Families that experience financial difficulties may struggle to pay certain bills and expenses. In some cases, financial issues may cause a family to get behind on mortgage payments, and a lender may begin foreclosure proceedings. In Texas, lenders will usually use non-judicial foreclosure, meaning that a foreclosure can be completed without the need to go to court and receive approval from a judge. Homeowners will want to understand the procedures followed during this type of foreclosure, and by working with an attorney, they may be able to take steps to prevent the loss of their home.

The Non-Judicial Foreclosure Process

Most mortgages in Texas will use a deed of trust involving three parties: the lender, the borrower, and the trustee. The trustee will hold the title to the property, and the deed of trust will usually include a “power of sale” clause that allows the trustee to sell the home if the homeowner defaults on mortgage payments. This clause allows for a non-judicial foreclosure.

A lender can initiate the foreclosure process if a borrower is 120 days delinquent on mortgage payments. When a homeowner is in default, the lender may accelerate the loan and declare that the full amount is due. The lender will send the borrower a notice of default and intent to accelerate, and this notice must give the borrower at least 20 days to cure the default by paying the amount that is past due, as well as any late fees or penalties.

Homeowners who have experienced financial difficulties may struggle to make payments on multiple debts, including their mortgage. Those who have missed payments may be facing the threat of foreclosure, as well as harassment from other creditors seeking to recover payment for the debts that are owed. In this type of situation, a homeowner may be considering bankruptcy, but they should also be aware of other alternatives that may be available, including completing a short sale of their home. 

Benefits and Drawbacks of a Short Sale

The real estate market often experiences fluctuations and a home may lose value for a variety of reasons. When a home is “underwater,” meaning that more is owed on the mortgage than the home is worth, the homeowner may be able to complete a short sale. In this type of sale, the home will be sold for its current market value, and the borrower may be released from the requirement to pay the additional amount owed on the mortgage.

A homeowner will usually need to receive approval from their mortgage lender to proceed with a short sale. The lender may require the borrower to demonstrate that they have experienced financial hardship that has caused them to be unable to pay what is owed. While a short sale will result in the lender receiving less than the full amount of the loan, it may be a preferable option to pursue a foreclosure, since it will avoid legal fees and the requirement to complete proceedings in court.

While borrowers have several options for receiving relief from their outstanding debts, student loans can often present difficulties, and a person may worry that they will be required to pay these debts, regardless of their ability to do so. In many cases, student loans cannot be discharged through bankruptcy unless a person is able to show that they have experienced “undue hardship.” However, this may be changing based on the potential passage of a new law, as well as a recent court ruling.

Bill Would Restore the Ability to Discharge Student Loans Through Bankruptcy

Prior to 1998, borrowers were allowed to file for bankruptcy and discharge federal student loans that were at least 10 years old, but following a change in the law, these loans can now only be discharged based on undue hardship. Currently, most people are unable to eliminate student loans that were obtained through government programs or backed by the federal government unless they can prove that repaying these loans would cause extreme financial difficulties that would affect their ability to provide for themselves. Meeting these standards can be difficult, and since few borrowers are able to discharge their student loans, many people are required to repay these debts throughout their entire lifetime.

A bill was recently introduced in the U.S. Senate that would address this issue. The Fresh Start Through Bankruptcy Act would restore the ability to discharge federal student loans after 10 years. If the law passes, borrowers who file for bankruptcy will be able to discharge student loan debts 10 years after the first payment on a loan was due. For loans that have been due for less than 10 years, the existing “undue hardship” standard will remain in effect. 

There are many reasons why homeowners may struggle to make ongoing mortgage payments while also covering other necessary expenses. This has been a major concern during the COVID-19 pandemic, which has led many people to lose their jobs or suffer other financial setbacks. While bankruptcy may be an option for some who are unable to repay their debts, homeowners should also be aware of the various alternatives to bankruptcy that may be available. These include requesting loan modifications that will allow them to maintain ownership of their homes while ensuring that they will be able to make affordable payments.

Types of Loan Modifications That May Be Available

Debtors who have experienced financial hardship, such as the loss of a job or health issues that have led to increased medical expenses, may be able to qualify for a loan modification. The eligibility for a modification and the types of modifications that may be available will vary depending on the lender. Typically, a debtor can apply for a loan modification if they have missed one or more payments. Potential loan modifications may include:

• Forbearance - A homeowner may request a “pause” on their payments during a period of financial hardship. If forbearance is granted, these payments will need to be made up, either by adding them to the end of the loan or by temporarily increasing the number of monthly payments after the forbearance period ends.

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For over a year, people throughout the United States have experienced multiple types of financial difficulties. Many families have had to deal with health issues related to COVID-19, resulting in large medical bills and affecting people’s ability to work and earn an income. Others have suffered job losses or decreases in work hours and income due to pandemic-related business closures. These financial problems have caused some families to be unable to cover their ongoing expenses, including mortgage payments. While many homeowners have been protected from foreclosure by a moratorium put in place by the federal government, this moratorium is coming to an end on July 31, 2021. However, federal agencies have implemented new rules and procedures that may help homeowners avoid the loss of their homes.

Lenders Required to Provide Borrowers With Options to Avoid Foreclosure

For mortgages that are backed by the federal government, including through agencies such as the Department of Housing and Urban Development (HUD), the Department of Agriculture (USDA), Fannie Mae, and Freddie Mac, the Consumer Financial Protection Bureau (CFPB) has implemented a new rule to provide homeowners with protections during foreclosure proceedings. Under this rule, most lenders will be unable to initiate foreclosure proceedings prior to December 31, 2021, and they must meet certain requirements before doing so.

Lenders must determine whether borrowers are eligible for affordable loss mitigation options that will allow them to continue living in their homes. Any homeowners who have not yet taken advantage of their ability to receive a forbearance on missed mortgage payments will be allowed to do so prior to September 30, 2021. Those who have already received a forbearance may be eligible to continue their forbearance based on hardships related to COVID-19. Homeowners who receive a forbearance may have missed payments added to the end of their loans, or they may be able to work with lenders to find ways to make up these payments.