Foreclosure Property Auctions Face Challenges in Texas
Public foreclosure property auctions in Texas could face legal challenges and other difficulties after the enactment of a new law that takes effect this September.
The new law states that the purchase price of a foreclosed home bought at a public foreclosure sale would no longer be due immediately. Instead, the buyer can request the trustee to give him more time to gather the funds to complete the purchase. The trustee and the buyer would sign an agreement concerning the final payment at a certain date.
According to foreclosure and housing analysts, the new law is not clear about many things. It does not set guidelines and does not give instructions to the trustee on how agreements with winning bidders are made.
In the past, the role of the trustee in public foreclosure sales is clear and mostly administrative. They did not require the trustee to make difficult decisions. They just implement instructions from lenders and follow standard procedures such as sending foreclosure sale notices, holding the foreclosure sale at a certain day and time, determining the highest bidder, getting the payment from the one who won the bidding and delivering documents to the buyer.
With the new law having taken effect, trustees now have to make certain decisions that could have unintended results. They now have to decide what is meant by reasonableness, which was a vague term used in the new law.
Under the new law, lenders would not be able to give specific instructions and trustees would not be able to choose which bids are the most advantageous to the lenders because the trustees would not know during the bidding which bidders would request for an extension.
In the past, any bidder who failed to win in a properly conducted public foreclosure sale does not have a legal basis to sue. But now that the trustee has the option to refuse to make a purchase agreement with a winning bidder who requests an extension and makes an agreement with a cash bidder, the situation can prompt the losing bidder to sue the trustee.
The new law can also lead to situations where lenders or property owners are not satisfied with the results of the foreclosure sales and claim that the trustee erred in his decision-making.
Texas lawmakers may have valid reasons when they made the law, but now it seems the law would result into unintended consequences in some cases.
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