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Texas: Important New Law re Expedited Foreclosure Application

Posted By USFN, Monday, November 25, 2013
Updated: Wednesday, October 14, 2015

November 25, 2013

 

by G. Tommy Bastian
Barrett Daffin Frappier Turner & Engel, LLP – USFN Member (Texas)

Due to new Texas lawmaking, mediation may be compelled when a borrower files a response to a Texas Rule of Civil Procedure § 736 expedited foreclosure application that seeks the mandatory court order required by the Texas Constitution to foreclose a home equity, reverse mortgage, or home equity line of credit loan. [See House Bill 2978, effective June 14, 2013.] In addition, this new legislation allows Rule 736 applications to be personally served by a sheriff, constable, or qualified process server. Previously, only the clerk of the court served each respondent with the citation for expedited foreclosure and a Rule 736 application by mail.

Personal service will probably lessen many judges’ reluctance, and often refusal, to sign a Rule 736 default order that allows a foreclosure to proceed. From a servicer’s perspective, and apparently because of a quirk in the new rule, the convergence of the mediation and the personal service rule means that servicers should consider serving respondents by personal service because it eliminates court-ordered mediation. The cost of service remains the same (whether the clerk serves each citation or each citation is personally served by the sheriff, constable, or authorized process server).

How the mediation rule will work in practice will likely evolve through trial and error. As a condition precedent to mediation, the borrower must file a timely response to the Rule 736 application. If a response is not filed, there is no mediation. When a response is filed, the court must set a hearing to determine whether mediation should commence — unless, as indicated above, the borrower was personally served with the Rule 736 application.

Once the borrower files a response, the court on its own motion, or at the request of a respondent or servicer, must set a hearing on whether mediation is necessary. If mediation is ordered, it can be conducted by telephone with the court coordinating the logistics of a telephone hearing. Further, the parties can agree on a mediator or, if the parties cannot agree, the court will appoint a mediator. Mediation costs are to be divided equally between the parties.

In addition, effective on or before March 1, 2014, new legislation requires the Texas Supreme Court to adopt mandatory foreclosure forms as part of the Texas Rules of Civil Procedure loans requiring a court order to foreclose, which include home equity, HELOCs, and reverse mortgages. At a minimum, the promulgated forms will include a Rule 736 application form and its supporting affidavit form, which must be executed by the servicer and must meet Texas motion for summary judgment standards, and a new citation form if the clerk of the court serves the respondent. As long as a mortgage servicer uses the Texas Supreme Court’s affidavit form, the judges’ current propensity to refuse a servicer’s standard form of affidavit as competent evidence in a Rule 736 proceeding should be significantly curtailed.

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