USA - TEXAS Law and Practice Contributed by: Brad Holdbrook, Mary Mendoza, Michael Coleman and James Barnett, Haynes and Boone, LLP
ing the possibility to reinstate the loan within 20 days after receiving the notice of default and intent to accelerate. Also, lenders may seek a deficiency judgment if the sale does not cover the total debt, but borrowers can challenge the deficiency amount by proving the fair market val - ue of the property. Federal and state laws offer protections and options for loss mitigation, such as loan modifications, forbearances, or repay - ment agreements. Foreclosure activity in Texas, along with oth - er states, has seen a significant uptick in the wake of the COVID-19 pandemic. This uptick represents a continuation of the rising trend in foreclosure activities, gradually moving towards pre-pandemic levels. Despite this increase, the foreclosure activity remains below the historical norms observed before the Great Recession, signalling that while there is a rise, it has not reached the peak levels of the past. 3.7 Subordinating Existing Debt to Newly Created Debt In Texas, it is possible for existing secured debt to voluntarily become subordinated to newly created debt. This process is typically managed through a subordination agreement, which is a legal document that establishes a hierarchy of debt and priority of repayment for multiple credi - tors. This kind of agreement is particularly used when there are multiple loans secured by the same property, and the parties involved want to establish the order in which their claims will be satisfied in the event of default or foreclosure. 3.8 Lenders’ Liability Under Environmental Laws In Texas, a lender holding security interests in real estate are generally exempt from liability for environmental contamination on the property as long as they do not participate in the manage -
ment of the facility or worsen the contamina - tion, as well as take certain steps with respect to divesting itself of the property after a fore - closure. At the federal level, the Comprehensive Environmental Response, Compensation and Liability Act outlines this exemption, focusing on the lender’s role as not being an “operator” or actively managing environmental aspects of the property. This allows lenders to minimise risks associated with loans secured by properties that may have environmental challenges. Texas environmental law offers similar lender liability protections. 3.9 Effects of a Borrower Becoming Insolvent In Texas, security interests created by a borrower in favour of a lender generally remain valid even if the borrower becomes insolvent. The filing of bankruptcy by a borrower can introduce com - plexities, such as the automatic stay on collec - tion activities, but it does not automatically void existing security interests. Lenders may need to seek relief from the bankruptcy court to enforce their security interests in such situations. 3.10 Taxes on Loans Texas does not impose a mortgage tax on the recording of mortgages or deeds of trust. Recording fees are typically required for the recording of mortgages and deeds of trust in the county where the property is located. These fees vary by county and are intended to cover the cost of entering the document into the pub - lic record, ensuring it is accessible for public inspection.
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