Expedited Foreclosure: New Rules 735 and 736

19 h Annual Robert C. Sneed TEXAS LAND TITLE INSTITUTE Expedited Foreclosure: New Rules 735 and 736 December 3-4, 2009 Hyatt Regency Hill Country Resort & Spa San Antonio Mr. G. Tommy Bastian Barrett Daffin Frappier Turner & Engel, L.L.P. 15000 Surveyor Blvd., Suite 100 Addison, TX 75001 tommyb@bbwcdf.com 972.340.7939

G. Tommy Bastian Barrett Daffin Frappier Turner & Engel, L.L.P. 15000 Surveyor Blvd., Ste. 100 Addison, Texas 75001 972.341.0500 tommyb@bbwcdf.com G. Tommy Bastian is Board Certified in Residential Real Estate Law by the Texas Board of Legal Specialization and focuses his practice on mortgage banking issues related to title, real estate, probate and class action litigation, as well as legislative matters. He is the author of more than 50 articles and publications, to include the MERS chapter in the Thomson/West Texas Practice Series on Texas Foreclosure: Law and Practice edited by W. Mike Baggett, and a frequent lecturer on mortgage banking related issues in both Texas and nationwide. Mr. Bastian is a graduate of Howard Payne University, Texas Tech Law School, the U.S. Army Command and General Staff College, and the U.S. National Defense Security University. Currently, he is a Director of the Texas Mortgage Bankers Association; a member of the American Land Title Association Education Committee; member of the MBA State Legislative and Regulatory Committee; and the State Bar of Texas Real Estate Legislative Affairs Committee. In 2006, he served on the Residential Foreclosure Task Force mandated by House Bill 1582 and was the Course Director for the State Bar of Texas Real Estate Advanced Course 2006. Mr. Bastian served as the principal draftsman for the Texas Supreme Court Task Force responsible for Rule 735 and 736 dealing with foreclosure of home equity, reverse mortgage, home equity line of credit, and transferred tax liens. Designated as a Texas Super Lawyer for the years 2004 2009, Mr. Bastian was also selected as a National Banking Super Lawyer - Corporate Counsel Edition 2008.

Expedited Foreclosure New Rule 735 and 736 G. Tommy Bastian Barrett Daffin Frappier Turner & Engel, L.L.P 15000 Surveyor Blvd., Ste. 100 Addison, Texas 75001 Phone: 972.341.0500 Facsimile: 972.341.0734 E-mail: tommyb@bbwcdf.com

1 Proposed Texas Rules of Civil Procedure 735 and 736 At the time this presentation was due to the TLTA for printing the course materials, the 103 rd draft of the new rules proposed by the Texas Supreme Court Task Force, and twice vetted by the Supreme Court Advisory Committee, was under final review by the Texas Supreme Court. 2009 TEXAS LAND TITLE INSTITUTE

2 Principles Underlying T.R.C.P. 735 and 736 TEX. CONST. art. XVI 50(r) EXPEDITE The supreme court shall promulgate rules of civil procedure for expedited foreclosure proceedings related to the foreclosure of liens under Subsection (a)(6) of this section and to foreclosure of a reverse mortgage lien that requires a court order. To execute quickly and efficiently American Heritage Dictionary Tax Code 32.06(c) Except as otherwise provided by this section, the transferee of a tax lien and any successor in interest is entitled to foreclose the lien: (2) in the manner specified in Section 51.002 Property Code, and Section 32.065 Tax Code, after the transferee or a successor in interest obtains a court order for foreclosure under Rule 736 Texas Rules of Civil Procedure. CAVEAT: Published versions of Tax Code 32.06 do not contain Section 4 of SB 1520 [80 th Legislature] that states that all transferred tax liens that were transferred prior to September 1, 2007, do not require a court order for a non-judicial foreclosure. 2009 TEXAS LAND TITLE INSTITUTE

3 Task Force Drafting Principles Don t change current Texas foreclosure law The foreclosure process should be challenged by a regular lawsuit, not the expedited rule required by the Constitution Rule 736 is modeled on the forcible entry and detainer statutes, i.e., a quick determination of one issue: whether the applicant may continue a foreclosure under the loan agreement and Chapter 51, Tex. Prop. Code All respondents are entitled to a hearing but only if the respondent files a written response with the court The form and nomenclature of the pleadings should be distinctive so that clerks will know a Rule 736 proceeding is not a regular lawsuit 2009 TEXAS LAND TITLE INSTITUTE

4 Task Force Drafting Principles If a respondent fails to file a response, a default order should be signed without delay so the file may be closed and removed from the docket Since a 50(a)(6) or (7) loan is non-recourse without personal liability, a Rule 736 proceeding is an in rem action against the property securing the debt, not a person; therefore, if the mortgagor is deceased and no probate is pending, the heirs should be named as parties and served with process A Rule 736 order does NOT foreclose the property. After a Rule 736 order is signed, the regular foreclosure process continues. After an order is signed, the respondent must be given at least 21 days written notice of the date and time of a foreclosure sale at a minimum 2009 TEXAS LAND TITLE INSTITUTE

