Eliminating the Title Dispute

Sometimes lenders who have foreclosed on their borrowers real estate and have recovered title to real property serving as collateral for the loan face a difficult time in removing the borrowers from their homes. This is a delicate task for lawyers as no one wants to evict anyone. Lenders prefer payments instead of foreclosure proceedings.

If you are the attorney representing the lender you will become the face of the lender in a manner of speaking. One way for a borrower to prevent eviction is to file a suit in another court against the lender who foreclosed the property and allege that the foreclosure was wrongful and that the lender had no right to foreclose. When that occurs the justice courts will not evict and wait for the outcome of second suit. A justice court determines who is entitled to possession but not who has title to the property.

Once there has been a foreclosure of the property by a lender the former owner if the documents are prepared carefully, should become a tenant-at- sufferance and will remain in the property at the discretion of the purchaser of the property at foreclosure. In most cases the purchaser is the lienholder who foreclosed the property. The deed of trust should contain a provision providing that after foreclosure the debtor under the obligation will become a tenant- in- sufferance.

A new case from the Austin Court of Appeals in Texas discusses this point. In Richards v. US Bank Nat’l Ass’n, 03-13-00590-CV, 2015 WL 657896, at *1 (Tex. App.—Austin Feb. 11, 2015, no. pet. h.) the court held that for the bank to establish a forcible detainer it must prove that: (1) it was the owner of the property in question, (2) the borrower occupied the property at the time of foreclosure, (3) the foreclosure was of a lien superior to the borrower’s right to possession, (4) the lienholder made a written demand for possession in accordance with section 24.005 of the Texas Property Code and (5) the borrower refused to vacate.

In Richards the borrower argued that the bank could not establish a chain of ownership and its right to foreclose; therefore the issue of title had to be established before the issue of possession. The court held that when the deed of trust provides a landlord and tenant-at-sufferance relationship between the parties, there is an independent basis to determine the issue of immediate possession without resolving the issue of title to the property and it is not necessary to resolve a title dispute to determine the right of immediate possession.

The Dallas Court of Appeals has also held that the validity of a foreclosure suit may not be determined in a suit for forcible detainer but must be brought in a separate suit. Tex. R. Civ. P. 510.3(e);Tehuti v. Trans-Atlas Fin., Inc., 05-14-00126-CV, 2015 WL 1111400, at *2 (Tex. App.—Dallas Mar. 12, 2015, no. pet. h.); Williams v. Bank of N.Y. Mellon, 315 S.W.3d 925, 927 (Tex. App.—Dallas 2010, no pet.).

After a proper foreclosure the lender can move for eviction of the former owner from the property. The consequence of not doing so can be serious as in some cases the borrowers will not take care of the property after foreclosure; will not make repairs, will not pay taxes or insurance and they have no incentive to do so.

In the absence of bankruptcy protection state laws provide little relief to the lender during the process of foreclosure and eviction. Some lenders have to pay taxes and insurance on the property while the litigation is ongoing in order to protect their interest. The Richards case shows that the eviction proceeding could proceed.