Texas Deficiency Judgment Law

Foreclosures in Texas are conducted almost exclusively by non-judicial foreclosure, although some foreclosures (such as home equity loans) as required to be conducted by judicial foreclosure.  A deficiency is created when a lender forecloses on a property and receives less than what was owed on the property.  A deficiency judgment is created when a lender sues and gets a judgment on the amount still owed on the loan after the foreclosure. Texas has the following restrictions on obtaining a deficiency judgment:

  • A lawsuit to collect on a deficiency must be brought within two years of the foreclosure;
  • The borrower may request that the fair market value of the property be determined by the judge or jury.  The judge or jury may consider the following factors in determining the fair market value: (1) expert opinion testimony; (2) comparable sales; (3) anticipated marketing time and holding costs; (4) cost of sale; and (5) the necessity and amount of any discount to be applied to the future sales price or the cashflow generated by the property to arrive at a current fair market value;
  • The borrower is entitled to an offset if the judge or jury determines that the fair market value of the property is greater than the foreclosure sale price;
  • If the borrower does not request that the court determine the fair market value of the property, then the foreclosure sale price is used to determine the deficiency.  (Texas Property Code Section 51.003).

Regarding the next-to-last bullet point, in a situation where $100,000 was owed on the property when foreclosed upon, the property sold at foreclosure for $70,000, and the property was actually worth $90,000, a mortgage company could only seek a $10,000 deficiency (the amount owed minus the fair market value) even though it actually lost $30,000 (the amount owed minus the foreclosure sale price).

What the fair market value of a property is can be difficult to determine and the homeowner and the mortgage company will likely disagree as to that value.  If you live in Texas and have questions about whether your particular situation might give rise to a deficiency judgment, speak to an attorney in your area for specific guidance.  Or continue searching this site for potential foreclosure options

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