5 Task Force Drafting Principles Similar to an eviction suit, a Rule 736 order is appealed by filing a regular lawsuit challenging any aspect of the foreclosure process de nova A respondent may vacate a Rule 736 order by filing a regular lawsuit by 5:00 p.m. on the Monday prior to the scheduled foreclosure sale date without having to file a TRO and post a bond The Task Force members drafting the new rules represent most of the interest groups affected by the rules: judges, district clerks, court coordinators, lenders, consumers, title companies, legal aid clients, mortgage servicers, transferred tax lien lenders, realtors, and the public 2009 TEXAS LAND TITLE INSTITUTE

6 Foreclosure Process Starts 30 days after debtor misses a mortgage payment Foreclosure Timeline Month 1 At least six calls and two letters from mortgage servicer to debtor seeking to cure default status Month 2 At least six calls and three letters to debtor from the mortgage servicer Notice of default sent pursuant to TPC 51.002 Month 3 At least eight calls and two letters from mortgage servicer to debtor to cure default Month 4 Foreclosure referral sent to law firm Fair Debt Collection Practices Act (FDCP) letter sent to debtor During foreclosure process, the mortgage servicer attempts to cure the default by various loss mitigation alternatives, and the foreclosure sale date is postponed if a cure is viable Month 5 TRCP 736 application filed Respondent is served with the application Month 6 Respondent s response (answer) is due 38 days after service of process Month 7 If a response is filed, a hearing is held; otherwise, a default order is granted Month 8 Notice of foreclosure sale date sent to the debtor Posting notice filed in accordance with T.P.C. 51.002 Month 9 and 10 Foreclosure sale first Tuesday of the month 2009 Texas Mortgage and Foreclosure Statistics Loans Seriously Delinquent Texas Loans Serviced (90 days due or in foreclosure) 1 st Quarter 2 nd Quarter 1 st Quarter 2 nd Quarter Total Loans 3,105,746 3,094,268 140,069 144,811 Prime Loans 2,017,919 1,997,822 42,981 46,948 Subprime Loans 369,560 359,817 51,701 56,743 Source: MBA National Delinquency Report 2009 TEXAS LAND TITLE INSTITUTE 24

7 Unique Working Terms 25 Definitions Heir Holder of a Recorded Preexisting First Lien on the Property Investor Loan Agreement MERS Mortgage Servicer Mortgagee Transferred Tax Lien Transferee or Property Tax Lender 2009 TEXAS LAND TITLE INSTITUTE

8 Foreclosure Proceedings An application is filed in district court in the county where a major portion of the secured property is located UNLESS The respondent is deceased and then in a probate court where an administration is pending or a determination to declare heirship proceeding would be filed 2009 TEXAS LAND TITLE INSTITUTE

9 Promulgated Forms APPLICATION for: Home Equity Reverse Mortgage Home Equity Line of Credit Separate APPLICATION for: Transferred Tax Lien DECLARATION CITATION DEFAULT ORDER 2009 TEXAS LAND TITLE INSTITUTE

10 Duties of Applicant with Regards to Service Provide sufficient copies of application, declaration, and mandated exhibits to clerk of court Provide name and last known address for each respondent to clerk of court Provide the appropriate response date for each citation All filing fees and citation costs must be paid as a condition precedent for filing an application 2009 TEXAS LAND TITLE INSTITUTE

11 Citation One citation for each debtor and mortgagor Two citations for service on the property Additionally for a transferred or property tax loan: Property owner Holder of recorded preexisting first lien If a respondent is deceased, citation for: Personal representative; or The heirs in accordance with Tex. Prob. Code 50 2009 TEXAS LAND TITLE INSTITUTE

12 Mailing of Citation by Clerk First class mail to each respondent Response date: From the date of mailing, 38 days and next Monday unless it falls on a federal holiday, and then the next day $10 fee paid to clerk to mail citation Citation cost must be paid at the time of filing 2009 TEXAS LAND TITLE INSTITUTE

13 Service of Citation on Property Citation directed to RESIDENT of [Property Address] Served on any person over 16 years of age residing at property If service on a person is not possible, citation affixed to front door in envelope with notation TO THE RESIDENTS OF [PROPERTY ADDRESS] IMPORTANT LEGAL DOCUMENTS INSIDE If citation envelope can t be affixed to front door: Citation served by U.S. Postal Service Express Mail or by a commercial delivery service within 24 hours No response date for a citation served on property Return of citation on property must be on file at least 20 days before default order may be signed 2009 TEXAS LAND TITLE INSTITUTE

