Many of Texas’ largest counties have suspended foreclosures for the month of April amid coronavirus (COVID-19) concerns, including the state’s two largest counties, Harris and Dallas. Texas Gov. Greg Abbott, however, has yet to issue an executive order or make a general proclamation cancelling all foreclosures statewide. Likewise, the Texas Supreme Court has also declined to act on the issue. Creditors seeking to proceed on “foreclosure Tuesday” must therefore take into account local (and in the future possibly statewide) prohibitions on such sales when determining whether to proceed with pending foreclosures or re-noticing for future postings.
For most types of conventional commercial and residential mortgages, Texas is a non-judicial foreclosure state. Lenders can foreclose without a court order so long as the mortgage documents contain a power of sale clause (hence Texas is sometimes referred to as a “power of sale state”). Pursuant to Chapter 51 of the Texas Property Code, foreclosure sales are conducted on the first Tuesday of every month, generally at the courthouse steps (or at a place designated by that county). These sales are of particular concern for local officials during a pandemic, as the large crowds that gather to bid on these properties can number in the hundreds. Officials have also raised concerns about the ability of successful bidders to pay delinquent property taxes when tax offices remain closed during the health crisis.
Action had already been taken at the national level to suspend foreclosures and evictions for 60 days, pursuant to an order given to the Department of Housing and Urban Development by President Trump. Furthermore, the recently passed CARES Act places a 60-day moratorium (that started on March 18, 2020) on foreclosures of federally backed mortgages on homes.It allows homeowners to request and receive 180 days of forbearance on mortgage payments for these federally backed mortgages, with an option to extend for an additional 180 days. Similarly, Fannie Mae and Freddie Mac are providing payment forbearance to borrowers impacted by the coronavirus. It should be noted, however, that these bans do not apply across the board and do not affect the ability of lenders to foreclose on non-federally insured loans or commercial loans.
Some states, such as Indiana, Kansas, and New York (which is a judicial foreclosure state), have issued statewide bans on mortgage foreclosures. Texas, whose high-population zones have been more greatly affected by COVID-19 than the smaller, rural areas, has yet to follow suit. Instead, local governments are taking it upon themselves to issue guidance regarding “foreclosure Tuesday.” As of the date of this publication, Harris (Houston), Dallas, Bexar (San Antonio), Travis, and Hidalgo, and El Paso counties have suspended foreclosures for April. Tarrant County has suspended foreclosures on all properties with federally backed mortgages, consistent with the CARES Act. Other large areas in Texas, such as Collin, Denton, and Fort Bend counties, have yet to issue any orders regarding April foreclosures.
We note that these “bans,” when examined in detail, are actually an announcement that the individual county will not make county facilities available for sales to proceed. It is possible this ad hoc approach occurred because the individual counties were awaiting guidance from the governor or that the county judges simply overlooked the foreclosure issue. Moreover, it is unclear as to the authority of a county to refuse to make public facilities available in contravention of legislation nor whether some other means, such as Zoom, Skype, etc., could be used to allow sales to proceed.
The decision to deal with coronavirus on a local, ad hoc basis injects uncertainty into the ability of creditors to protect their rights in these times of upheaval. Until such time as Texas issues a statewide order governing foreclosure proceedings, those in the financial services industry will be forced to proceed with a “caveat lender” approach.