Step 4 is the sale of the property that secured the note. On the date of the foreclosure sale, the sale is held at the appointed time and date by the trustee. The sale takes place on the courthouse steps of the county courthouse in which the subject real property is located between 10 a.m. and 4 p.m. on the first Tuesday of the month.
How the Sale Is Conducted
The substitute trustee, typically our attorney, appears at the courthouse at or before the earliest time stated in the foreclosure notice and announces the sale. The trustee conducts the bidding pursuant to bid instructions received in writing from the mortgagee before the sale date.
Bid pricing is unique to each sale and depends on various factors, including the property’s market value, the total outstanding debt and the costs incurred by the mortgagee, and whether there are likely to be competitive third-party buyers at the sale. We discuss the bid strategy with every client before the sale date.
The property is then struck off to the mortgagee or sold to the highest bidder.
The Credit Bid
The credit bid is the concept that governs how most Texas foreclosure sales play out. A credit bid is the mortgagee’s right to bid up to the full amount of the outstanding debt, including principal, accrued interest, fees, and costs, without tendering any cash at the sale. The lender simply offsets its bid against what the borrower owes.
If the lender’s credit bid is the highest bid and no third-party bids are more, the lender acquires the property through the trustee’s deed. The debt is extinguished to the extent of the credit bid. No cash changes hands, and the property then becomes real estate owned by the lender.
If the lender credit bids less than the full outstanding debt, a deficiency remains. The lender’s right to pursue that deficiency is addressed in Step 5.
Third-Party Bidders
Anyone may attend and bid at a Texas foreclosure sale. A winning third-party bidder must pay immediately, typically by cashier’s check made payable to the substitute trustee. Personal checks are not accepted.
If a third party bids more than the full outstanding debt, the lender is fully satisfied. Excess proceeds above the debt go to junior lienholders in order of priority and then to the borrower. If a third party bids an amount between the lender’s opening bid and the full debt, the lender may still have a deficiency claim for the remaining balance.
The Trustee’s Deed
The trustee then issues a deed to the successful bidder at the sale. This trustee’s deed is the instrument that transfers ownership of the property. It is prepared by the substitute trustee, signed and notarized, and then filed in the deed records of the county where the property is located.
The trustee’s deed is not a warranty deed. It conveys whatever title the borrower had, no more and no less, and the trustee warrants only against claims arising from the trustee’s own acts. A buyer at a foreclosure sale takes the property as-is and subject to all liens senior to the foreclosing deed of trust.
Postponing the Sale
A Texas non-judicial foreclosure sale can be postponed to a subsequent first-Tuesday date without restarting the notice process, provided the postponement is announced at the time and place of the originally scheduled sale. Common reasons to postpone include a last-minute bankruptcy filing, an unexpected TRO, a discovery requiring additional IRS notice time, or active settlement negotiations that make a sale premature.
If the borrower files bankruptcy before the sale, even on the morning of the sale, the sale must stop immediately. See the Bankrupt Debtors section for more on that.
In this section: Step 1: Default · Step 2: Notice · Step 3: Lien Search · Step 4: Sale · Step 5: Cleaning Up
Frequently Asked Questions
What if no one shows up to bid except the lender?
This is a frequent outcome at Texas foreclosure sales, particularly for non-residential property or properties in declining markets. The substitute trustee opens bidding, the lender makes its credit bid, and the property is struck off to the lender as the only bidder. The trustee's deed is issued to the lender. The lender now owns the property as REO, otherwise known as real estate owned.
Can the borrower pay off the debt on the day of the sale to stop it?
Yes. The borrower has the right to redeem the property by paying the entire outstanding balance, including attorney fees and costs, before the sale is concluded. There is no right of redemption after the sale is complete. Once the trustee announces the property sold, the sale is final.
What happens to a tenant living in the property after the sale?
The new owner acquires the right of possession immediately upon the sale. However, federal law provides that a bona fide residential tenant is entitled to at least 90 days' written notice before being required to vacate following a foreclosure sale. Self-help eviction, such as changing locks or removing belongings, is prohibited. The proper process is a Texas forcible detainer action, which we handle or advise on as part of the post-sale work.
What is the difference between a credit bid and paying cash at the sale?
A credit bid is when the lender bids using the amount the borrower owes it; no cash changes hands; the bid extinguishes that portion of the debt. Paying cash means a third-party bidder hands over cashier's checks equal to their winning bid. Lenders almost always credit bid. Third-party buyers always pay cash. The result is the same, the trustee's deed goes to the winning bidder, but the mechanics are different.
Can a borrower challenge the sale after the trustee's deed is issued?
Yes, through a wrongful foreclosure lawsuit. A borrower can ask a Texas court to set aside the sale by showing it was conducted in violation of the legal requirements. However, courts generally require the borrower to tender the amount owed as a condition of equitable relief. Courts do not set aside foreclosure sales as a windfall for borrowers who owe the debt and want to delay.
What if the property has tenants with an active lease at the time of the sale?
The new owner steps into the landlord's shoes. For commercial leases, the terms of the lease and the relative priority of the lease versus the foreclosing lender's deed of trust determine the new owner's rights. For residential leases, federal law provides additional protections for bona fide tenants. We walk clients through the tenant situation as part of our pre-sale and post-sale counseling.