14 Service on Holder of a Recorded Preexisting First Lien on the Property Personal service by sheriff, constable, or any other person authorize to serve process under T.R.C.P. 103 Delivery of citation directed to: Person, if natural person Texas registered agent President, vice-president or general counsel If non-resident, Texas Secretary of State under T.C.P.R.C. 17.044 and 17.045 Office manager Mortgage servicer Otherwise: Holder of lien listed on recorded deed of trust under T.R.C.P. 106(b) 2009 TEXAS LAND TITLE INSTITUTE

15 Dead Debtor Application and Service If a dependent or creditor s probate administration is pending and a qualified personal representative is appointed, proceed as a preferred claim against the estate If an independent administration is pending, service on the qualified personal representative and suit filed in district court If no probate is pending or no personal representative is qualified, application filed against all heirs in probate court with a contemporaneous application to determine heirship under Tex. Prob. Code 48-50 2009 TEXAS LAND TITLE INSTITUTE

16 Amendment of Application If either the beneficial ownership or servicing of a loan agreement changes before a Rule 736 order is signed, the application must be amended to reflect changes Amended application must be re-served on all respondents if mortgage servicer changes 2009 TEXAS LAND TITLE INSTITUTE

17 Response Response in the form of a general denial Response must affirmatively plead: Debtor or mortgagor didn t sign loan agreement Dollar amount of default is materially incorrect Any document attached to the application is not a true and correct copy Proof of payment in accordance with T.R.C.P. 95 COUNTERCLAIMS, CROSS CLAIMS, THIRD PARTY CLAIMS, INTERVENTIONS, OTHER CAUSES OF ACTION AND CLAIMS MUST BE FILED IN AN INDEPENDENT SUIT 2009 TEXAS LAND TITLE INSTITUTE

18 Hearing When Response Filed If a Response is filed, applicant must obtain a hearing date. The hearing must be set not earlier than 20 days and not later than 30 days after the request for hearing was made. THE ONLY ISSUE TO BE DETERMINED IS WHETHER A RULE 736 ORDER SHOULD BE GRANTED OR DENIED 2009 TEXAS LAND TITLE INSTITUTE

19 Default Applicant must file a motion for default and attach a proposed order ready for Judge s signature Judge must sign a default order within 20 days after a motion for default is filed All matters alleged in application are accepted as prima facie evidence of truth of matter alleged Application and declaration must be same or similar to promulgated form Mailing and service of citation must be properly made and return of citation timely filed with clerk of the court 2009 TEXAS LAND TITLE INSTITUTE

20 Discovery NONE 2009 TEXAS LAND TITLE INSTITUTE

21 Order A promulgated form Not subject to motion for rehearing, new trial, or appeal under Texas Rules of Appellate Procedure Presiding judge must provide reason why an order is denied A Rule 736 order is appealed by filing a regular lawsuit in a court of competent jurisdiction A Rule 736 order expires in 180 days from date of signing 2009 TEXAS LAND TITLE INSTITUTE

22 Effect of Order No effect on any other judicial proceeding and a Rule 736 order cannot be construed as an admission of liability by respondent 2009 TEXAS LAND TITLE INSTITUTE

23 Bankruptcy If a respondent files bankruptcy after an application is filed, unless the automatic stay is lifted or the bankruptcy is dismissed or closed within 90 days of mailing citation to debtor, the Rule 736 proceeding is dismissed. If a Rule 736 order is signed and the respondent files bankruptcy thereafter, the order is void if the property is not foreclosure within 180 days after the order is signed. 2009 TEXAS LAND TITLE INSTITUTE

24 Abatement, Dismissal, Annulment of Order A Rule 736 proceeding is automatically abated and dismissed if before a Rule 736 order is signed, a separate lawsuit is filed in a court of competent jurisdiction and notice of the independent suit is filed in the court where the application was filed. A signed Rule 736 order is automatically void if a separate lawsuit is filed no later than 5 p.m. on the Monday prior to the posted foreclosure sale; a copy of the suit is filed with the clerk of the original court; and the respondent makes a good faith effort to deliver a copy of the suit to the trustee, substitute trustee or applicant s attorney before the foreclosure sale is conducted. If respondent in bad faith fails to deliver notice of the independent suit which could have prevented the foreclosure sale, the respondent may be subject to monetary sanctions by the court. 2009 TEXAS LAND TITLE INSTITUTE

25 Attachment of Order to Substitute Trustee s Deed A conformed copy of the Rule 736 order must be attached to the trustee or substitute trustee s deed after foreclosure. 2009 TEXAS LAND TITLE INSTITUTE

26 Future Statutory Changes Affecting Rules Incorporates T.R.C.P. 818 and 819, which provides that the statutes and citations contained in the current rule will be automatically updated with any successor statutory changes 2009 TEXAS LAND TITLE INSTITUTE

