by Alexander Wolfe
Few people take out a mortgage with the thought that they might not outlive the term of the note and deed of trust they have executed. However, it is an unfortunate reality that the passing of a borrower can result in a home loan going into default when there is no other party with the desire or the means to continue making payments. The death of the borrower can present surprising complications in what is typically a relatively uncomplicated non-judicial foreclosure process in Texas.
In Pearce v. Stokes, a decision handed down in 1956, the Texas Supreme Court ruled that the power of sale held by a mortgagee via a deed of trust is suspended during the pendency of a dependent administration. Furthermore, the exercise of that power is subject to cancellation by a subsequently appointed estate administrator appointed at any point in the four years after the death of the borrower during which a dependent administration can be opened. For these reasons, a mortgage lender cannot simply proceed to foreclosure sale once they have discovered that a borrower is deceased.
First, the lender must do their due diligence to determine if a dependent administration has been opened and, if so, whether it will be necessary to petition the court for approval to foreclose. Because of the uncertainty created regarding the validity of a foreclosure sale held within the four years following the death of the borrower, the lender may find it necessary to petition the court to open a dependent administration in those instances where the heirs are not themselves probating the estate, for the purpose of obtaining an order allowing foreclosure. This process is known colloquially as a “creditor’s administration.”
Out of an abundance of caution and a desire to protect the interest any heirs have in estate property that may be subject to a foreclosure proceeding, some Texas probate courts require that the lender initiate an heirship determination in conjunction with its application for letters. Heirs may find themselves surprised to be contacted by a lender who is attempting to probate the estate of a loved one, but if they elect to participate they will find that the probate courts are often deferential towards and protective of their interest in the estate. Furthermore, the estate administrator is often in a position to deal with the affairs of the estate, including arranging a sale of the property, in such a way that ultimately benefits the heirs.
The foreclosure process is also impacted by heirs’ efforts to probate the estate of a deceased borrower. Mortgage lenders are cautious about proceeding to foreclosure when the heirs are actively engaged in efforts to probate the estate, for two reasons; one, that a successful probate of the estate by the heirs resolves the uncertainty lenders face in circumstances when the estate is unprobated and two, any effort to proceed prematurely may result in a contest with the heirs in the probate courts. That is not to say that lenders will not intervene in a pending probate proceeding when efforts by the heirs have languished through inattention or an inability to proceed, but lenders are often conscientious of the delays heirs may themselves experience in probating the estate.
Upon the appointment of an independent administrator/executor, lenders are constrained by the estate code from holding a nonjudicial foreclosure sale earlier than six months from the date of the appointment, to allow the administrator time to make arrangements concerning the property. Case law and best practices necessitates that such sale, if necessary, take place with notice to the administrator.
Generally speaking, it behooves an attorney employed by the heirs to probate the estate to reach out to the mortgage lender to make them aware of the borrower’s death and inform the lender of their intentions towards the estate of the borrower. Doing so helps to ensure that the lender doesn’t either prematurely foreclose upon the property or, in the alternative, initiate unnecessary probate proceedings, resulting in additional expense that ultimately incurs to the estate.
If the loan is in default it is also a good practice to reach out directly to the lender’s foreclosure counsel, as notices provided to the lender can take their time reaching counsel. Often, a simple phone call to counsel is enough to allow heirs time to gather their resources and plan a course of action that ultimately avoids the necessity of a foreclosure sale.
Alexander Wolfe is an associate at Buckley Madole, P.C. He can be reached at email@example.com.