Texas Commercial Law Firm

A Texas Foreclosure challenge: What happens when the Mortgagor Dies?

Although the need to foreclose is never a happy circumstance for lender or borrower, in most cases in Texas, foreclosures may be handled on a fairly routine basis. While a Texas foreclosure involves a number of steps which must be carefully followed, baring unusual circumstances, foreclosure may be accomplished within 60 days from the date of the initial notice of default. There are situations, however, which delay foreclosures substantially. Without question, the situation most perplexing and confusing to lenders is where a mortgagor has died.

A lender's options under such circumstances are controlled by the type of probate proceeding, if any, which ensues. What follows is a discussion concerning the possible scenarios which may arise upon a mortgagor's death prior to foreclosure and your options for foreclosing under each scenario. The scenarios are discussed in order of ease of resolution, beginning with the simplest. The simplest situation to deal with is where a mortgagor has been dead for more than four (4) years and no probate proceeding has been opened. Under these circumstances, the Statute of Limitations bars the opening of probate proceedings. Consequently, four (4) years after a mortgagor's death, if no probate proceeding has been opened, a properly conducted foreclosure sale will pass good title. Weiner v. Sweib, 105 Tex 62, 141 S.W. 771 (Tex 1911).

The next easiest situation to resolve occurs when a will appoints an Independent Executor and the Independent Executor has been approved by the Court and is acting in that capacity. After the will is probated, if it is approved by the Court and the Independent Executor accepts the appointment, Letters Testamentary are issued by the Court. Letters Testamentary serve as evidence of the authority of the Independent Executor to act on behalf of the estate. Upon issuance of Letters Testamentary, foreclosure may proceed. The only additional requirement in these circumstances beyond those of a typical foreclosure is to provide notice to the Independent Executor. Neither of these first two scenarios involve substantial delay or require additional legal fees.

The next situation will usually substantially delay foreclosure and require additional legal fees. This situation occurs where the deceased owner's estate is the subject of a dependent probate administration pending in Probate Court. Under these circumstances, the Trustee under a Deed of Trust cannot hold a valid Trustee's Sale without the Court's permission. A dependent administration is analogous to bankruptcy in that any foreclosure conducted without the Court's permission is void. Pearce v. Stokes, 155 Tex. 564, 291 S.W.2d 309 (Tex. 1956). A dependent administration is typically opened when the deceased dies without a will, has a will but does not appoint an independent Executor, or if an interested party desires court supervision of the estate. With a dependent administration, as in bankruptcy, a creditor must proceed by filing a claim with the Court along with other creditors and obtain court approval to have the property sold to pay the debt or to foreclose.

The final and most problematic situation occurs when no probate of the estate is opened and less than four (4) years have passed since the mortgagor's death. If less than four (4) years have passed since the mortgagor's death, the lender takes the risk that a dependent administration may be opened by any "interested person". "Interested person" means "heirs, devisees, spouses, creditors, or any others who have a property right in, or claim against, the estate being administered." Texas Probate Code, § 3.

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