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 Proposed Amendments to Rules 735 and 736 of the Texas Rules of Civil Procedure PART VII. RULES RELATING TO SPECIAL PROCEEDINGS SECTION 1. PROCEDURES RELATED TO HOME EQUITY, REVERSE MORTGAGE, HOME EQUITY LINE OF CREDIT, AND TRANSFERRED TAX LIEN OR PROPERTY TAX LOAN FORECLOSURES RULE 735. Home Equity, Reverse Mortgage, Home Equity Line of Credit, and Transferred Tax Lien or Property Tax Loan Foreclosures. 735.1. Applicability. This section applies to foreclosure of a: (a) Home equity loan agreement under Article XVI, Section 50(a)(6), Texas Constitution; (b) Reverse mortgage loan agreement under Article XVI, Section 50(a)(7) Texas Constitution; (c) Home equity line of credit loan agreement under Article XVI, Section 50(t), Texas Constitution; or (d) Transferred tax lien or property tax loan agreement described in Sections 32.06 and 32.065, Tax Code, and Section 351.002(2), Finance Code. 735.2. Definitions In this section: (a) Account means the servicing records and documents related to a debtor s loan agreement kept in the regular course of business in electronic or other format. (b) Applicant means the person seeking a Rule 736 order. (c) Commercial delivery service means a document delivery carrier or enterprise that provides proof of delivery in the regular course of business. (d) Declaration means a statement made by an officer or employee of the mortgage servicer servicing a debtor s loan agreement that must be attached to an application filed under this rule. The statement must be sworn to before a notary or made under penalty of perjury. (e) Debtor means the person liable for payment of the debt evidenced by the loan agreement that encumbers the property. (f) Heir means in the context in which the term is used: (a) a person, including the surviving spouse, who is entitled under the statutes of descent and distribution to the property of a decedent who dies intestate; (b) a distributee or legatee entitled to a decedent s property under a will probated in the county where the property is located; or (c) the current, qualified personal representative of the decedent s estate; and (d) if a respondent is deceased a person who is served with citation under Section 50 Probate Code. (g) Holder means a person entitled to enforce an instrument as the term is defined in Section 3.301 Business and Commerce Code. 1

46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 (h) (i) (j) (k) (l) (m) Holder of a recorded preexisting first lien on the property under Section 32.06(c-1), Tax Code, means the current owner, or holder, or transferee of a loan agreement secured by a recorded preexisting first lien as that term is defined in this rule. Investor means, for a loan agreement that is sold on the secondary market or securitized: (a) a person who suffers the risk of loss, without reference to any contractual guarantees, if the debtor defaults; (b) a person for whose benefit the mortgage servicer remits the principal and interest, less servicing fee, received from the debtor s scheduled loan agreement payments; or (c) the legal, beneficial, or equitable owner of the debtor s loan agreement that may be held by a trust, special purpose entity, or government sponsored enterprise. Last known address means: (1) For a debtor, mortgagor, property owner, or owner of the property: (i) the property address, if the person s residence is the property encumbered by the loan agreement; or (ii) if the property encumbered by the loan agreement is not the person s residence, both the property address and the person s most recent address contained in the servicing records of the current mortgage servicer; (2) For a holder of the current recorded preexisting first lien, the current address for the person described in Rule 736.6, who is to be served with citation; or (3) For an heir, the heir s residence or business address. (4) If a person provides a change of address in writing to the mortgage servicer of the debtor s loan agreement as provided in Section 51.0021, Property Code, beginning 20 days after receipt of the change of address by the servicer, the last known address is the person s new address. Previous notices properly sent to the person s former address are not required to be re-mailed or re-served. Loan agreement means the note, security instrument, and any other instrument executed contemporaneously in a document or electronic format that evidences an obligation to pay a loan encumbering the property. Mortgage Electronic Registration Systems, Inc. or any derivation of the name to include MERS, means the book entry system referred to in Section 51.0001(1), Property Code, and may be the mortgagee of record in the official real property records; the nominee of the lender or the lender s successors or assigns; or the beneficiary of the security instrument encumbering the property. Mortgage servicer means: (1) the last person to whom a debtor has been instructed to send payments for a debt evidenced by the debtor s loan agreement and responsible for the administration and servicing of the debtor s account; (2) a person authorized to administer foreclosure of the property under Section 51.0025, Property Code; or (3) if the debtor s loan agreement has been securitized, the person who: (i) is obligated in writing to service the debtor s loan agreement and account; and (ii) remits the principal and interest, less servicing fee, received from the debtor s scheduled loan agreement payments to the investors or 2

