In 1997, Texas became the last state in the nation to adopt home equity lending with an amendment to the state constitution. In the event borrowers default on the loan, the lien may be foreclosed upon only by court order.
The constitutional amendment also required the state Supreme Court to promulgate rules for an expedited foreclosure proceeding to obtain the required court order.
In May 1998, this was adopted under Rule 736 of the Texas Rules of Civil Procedure. A Rule 736 proceeding is available only when the lienholder has a power of sale but a court order is required to foreclose the lien.
Hence, Texas law allows for expedited-order proceedings to be filed in order to obtain the court order necessary to proceed with a foreclosure sale of certain liens, including, among others, home equity loans or lines of credit and reverse mortgages.
The only issue to be determined in an expedited- order proceeding would be whether an order may be obtained, allowing the mortgage holder to continue with a nonjudicial foreclosure. The expedited proceeding does not preclude the borrower from timely filing a separate proceeding in district court to contest the right to foreclose or automatically halt the Rule 736 proceeding.
Once the foreclosure order is obtained, the mortgagee or mortgage servicer must comply with the notice rules of the Texas Property Code in completing the foreclosure sale. The sale cannot occur until a minimum of 21 days after the order is signed.
House Bill 2978 was effective immediately when signed by Governor Rick Perry on June 14, 2013.
Included in the bill was an amendment that allows a court to order mediation in a contested expedited foreclosure proceeding.
Under an expedited-order proceeding, the respondent may file a response contesting the foreclosure within a deadline once an application for foreclosure order is filed. A response requires a hearing on the application to be held 20-30 days after being requested by either party.
With the changes under House Bill 2978, the court may now at its discretion have an additional hearing to determine whether to order mediation after a response is filed. A hearing must be held prior to ordering mediation. The court may conduct such a hearing at its own discretion, or either the borrower or bank may request it. The court may only conduct the hearing to determine whether to order mediation if a response to the application has been filed by the borrower. The hearing may not be held prior to the borrower’s response deadline.
Notice must be given no less than 10 days prior to the date of the hearing, and the hearing may be conducted by phone. The parties may also agree to waive the mediation process altogether.
At the hearing, either party may object to the mediation, and the court must consider those objections. If the borrower fails to attend after the required notice, the court may not order mediation and shall grant or deny the motion for default order. If the parties cannot agree on a mediator, the court may appoint one.
The parties would receive the name of the chosen mediator at the mediation hearing. The mediator’s fee is divided equally between the parties. Mediation must take place no later than 29 days after the petitioner filed a motion for default order.
All in favor…
The supporters of the bill reason that it would allow judges a process to follow for timely, expedited foreclosure mediation. The primary complaint of borrowers in the responses filed is the request for loan modification review.
Mediation may be appropriate for borrowers who had the ability to resume making monthly payments but had difficulties communicating with the mortgage company. The Texas Rules of Civil Procedure already allow for a judge to order mediation hearings.
However, the rules did not address holding a hearing before the mediation proceedings. According to bill proponents, this process would allow for a speedier process that was still fair to all parties in order to protect the borrower.
Those in support of the bill also believe the hearing would ensure mediation is appropriate for each particular set of circumstances. Mediation is an expensive process and is not suitable for all expedited foreclosure cases.
As is the case under current law, a borrower should challenge any alleged foreclosure defect in an independent lawsuit.
The rule also addresses the cost of additional hearings and of the mediation by allowing the parties to participate by telephone or by waiving mediation altogether.
Additionally, the parties are required to split the costs of mediation. Supporters also contend that this new mediation process will not cause undue delay due to the timeframes built into the rule. The mediation must be held within 29 days of the initial filing of a motion for default order.
Rule 736 requires that a court grant a default order within 30 days when no response is filed.
The assumption would be that the mediation process when an answer is filed would add a limited delay, even in comparison to a default order when no response is filed.
Opponents to the bill raise the concern that this would increase the costs of foreclosure by adding additional steps.
This greater cost is borne by the bank as well as the borrower. If the borrower has hired an attorney, the day spent in mediation leads to a hefty legal bill.
Even if the borrower is not represented by counsel, there is the additional time needed to prepare for the mediation as well as the day off work the borrower may have to take.
The additional costs of interest and fees accruing — as well as the mediation costs themselves — may make the reinstatement or modification possibility even less likely by increasing the amount due and eating into the property’s equity.
The tight timeframe may also make the mediation fruitless because it would not allow the time necessary to accomplish the purpose of the mediation.
The court is able to order the case to mediation but is required to do so according to deadlines in Rule 736. This does not allow sufficient time to accomplish the objectives of mediation.
Oftentimes, an answer is filed with the intention to delay the foreclosure. The borrower lacks affordability but is not yet willing to accept that or to relocate. The additional hearing and mediation process accomplish exactly what the borrower intends, of course — delaying the foreclosure sale and ultimate eviction.
Allowing either party to request mediation makes it likely that such borrowers will request the mediation process. Judges already swayed by sympathy for the borrower will likely order mediation at the hearing, even after the mortgage servicer raises its objections.
And then there is this: The Rule 736 expedited-order proceeding requires the application for foreclosure order to be accompanied by an affidavit of material facts signed by the petitioner or servicer.
In the supporting affidavit, the petitioner sets forth the material facts describing the basis for foreclosure.
Under the current rule, the Supreme Court of Texas may issue a set of promulgated forms that conform to Rule 736, but had not yet done so at the time of writing.
The format of the current supporting affidavits is therefore dictated by mortgage servicing legal departments. Therefore, foreclosure lawyers dealing with multiple financing institutions must comply with varying versions of affidavits, often changed by the mortgage servicers.
With the passage of House Bill 2978, the Supreme Court shall promulgate the forms for an expedited-order proceeding, including the application for an expedited order proceeding, the supporting affidavit and the court-required citation. These forms are to be published no later than March 1, 2014.
In addition to the added convenience for practitioners to have one standardized format for the affidavit for all applications filed, the court will likely no longer be able to find the affidavit to be invalid or inadequate and deny the foreclosure order if the form of the affidavit complies with that promulgated by the Supreme Court.
Although the forms used in the expedited-order proceeding are soon to be standardized, the increased costs and additional time added to the foreclosure process by court-ordered mediation far outweigh the convenience of patterned forms.
To what extent mediation is ordered, though, is yet to be determined.
This is only a brief overview of some of the main details of the new rules. Depending on your prospective, you may view this as an improvement or as just one more technicality.
Although most would agree there is always room for improvement, for the most part the system works to protect both lenders and borrowers.