If someone dies and has a mortgage, can the bank foreclose and sell the property to pay off the mortgage? This is a common situation that arises and a question that we get, as Houston probate attorneys.
The short answer is that, yes, the bank can foreclose, but the heirs are not without remedies. There are steps they should take before, or even after, the foreclosure. The recent MidFIRST Bank v. Morrison, No. 4:21-cv-02603 (S.D. Tex. 2022) addresses these issues.
Facts & Procedural History
The background of the case is fairly simple. The decedent bought a property and committed to a mortgage agreement in 2004. Unfortunately, in 2019, she passed away, and the property was left to her minor child.
Since the heir was a minor, she could not be the personal representative. Her father was to administer the estate. By February of the following year, the mortgage payments that the child’s father was supposed to be paying on the property stopped, and the bank decided to take action against him a few months later.
In this case, the bank moved to file legal action against the child’s father, seeking a default judgment against him over the debts owed from the property’s mortgage. However, the child’s father showed up at court and suggested selling the property to clear the debt. It is here that the judge asked for an affidavit of heirship to do so. The father failed to provide the affidavit of heirship, which resulted in the foreclosure going through.
About the Affidavit of Heirship
An affidavit of heirship is a document that is used to prove who the rightful heirs to an estate are. It is used when the parties do not ask the court to formally determine heirship.
Why would someone prepare and file an affidavit of heirship? The short answer is that the affidavit of heirship is used for the transfer of ownership for real estate assets.
The Texas Estates Code sets out the requirements for an affidavit of heirship. The statute is set up so that it provides an example language, rather than providing strict requirements. Thus, the following are points from the sample language and not requirements per se:
- The affiant must be a person with personal knowledge of the family and marital history of the decedent.
- The affidavit must include the name and address of the affiant.
- The affidavit must state the name of the decedent, the date and place of death, and the decedent’s residence at the time of death.
- The affidavit must list the decedent’s children, including their name, birth date, name of other parent, and current address, or the date of death of the child and descendants of the deceased child.
- If applicable, the affidavit must include information about the decedent’s spouse, parents, and siblings, including their name, birth date, current address, or date of death, as well as the parents and descendants of deceased siblings.
- The affidavit must state whether the decedent left a written will and whether there has been any administration of the decedent’s estate.
- The affidavit must state whether there are any unpaid debts, estate or inheritance taxes, and whether the decedent owned an interest in any real property.
- The affidavit may include additional information as appropriate, such as the size of the decedent’s estate.
- The affidavit must be signed and dated by the affiant in the presence of a notary public or other authorized officer.
To prepare an affidavit of heirship, the following steps can be taken:
- Gather all relevant documentation, such as deeds, wills, or guardianship papers, that help prove who the heirs are. If possible, get copies of these documents so that you have backups if needed.
- Make a list of all the real property that is believed to be a part of the decedent’s estate.
- Prepare the affidavit of heirship. The affidavit must include specific information such as the name and address of the affiant, the decedent’s name and date of death, marital history, and the names and addresses of the decedent’s children and siblings.
- Sign the affidavit of heirship in front of a notary public.
Once completed, the document will need to be filed with the county clerk in the county where the decedent died, and also in the county where any real estate is located.
About Foreclosure Proceedings
Since the child’s father failed to provide the requested affidavit of heirship in time, the bank decided to initiate foreclosure proceedings.
For a bank to legally foreclose a property in Texas, it must prove:
- Existence of Debt: the institution must prove an outstanding debt.
- Legality of the Lien: They must validate the debt with a legal lien.
- Borrower Default: The bank needs to confirm the borrower’s default.
- Notices: Proper default and acceleration notices must be dispatched.
The bank provided the original promissory note bearing the decedent’s signature and an affidavit from one of their vice presidents that ratified the outstanding large outstanding debt. Additionally, the deed of trust served as concrete evidence, verifying that the debt was legally shielded. The default was evident given the substantial time gap without any payments from the child’s father’s end, and the bank’s meticulous approach in serving notices to the property’s address ensured they abided by the directives of the Texas Property Code.
The deed of trust also confirms the debt’s security under Texas law. As for the default status, nearly two and a half years had elapsed without any mortgage payment from the child’s father or on behalf of the child.
Alternatives to Foreclosure
The parties could have avoided this situation by filing for probate. Texas law says that a dependent administration filing prevents secured creditors, such as the bank holding a mortgage, from foreclosing on the property for a period of six months. It is not clear under Texas law if an independent administration also has this effect.
Regardless, the six month period can be used to buy time to try to refinance or sell the property–thereby avoiding the cost and delay of a foreclosure.
If time is of the essence, the parties may also seek to have a temporary administrator appointed. They too can then halt the foreclosure and, if authorized by the court, sell or refinance the property to pay the mortgage holder.
Another option in this situation may be to file an application to sell minors property. This is an alternative to guardianship for minors, that allows the court to enter an order that a party, such as a parent, can sell property belonging to the minor without the need of a guardianship or probate. This is provided for in Texas Estates Code § 1351.001.
Foreclosures can be expensive and delay the distribution of property. Absent a probate, the bank may try to foreclose on the property. This case shows that the banks can do just that. But as noted, there are other options that can help avoid this outcome. Filing for probate, a temporary administration, or even an application to sell minor’s property may do the trick.
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