93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 the person responsible for distributing the debtor s payments to the investors; or (iii) the holder or transferee of the debtor s note and loan agreement (n) Mortgagee means: (1) the owner, holder, transferee, or investor of the debtor s loan agreement; (2) the current grantee, nominee of the lender or lender s successors or assigns, beneficiary, or mortgagee of record of the recorded security instrument securing the debtor s loan agreement; (3) the book entry system described in Section 51.0001(1), Property Code; (4) the current mortgage servicer of the debtor s loan agreement; or (5) the owner, holder, or transferee of a transferred tax lien or property tax loan agreement. (o) Mortgagor means a person who is the grantor of a security agreement evidenced by a security instrument that encumbers the property. (p) Person means an individual, corporation, estate, trust, partnership, association, joint venture, limited liability company, limited liability partnership, or any other legal or governmental entity, enterprise, or organization. (q) Property means the real property, fixtures, and improvements encumbered by a loan agreement sought to be foreclosed under Rule 735 or 736. (r) Property address means the street address assigned by the U.S. Postal Service to the property and, if the U.S. Postal Service has not assigned a street address, the legal description of the property. (s) Property owner under Sections 32.06 and 32.065, Tax Code, means a debtor who is liable to pay a transferred tax lien or property tax loan agreement that encumbers the property, and is the owner of the property who must be served with an application under Section 32.06(c)(2) and Section 32.06(c-1) Tax Code. (t) Property tax loan means a loan agreement, as provided for in 32.065(b), Tax Code, and as defined in Section 351.002, Finance Code. (u) Recorded preexisting first lien under Section 32.06(c)(2) and (c-1), Tax Code, means a current contractual lien that encumbered the property at the time the transferred tax lien was recorded, and was recorded first in time to any other current contractual lien that encumbers the property in the official real property records. (v) Respondent means a person named as a responding party in a Rule 736 application. (w) Security instrument means a deed of trust or other contractual lien document that evidences a security agreement encumbering the property. (x) Servicing means activities related to the administration of a debtor s loan agreement in the regular course of business and may include: (1) accounting, record keeping, escrow administration, and communication with the debtor and third parties; (2) receiving loan payments from a debtor and remitting to the owner or investor of the debtor s loan agreement the principal and interest, less servicing fee, received from the debtor; (3) administering foreclosure of the property in accordance with Section 51.0025, Property Code. 3

139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 (4) enforcing the debtor s note as the holder or transferee, pursuant to a written agreement as the agent for the principal entitled to the payments due under the note and loan agreement. (y) Transferee means a person receiving delivery of an instrument for the right of enforcement as described in Section 3.203 Business and Commerce Code. (z) Transferred tax lien or property tax loan means a lien, provided in Section 32.065(b), Tax Code, and as defined in Section 351.002, Finance Code. (aa) Transferee or property tax lender under Sections 32.06(c) and (c-1) Tax Code and 32.065, Tax Code, means a person authorized to pay the taxes of another and the person, or the person s successors in interest, who is the owner or investor of a transferred tax lien or property tax loan and as further defined in Section 351.002, Finance Code. 735.3. Foreclosure Proceedings (a) A person seeking to foreclose a lien described in Rule 735.1, except as provided in 735.3(c), must obtain from a district court or court with equivalent jurisdiction in a county where all or a major portion of the property is located: (1) a judgment for judicial foreclosure; or (2) an expedited order under Rule 736 to continue with the foreclosure process. (b) A Rule 736 order resulting from a Rule 736 application may be obtained as a counterclaim, cross claim, intervention, probate or decedent related proceeding, or other third party proceeding brought in a district court or court with equivalent jurisdiction. (c) If the debtor, mortgagor, property owner or owner of the property is deceased and the decedent s interest in the property is passed pursuant to Section 37, Probate Code, a judgment or order described in (a)(1) or (2) must be obtained: (1) in the probate court where the decedent s estate is currently pending: (2) if a probate proceeding is not currently pending for the decedent s estate, in the probate court where a proceeding to declare heirship under Section 48, Probate Code, should be filed; or (3) if a probate application has been filed but a personal representative is not currently qualified, in the probate court in which the application is pending. (d) After a judgment or order is obtained under Rule 735 or 736, a person may proceed with the foreclosure process under the loan agreement and applicable law. Rule 736. Expedited Court Order Proceeding Rule 736.1. A Rule 736 Forms (a) A form representing the Rule 736 application, declaration, citation, and order required under this rule shall be the same or substantially the same or similar to the current Rule 736 Forms found on the Texas Supreme Court website at www.supreme.courts.state.tx.us in the Forms subsection of the Rules section, which may be altered if appropriate under these rules A Task Force appointed by the Supreme Court shall update the forms within 90 days after the close of each 4

