosure property in Texas, make sure you research the property’s ownership, outstanding liens, and unpaid taxes.
Then, attempt to contact the homeowner, express interest in purchasing the property, and negotiate a purchase agreement. You should also complete necessary inspections and secure financing before closing a pre-foreclosure sale.
Due Diligence When Buying a Foreclosure
Conducting thorough due diligence helps you make an informed decision and avoid potential pitfalls when buying a foreclosure. This process includes:
Assessing the Property’s Condition
Hire a professional Texas home inspector to identify any structural issues, repairs, or safety hazards. You should also estimate the cost of necessary repairs and factor them into your budget
Additionally, consider the age and condition of major systems, such as plumbing, electrical, and HVAC before buying.
Investigating Outstanding Liens and Unpaid Taxes
Conduct a title search to identify any outstanding liens, judgments, or unpaid property taxes.
Also, consider working with a Texas title company to ensure that the title is clear and free of encumbrances.
Researching the Property’s History
Review the property’s ownership history and any previous sales or transfers. Then, investigate any past building permits, code violations, or zoning issues. It also helps to assess the neighborhood’s crime rates, school quality, and amenities.
Evaluating the Property’s Market Value:
Analyze comparable sales in the area to determine the property’s fair market value
Consider the potential resale value and appreciation potential of the property
Factor in any necessary repairs or upgrades when determining your offer price
Reviewing Foreclosure Documents:
Carefully review all foreclosure documents, including the notice of default and notice of sale. Also, ensure that the foreclosure process has been conducted in accordance with Texas law
Financing a Foreclosure Purchase in Texas
Securing financing is a key step in buying a foreclosure in Texas. While traditional mortgage options are available, foreclosure purchases may also be eligible for alternative financing methods. It depends on what financing options you prefer and what you qualify for.
Traditional Mortgage
A traditional mortgage can be a conventional loan, government-backed loan, or a portfolio loan.
Conventional loans are offered by banks, credit unions, and mortgage lenders. They typically require a higher credit score and down payment compared to government-backed loans.
On the other hand, government-backed financing includes FHA, VA, and USDA loans. This option offers more flexible credit and down payment requirements.
Some lenders offer in-house portfolio loans with unique underwriting criteria that may be more accommodating for foreclosure buyers.
Alternative Financing Methods
If a traditional mortgage doesn’t work for you, consider these alternative financing options:
- Hard money loans: Texas hard money lenders provide short-term loans that are offered by private lenders and are based on the value of the property rather than on your creditworthiness. However, they often have higher interest rates and shorter repayment terms.
- Seller financing: In some cases, the seller (usually the bank or lender) may offer financing to the buyer, which can be a great option for those unable to secure traditional financing.
Foreclosure Laws & Regulations in Texas
Before buying a foreclosure property, it’s important to understand Texas foreclosure laws and regulations to ensure a smooth and legal transaction.
Chapter 51: Provisions Generally Applicable to Liens
Chapter 51 provides guidelines for the creation, perfection, and foreclosure of liens on real property. For buyers of foreclosure properties, it outlines the legal requirements and processes for acquiring a clear title and dealing with any existing liens on the property.
Chapter 53: Mechanic’s, Contractor’s, or Materialman’s Lien
Chapter 53 deals with liens placed by contractors, subcontractors, or suppliers who have not been paid for work or materials.
Buyers need to ensure there are no outstanding mechanic’s liens on a property, as these can survive foreclosure and require resolution before a clear title can be obtained.
Texas Rules of Civil Procedure – Rule 735 & 736
Rules 735 and 736 outline the expedited judicial foreclosure process for home equity loans, reverse mortgages, and certain liens.
Buyers must understand these rules regarding the foreclosure process and ensure that the property’s foreclosure was handled legally and properly.
Texas Constitution – Article XVI, Section 50
This section provides protections for homestead properties against forced sale for most debts, except for specific exceptions like mortgages and property taxes.
Buyers need to verify that a foreclosed property doesn’t have homestead protection to ensure the foreclosure is valid.
Bottom Line
While buying foreclosure properties in Texas can be challenging, the potential benefits of acquiring a property below market value can make it worthwhile.
Texas foreclosure purchases require careful consideration and a willingness to take on additional risks compared to traditional home purchases. However, with the right knowledge, resources, and support, this can be a viable path to homeownership or investment success.
