Effect of Foreclosure on Chain of Title
Contributor, Seth Grove
In Texas, foreclosure sales occur on the courthouse steps on the first Tuesday of each month, from 10:00 a.m. to 4:00 p.m. The property is then sold to the highest bidder. Texas title examiners will inevitably be required to determine title to land that has been foreclosed, which requires knowledge of the types of foreclosures and requirements of each. Determination of the correct standard and effect of a foreclosure is the first step that a title examiner must take.
If the subject land is conveyed by a trustee’s deed pursuant to a non-judicial foreclosure sale, then an examiner must determine that all statutory and contractual requirements have been met.
The requirements for a non-judicial foreclosure sale are:
1. The security instrument confers the power of sale;
2. There has been a default under the terms of the instrument;
3. The trustee, or substitute trustee, was properly appointed;
4. All statutory requirements in effect at the time of sale have been met;
5. Any additional requirements contained in the security instrument have been met;
6. A trustee’s deed has been delivered.
Powers Conveyed: A review of the Deed of Trust, or security instrument, will detail the terms of default, power of sale, identity of trustee, procedures for appointment of a substitute trustee and any additional terms – such as additional notice requirements or other negotiated terms. This is generally the first instrument the examiner should review.
Evidence for other requirements: All other requirements may be determined using any related instruments available or of record; including an affidavit of the trustee, copy of notice of trustee’s sale, or recitals in the Trustee’s Deed itself (provided that the security instrument expressly provides for recitals as evidence of facts or there is no basis for doubt or suspicion).
Statute of Limitations: The statute of limitations for foreclosure of a lien runs four (4) years from the date of maturity of the obligation, unless tolled. A trustee’s authority expires when the debt is time-barred; therefore a sale of the property after the running of the statute of limitations is void.
The statute of limitations begins to run when a note is accelerated, or by the maturity date of the note, unless extended. An extension must be filed of record for notice purposes.
An action to recover property conveyed with technical defects, such as an instrument signed by a trustee without record of authority or proof of facts recited in the instrument, must be brought within 4 years of the date instrument recorded.
If title is based on a Court order for the foreclosure of a lien, or for an execution sale, then the examiner must verify the existence, and apparent validity, of the judgment conferring the authority to make the sale, the Court’s order of sale, or the writ of execution and levy. Thereafter, the examiner may rely on the deed from the officer that conducts a sale.
Foreclosure Judgment vs. Execution Sale: A foreclosure judgment is a suit and judgment against specific property that the Plaintiff holds a lien on. An execution sale, on the other hand, comes from a writ of execution by any sheriff or constable for a specific sum due. In a foreclosure judgment the property is laid out in the order. In execution sale the officer indorses the levy on the writ, uses a sufficient legal description, and conducts the sale.
The examiner should review three documents:
1. The Court’s Judgment
2. The Clerks order of sale or writ of execution and levy, and
3. Sheriff’s deed
If the sale is not conducted pursuant to the court’s authority, then a sheriff’s deed conveys no title. However, if the requisite court records are unavailable and the sheriff’s deed qualifies as an ancient document, a Texas title examiner may rely on the recitals within the deed.
Example of Lack of Court Authority: A deed based upon an invalid judgment will be an invalid deed. For example, if a judgment fails to adequately describe the property, then the sheriffs deed is ineffective (even if the sheriff’s deed contains an adequate legal description) because proper authority was not conveyed. Conversely, recitals in a judgment are presumed valid unless specifically contracted in the record.
Approach with Caution:
Regardless of the type, any foreclosure within a chain of title must be given special scrutiny. A title examiner must take special care to ensure that no redemption periods are still running and all statutory requirements were followed to conduct a foreclosure.