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Seller financing is a powerful tool. It allows you to move real estate without relying on traditional banks, often speeding up the transaction and opening the door to a wider pool of buyers. But that flexibility comes with a distinct risk: the buyer might stop paying.
When a borrower defaults on a seller-financed transaction in Texas, the remedy depends entirely on how the deal was structured. If you are holding a Promissory Note and a Deed of Trust—the standard and preferred method for securing a loan—you have a clear, non-judicial path to reclaim the property.
I wrote this step-by-step guide to foreclosing on a seller-financed property to walk you through the precise statutes and timelines required by Texas law. The process is strict. One missed deadline or incorrect notice can void the entire foreclosure, opening you up to lawsuits and forcing you to start over.
Distinguishing the Deed of Trust from a Contract for Deed
Before taking any action, I always ask my clients to confirm which instrument they used to secure the sale. This guide focuses on foreclosing under a Deed of Trust (governed by Texas Property Code Chapter 51).
If your transaction was structured as a Contract for Deed (also known as an executory contract), the rules are entirely different. Under Texas Property Code Chapter 5, specifically Subchapter D, you face far stricter notice requirements and, in some cases, restitution rules that do not apply to a standard foreclosure. Confusing these two processes is a common but expensive mistake.
If you confirmed you have a Deed of Trust, the process follows the steps below.
Step 1: The Notice of Default and Intent to Accelerate
You cannot simply wake up one morning and sell the property. Texas law requires you to give the borrower a chance to fix the mistake.
Under Texas Property Code § 51.002(d), if the property is the debtor’s residence, you must serve the debtor with a written notice of default. This notice must state that they are in default and provide them with at least 20 days to cure the default.
I advise sending this notice via certified mail, return receipt requested. The 20-day period begins when the notice is deposited in the mail, not when they receive it. During this window, the borrower can pay the past-due amount (plus allowed late fees) to reinstate the loan. If they do, the foreclosure process stops immediately.
Step 2: Acceleration and Notice of Sale
If the 20-day cure period expires and the borrower has not paid, you may proceed to the next phase: acceleration. This means declaring the entire principal balance due immediately, not just the missed payments.
You must then provide a Notice of Sale at least 21 days before the foreclosure sale. According to Texas Property Code § 51.002(b), this notice must contain the earliest time the sale will begin and must be delivered in three specific ways:
- Posted at the courthouse door of the county where the property is located.
- Filed in the office of the county clerk of that same county.
- Served by certified mail to each debtor obligated to pay the debt.
In Houston (Harris County), these filings are routine, but the timing is absolute. The 21-day count must be precise. If you post the notice 20 days before the sale, the sale is invalid.
A Note on Military Service
Before proceeding, I also ensure compliance with the Servicemembers Civil Relief Act (SCRA) and Texas Property Code § 51.015. If the borrower is an active-duty military member, you may be barred from foreclosing without a court order. Failing to verify military status can lead to severe legal penalties.
Step 3: The Foreclosure Sale
Texas foreclosure sales happen on the first Tuesday of every month, regardless of holidays. The sale must occur between 10:00 a.m. and 4:00 p.m.
The location is strictly controlled. Texas Property Code § 51.002(a) mandates that the sale take place at the county courthouse or an area designated by the commissioner’s court. In Harris County, for example, these sales have historically been moved away from the actual courthouse to designated locations like the Bayou City Event Center on Knight Road due to crowd size. You must verify the current designated location for the specific month of your sale.
The trustee (often an attorney or a designated third party) reads the notice aloud and auctions the property to the highest bidder. As the lender, you have the right to “credit bid” the amount the borrower owes you. If no one bids higher than your debt, you retake ownership of the property.
Step 4: Reclaiming Possession (Eviction)
Foreclosure transfers title, but it does not physically remove the occupants. If the former borrowers refuse to leave after the sale, you cannot change the locks or remove their belongings yourself. That is a “self-help” eviction and is illegal in Texas.
Instead, you must treat them as “tenants at sufferance.” Under Texas Property Code § 24.005, you must send a 3-day notice to vacate. If they still refuse to leave, you must file a forcible detainer suit (eviction) in the Justice of the Peace court. Only after obtaining a judgment and a Writ of Possession can a constable physically remove the occupants.
Professional Guidance for Texas Lenders
Foreclosing on a seller-financed property requires rigid adherence to the Texas Property Code. The statutes act as a checklist; missing one box can render the entire process void. I help lenders in the Houston area navigate these disputes, ensuring notices are drafted correctly and deadlines are met strictly.
My firm does not offer free consultations. I dedicate my time to providing actionable, specific legal work for my clients. If you need to enforce a Note and Deed of Trust or discuss your rights as a lender, contact me.
Jarrett Law Firm, PLLC
