Foreclosure

• When a mortgage company forecloses on property, it will typically try to resell the property for 70 to 80 percent of its market value. This helps to recoup some of the loss suffered from the legal costs involved in a Texas foreclosure proceeding and pays back some of the defaulted debt. However, because the debt was not paid in full, the mortgage company can file a judgment (court order to pay) for the difference between the amount the consumer owed and the amount of money that the property sold for.
  
  For example, if a homeowner carried a $100,000 balance on her mortgage, and the bank foreclosed and resold the property for $75,000, the bank could demand payment from the foreclosed owner in the form of a judgment for $25,000.
  
  

Time Frame

• The time that it takes a lender to foreclose on a property, resell the property and file a judgment in Texas varies primarily because of market conditions. If the property resells quickly, the bank can proceed with calculating the balance owed by the foreclosed owner and pursue all legal methods of collection activity.
  
  However, if the property remains on a market for a long period of time, the lender will still have the option to pursue collection activity for as long as the Texas statue of limitations law allows.
  
  

Statue of Limitations

• In Texas, the amount of time that a lender has to collect or file a judgment against a consumer is four years for any type of contract. Specifically for foreclosures, the clock for the lender beings ticking once the foreclosure is complete. After the four-year term, the lender does not have the option to file a judgment against the consumer.
  
  

Misconceptions

• The statute of limitations does not apply to a consumer's credit report. While the Texas law states that the lender has four years in which to actively pursue collection activity or file any legal proceedings, the creditor has the option to leave an unpaid debt or collection on a consumer's credit file for up to seven years of the foreclosure date. In addition, the lender has the option to resell the debt to a collection agency, which resets the seven-year clock on the term that a negative item can remain on a credit report.
  
  

Expert Insight

• When a foreclosure proceeding has been filed in Texas, a consumer has the option of filing for Chapter 7 bankruptcy. When this occurs, the mortgage and foreclosure are written off and discharged. This will eliminate the possibility of further collection activity and wipe out all rules associated with the statue of limitation law. This can be an effective option for consumers who are unable to keep their home by protecting them from further collection efforts by the mortgage company.