187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 regular legislative session to expedite a finished promulgated form effective the following January 1 st. (b) All allegations, statements of fact, and exhibits required in the promulgated Official and Procedural Rule 736 Forms are made a part of this rule by reference for all purposes. All exhibits attached to an application or declaration must be clearly legible and reasonably capable of being read or deciphered, unless it is a copy of a government document that was filed or recorded as a public record, which is not legible. 736.2. Duties of Applicant (a) The applicant shall provide the clerk of the court for each citation directed to a debtor, mortgagor, property owner, holder of a recorded preexisting first lien on the property, or other respondent required to be served with process under this rule or Section 50 Probate Code with: (1) sufficient copies of the application, declaration, and exhibits for attachment to each citation, unless the filing was made electronically and the clerk directs that copies are not required; (2) a statement containing: (i) the name and last known address or address for service of process to be directed to each person to be mailed or served with citation; and (ii) the property address of the property sought to be foreclosed with the instructions that the citation mailed to the property by the clerk of the court and the citation personally served on the property shall be addressed to RESIDENT OF [property address]. (3) a self addressed postage prepaid envelope or wrapper for the return of all citations served by the clerk, unless the clerk instructs otherwise. (b) A condition precedent for filing an application with the clerk of the court is the payment of all fees and costs due for filing the application, preparation and mailing by the clerk of the court each citation directed to a respondent under this rule. (c) All costs, fees, and expenses shall be taxed as costs of court and paid by applicant, unless the court directs otherwise. 736.3. Citation (a) The response date contained in a citation mailed by the clerk of the court in accordance with Rule 736.4 shall be the first Monday unless the Monday is a federal or state holiday and then the next day after the expiration of 38 days of mailing of the citation. (b) The response date contained in a citation directed to the holder of a recorded preexisting first lien encumbering the property shall be the Monday next following the expiration of 20 days after the date service is made under Rule 736.6. (c) For citations addressed to RESIDENT OF [property address] and both mailed and served on the property, as provided in Rule 736.5, no return date is applicable. (d) The clerk of the court shall attach to each citation a copy of the application, declaration, exhibits.. 5

234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 279 280 281 (e) The clerk of the court shall prepare other citations as directed by the requesting party. The cost for preparing and issuing each citation shall be in accordance with Section 51.317, Government Code. (f) The return of service of each citation shall be in accordance with Rule 107 and as provided in this rule. 736.4. Mailing of Citation by Clerk by First Class Mail (a) The clerk of the court shall mail a citation by first class mail directed to each respondent, the RESIDENT OF [property address] and as instructed by applicant. (b) Service is complete when a citation with application, declaration, and exhibits is deposited into the custody and control of the U.S. Postal Service in a properly addressed, postage prepaid wrapper or envelope. (c) The return date of a citation mailed by the clerk of the court is the date a citation was placed in the custody and control of the U.S. Postal Service in accordance with the clerk of the court s standard mailing procedures. (d) A return of service that is regular on its face is prima facie evidence of proper service by first class mail. (e) If a respondent is deceased, on applicant s instructions, the clerk of the court under 735.3(c)(ii) or (iii) shall prepare and deliver citation in accordance with Section 50, Probate Code. (f) To compensate for the costs of handling and mailing, the clerk of the court may collect a reasonable fee not to exceed $10.00 for each citation mailed under this rule. 736.5. Service of Citation on the Property by Delivery to the Property Address (a) The clerk or applicant shall deliver a citation directed to the property addressed to RESIDENT of [property address] to any sheriff, constable, or other person authorized by Rule 103 to serve citations. (b) The citation with application, declaration, and exhibits shall be placed in a plain wrapper or envelope without any other markings except the following conspicuous notation: TO THE RESIDENTS OF [PROPERTY ADDRESS] IMPORTANT LEGAL DOCUMENT INSIDE (c) The citation shall be personally served by delivering the citation to any person over the age of sixteen (16) years residing at the property. (1) If service on a person at the property address is unsuccessful, the citation shall be served by securely affixing the envelope or wrapper to the front door or main entry of the property. (2) If the property cannot be accessed or is located in a gated community, the authorized process server shall deposit the citation in a prepaid wrapper or envelope addressed to RESIDENT at [state property address] with the notation DO NOT RETURN TO SENDER into the custody and control of the U.S. Postal Service s express mail service or a commercial delivery service. within 24 hours of the attempted delivery of citation on the property, (d) The name and address of the process server, and the date, time, and ultimate method of the service of citation under (c) shall be stated on the return. If service 6

282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 is by prepaid express mail or commercial delivery service, the document tracking number and original receipt of payment of the delivery charge shall be attached to the return filed with the clerk of the court. (e) The recipient of a citation addressed to the resident at the property address is not required to file a response unless the recipient is otherwise named as a respondent. (f) The returns of service on the property under 736.5 must be on file with the clerk of the court at least 20 days before a judge may sign a default order. (g) The cost for service of a citation on the property at the property address shall be taxed as a cost of court and paid by the applicant. 736.6. Service of Transferred or Property Tax Lien Application on the Holder of a Recorded Preexisting First Lien on the Property (a) In addition to service of process on the respondents who are the debtor, mortgagor, property owner or owner of the property, or, if the person is deceased under Section 50 Probate Code, the applicant shall obtain personal service on any person who is the current holder of a recorded preexisting first lien on the property by delivery of citation to any sheriff, constable, or other person authorized by Rule 103 to serve process for a transferred tax lien or property tax loan application. (b) Service of citation shall be directed to the current holder of a recorded preexisting first lien by delivery of the citation to: (1) the person, if a natural person; (2) the person s current Texas registered agent; (3) the person s president, vice president, or general counsel at the person s principal place of business; (4) if the person is a non-resident, the Texas Secretary of State with a statement containing the name and address of the non-resident person s residence or home office in accordance with Sections 17.044 and 17.045, Civil Practices and Remedies Code; (5) the office manager or the person in charge who is over 21 years of age at the person s current principal place of business address, if the person is an unincorporated business association; (6) the current mortgage servicer of the recorded preexisting first lien; or (7) in the event that service cannot be affected under (1)-(6): (i) the address of the holder of the recorded preexisting first lien on the property as listed in the document evidencing the lien recorded in the real property records; or (ii) the person or persons otherwise entitled to service of a petition in the manner set forth in Rule 106(b). (c) The cost for service of a citation on any person who is the current holder of a recorded preexisting lien on the property shall be taxed as a cost of court and paid by the applicant 736.7. Application and Service on Heirs of Decedent (a) If a debtor, mortgagor, property owner or owner of the property, or holder of a recorded preexisting first lien on the property as defined in Rule 735.3 is 7

