Can I Still Foreclose on a Property if the Debtor Has Died?

Foreclosing When Debtor is Deceased

Texas lenders secure their loans in real estate transactions with a deed of trust. The deed of trust serves as a security instrument allowing the lender to foreclose on the buyer and force a sale of the property to pay off the borrower's remaining debt. For most situations where a buyer falls behind on payment, or arranges to sell the property without having paid the lender the rest of what is owed, the deed of trust and power of sale serve as powerful tools for the lender. But what if the buyer passes away while still owning the property and owing the lender?

Is it possible to foreclose on a property even if the buyer has passed away?

The answer is: it depends.

So long as no probate administration is yet open or pending, Texas courts have allowed foreclosure actions to go forward even when the buyer has already passed away. Pearce v. Stokes, 155 Tex. 564, 291 S.W.2d 309 (1956). However, there are several risks involved with proceeding. For one, if probate is ever opened for the buyer’s estate within four years after they passed away, the probate court would have the power to “set aside” or essentially undo the foreclosure sale. Id. In addition, the administrator of the estate may recover the value of the use of the property during the time the purchaser at the foreclosure sale has held possession. American Sav. & Loan Ass'n of Houston v. Jones, 482 S.W.2d 62 (Tex. Civ. App.—Houston [14th Dist.] 1972, writ ref'd n.r.e.). This creates dangers both for the seller and any potential purchaser of the property during the foreclosure sale.

While the foreclosure sale is conditionally valid for four years, the purchaser's title becomes indefeasible four years from the decedent's death, if a dependent administration is not opened. Natali v. Witthaus, 134 Tex. 513, 135 S.W.2d 969 (Comm'n App. 1940); Wiener v. Zweib, 105 Tex. 262, 147 S.W. 867 (1912). This means that the probate court would no longer be able to set aside the foreclosure sale. However, it may be nerve-wracking to have to wait four years to be sure that the foreclosure sale already completed will be final.

What if probate is opened within four years?

Even if someone opens probate within the four year period, all is not lost. As the holder of the promissory note, a seller could present their claim for the balance of the note to the representative of the estate (Tex. Est. Cod. Ann. § 355.001) or deposit the claim with the clerk of court (Tex. Est. Cod. Ann. § 355.002). The claim must also be supported by an affidavit showing that:

  1. The claim is just;
  2. All legal offsets, payments, and credits known to the affiant have been allowed; and
  3. If the claim is not founded on a written instrument or account, the facts on which the claim is founded.

Tex. Est. Cod. Ann. § 355.004.

Once filed, you may be able to recover what you are owed by the administrator of the estate, depending upon what other debts the estate may owe.

Whenever you are considering conducting a foreclosure, especially in more complicated circumstances such as these, it is vital to work with experienced attorneys who can help guide you through the process and answer any questions you may have.

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