Texas Supreme Court Amends Home Equity Foreclosure Rules
by Mark Torabi
On December 30, 2011, the Texas Supreme Court issued its Amended Final Approval of Amendments to Texas Rules of Civil Procedure 735 and 736 governing foreclosure of certain liens, which became effective January 1, 2012.
These rewritten rules include significant new requirements for both the form and contents of the application for order allowing foreclosure of home equity loans, reverse mortgages and home equity lines of credit.
Additionally, the Supreme Court expanded the scope of the rules to include foreclosures of transfer tax, or tax loan liens, as well as certain property owner association assessment liens.
Notable procedural changes also include a new requirement for issuance of separate citations for each respondent and occupant, with service and returns to be completed by the clerk of court. Several key areas affected by the amendments to the rules are highlighted below.
Required Contents of Application and Affidavit
Though applicants have always been required to attach a supporting affidavit with evidence proving up the existence of a default, the rules now specifically require that the application describe or state as of a date not more than 60 days prior to the date the application is filed: 1) number of months in default; 2) amount required to cure the default, and; 3) the amount required to pay off the lien.
If the default is non-monetary, the affidavit must establish the facts creating the default. In addition, documents establishing the lien, including any necessary assignments, must be attached to the affidavit. Finally, legible copies of all required notices and associated proofs of mailing must also be attached to the supporting affidavit.
Whereas under the former rule, it was the applicant who prepared and mailed the required notices to respondents, the clerk of court must now issue separate citations for each respondent named in the application along with a citation addressed to the ‘occupant’ of the property. The clerk of court must serve all citations by regular and certified mail andcomplete a return of service in accordance with Rule 107, except that the return of service need not contain a return receipt.
The new rules have also been expanded to include applications for foreclosure of liens securing tax lien transfer or property tax loans in accordance with Section 32.06 (c-1)(1) of the Tax Code, as well as foreclosure of certain property owner association assessments under Section 209.0092 of the Property Code.
Time Lines for Courts to Act
The new rules provide definitive time lines for courts to act. If a response is filed, the court must schedule a hearing. The hearing must be scheduled no earlier than 20 days, but no later than 30 days after a request for hearing by any party.
However, courts can no longer require a hearing if no response has been filed. Upon the filing of a motion for default, the court must grant the order within 30 days if the application and returns are in compliance with the rules.
Automatic Stay and Dismissal if Independent Suit Filed
Upon the granting of an order allowing foreclosure, the amended rules eliminate the need for respondents to file a last minute temporary restraining order to stop a scheduled foreclosure sale pursuant to a Rule 736 order.
The sale is automatically stayed if respondent files a separate suit putting any matter relating to the application in issue prior to 5:00 p.m. on the Monday before the scheduled foreclosure sale. Any foreclosure sale held after such automatic stay is in place is void. On the other hand, if no order has been signed by the court at the time such suit is filed, the court must dismiss a pending proceeding upon timely motion by the respondent.
In conclusion, the amendments to Rules 735 and 736 place greater emphasis on procedure and timing for both applicants and the courts. Notice procedures have been substantially modified, now requiring issuance of separate citations for each respondent and occupant, with service and returns completed by the clerk of court. Applications must include all documents establishing the lien along with all requisite notices and proof of mailing. Thus, for any applications submitted in conformity with the new rules, both applicants and the courts should be rewarded with a quicker, more efficient, and potentially less costly, application process.
Mark Torabi, of Pite Duncan, LLP, can be reached at firstname.lastname@example.org.