330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 353 354 355 356 357 358 359 360 361 362 363 364 365 366 367 368 369 370 371 372 373 374 375 376 deceased, the promulgated forms contained in Rules 736.2 and 736.17 must be modified to include the following: (1) The deceased person shall be identified by name and last known address and thereafter identified as Decedent in the application, declaration, and order. (2) If a probate proceeding has been opened for the decedent s estate, provide: (i) the type of probate proceeding opened for the decedent s estate; (ii) if the probate proceeding requires the appointment of a personal representative, the name, address, and date the person qualified as the personal representative of the decedent s estate; (iii) the caption of the proceeding to include name of the decedent, case or cause number, court, county, state, and date of filing of the probate proceeding; and (iv) a statement that [name of personal representative] is the qualified personal representative of the decedent s estate. (3) If a probate proceeding has been opened for the decedent s estate requiring the appointment of a personal representative, but an order appointing a personal representative has not been entered or a personal representative has not been qualified, provide: (i) the caption of the proceeding to include the name of decedent, case or cause number, court, county, state, and filing date of the probate proceeding; (ii) the name and address of the person opening the probate proceeding and the person s attorney of record, if any; and (iii) a statement that no person has qualified as the personal representative of the decedent s estate. (4) A statement specifying whether the surviving spouse acquires all right title and interest of the decedent s interest in the property in accordance with Section 45, Probate Code, as it may be amended, and if so, the name and current address of the surviving spouse. (5) If the surviving spouse does not acquire the decedent s interest in the property or the decedent s spouse predeceased the decedent and no personal representative for the decedent s estate has qualified, provide: (i) the name and last known address of the surviving spouse and the name and last known address of each heir who has an interest in the property sought to be foreclosed under the statutes of descent and distribution to the second degree of consanguinity as provided in Section 573.024, Government Code; (ii) if the name, last known address, or whereabouts of the surviving spouse or an heir is unknown, describe the due diligence exercised to find or locate the whereabouts of the spouse or heir; and (iii) if an heir is a minor child or non compos mentis person, state the name and last known address of such person and identify by name and last known address the parent, natural guardian, next friend, or person with a power of attorney for the person or if a guardianship has been opened for the person the name and last known address of the guardian of the person s estate. 8

377 378 379 380 381 382 383 384 385 386 387 388 389 390 391 392 393 394 395 396 397 398 399 400 401 402 403 404 405 406 407 408 409 410 411 412 413 414 415 416 417 418 419 420 421 422 423 (b) (c) (d) 736.7A. (a) (6) State the estimated as is appraised or fair market value of the property sought to be foreclosed, supported by documentation from two sources which may be a current appraisal, broker s price opinion (BPO), valuation from an official taxing authority, or automated valuation model appraisal (AVM) that is less than six months old. (7) If the decedent s will has been probated in the county where the property is located, identify by name and last known address of all the distributees of the property under the decedent s will. (8) State whether there is any equity in the property after deducting the payoff of the lien sough to be foreclosed, any known inferior liens, and the amount of any governmental liens to include ad valorem liens encumbering the property as of a date that must be within 60 days of the date of filing the application, and provide a schedule showing how the equity calculation was made. The applicant is responsible for obtaining personal service on: (1) the personal representative of decedent s estate if a personal representative has qualified; (2) if a personal representative has not qualified: (i) the surviving spouse who acquires all of the decedent s right, title, and interest in the property under Section 45, Probate Code, as amended; (ii) if the surviving spouse does not acquire the decedent s interest in the property under Section 45, Probate Code, as amended, the heirs of the decedent in the order of taking to the second degree of consanguinity under Section 573.024, Government Code, with service of citation for each heir who is a minor child or a non compos mentis person on the person s legal guardian and if no legal guardian has been appointed, the person s natural guardian, next friend, or person with a power of attorney for the person s estate; and (iii) the distributees under the decedent s will if it is probated in the county where the property is located. If a surviving spouse or an heir must be served and the name or whereabouts of the surviving spouse or heir is unknown, citation by publication is required under Rule 109 or 109a. Notwithstanding other provisions of this rule, if a dependent or creditor s probate administration is pending for a decedent s estate and a personal representative has qualified for letters of administration, an application under Rule 735 or 736 must be filed in the probate court where the administration is pending. Death of Respondent If a respondent with a title interest in the property subsequently dies and the decedent s interest in the property passes pursuant to Section 37, Probate Code, the application, declaration, citation, and order must be modified to include the following, as applicable: (1) The deceased person shall be identified by name and last known address and referred to as Decedent thereafter in the pleadings. 9

424 425 426 427 428 429 430 431 432 433 434 435 436 437 438 439 440 441 442 443 444 445 446 447 448 449 450 451 452 453 454 455 456 457 458 459 460 461 462 463 464 465 466 467 468 469 470 471 (2) If the decedent s interest in the property is passed to the surviving spouse in accordance with Section 45, Probate Code, an affidavit of a person other than the surviving spouse, showing personal knowledge of the facts and under penalty of perjury, shall state that the surviving spouse acquired the decedent s interest in the property under Section 45, Probate Code. (b) This rule incorporates by reference the procedures used in a proceeding to declare heirship under Sections 48, 49, and 50 Probate Code - with the exception of Section 49(a)(7) - as the means to identify and serve with process the heirs of a deceased respondent by a probate court as provided in Rule 735(c)(ii) and (iii). (c) The probate court shall adjudicate a Rule 736 proceeding in accordance with this rule and may adjudicate a proceeding to declare heirship contemporaneously. An order incorporating Section 48(b) and 49(a)(7) Probate Code is not required under this rule unless requested by the applicant or an heir. (d) The probate court shall grant or deny a Rule 736 application rule against the heirs of the decedent who were identified and served with process using and adopting by reference the procedures found Sections 48.49, and 50 Probate Code. (e) After foreclosure of the property, decedent s share of all excess proceeds remaining in the hands of the trustee or substitute trustee, after payment made in accordance with the terms of the security agreement and to inferior lienholders in order of priority, shall be paid to the decedent s heirs per capita in accordance with Section 37 Probate Code. If the heirs are unknown or transient persons, the trustee or substitute trustee shall deliver the excess proceeds to the comptroller in accordance with Chapter 74 Property Code, less a reasonable fee that shall be no more than the lesser of $450 or five percent of the excess proceeds. 736.8. Amended Application If the servicing or beneficial ownership rights of a debtor s loan agreement are transferred or assigned to another person after an application is filed but before an order is signed under this rule: (a) the application must be amended to reflect the current name, address, and status of the person s successors or assigns; (b) the amended application must be served in accordance with Rule 21a on each person who filed a response with the clerk of the court; and (c) if a respondent receives notice of a change of the mortgage servicer in accordance with 12 U.S.C. 2605 an amended application must be re-served on all respondents whose response due date has not expired. 736.9. Response (a) A response shall be filed with the clerk of the court and a copy of the response with any affidavits, declarations, documents, or other attachments shall be served on the applicant or the applicant s attorney in accordance with Rule 21a. (b) A response may be in the form of a general denial under Rule 92 except that a respondent must affirmatively plead: (1) a person named as a debtor or mortgagor in the application did not sign a loan agreement document evidencing the debt or did not assume the debt; (2) the dollar amounts claimed as due or in arrears as of the date specified in the application are materially incorrect; 10

472 473 474 475 476 477 478 479 480 481 482 483 484 485 486 487 488 489 490 491 492 493 494 495 496 497 498 499 500 501 502 503 504 505 506 507 508 509 510 511 512 513 514 515 516 517 518 (3) the default under the loan agreement was cured as of the date the response was filed; (4) any document attached to the application is not a true and correct copy of the original; or (5) proof of a payment in accordance with Rule 95. (c) Each response filed by a natural person pro se shall contain the person s U.S. Postal Service mailing address, property address, phone number, and facsimile or email address, if the person desires to be contacted by facsimile or email. An attorney filing a response shall sign the response in accordance with Rule 57. (d) No counterclaim, cross claim, third party claim, intervention, or other cause of action, proceeding or claim may be filed or considered by the court in a Rule 736 proceeding. Such claims or causes of action must be brought in a separate and independent original proceeding filed in a court of competent jurisdiction. If a counterclaim, cross claim, third party claim, intervention, proceeding, cause of action, or claim is filed in a Rule 736 proceeding, the court shall strike such claim in the original Rule 736 proceeding. 736.10. Hearing When Response Filed (a) If a response is filed applicant shall obtain a hearing date, time, and place from the clerk of the court. The hearing shall be held not earlier than 20 days and not more than 30 days after a request for a hearing is made. The applicant or applicant s counsel shall send notice of the date, time, and place of the hearing in accordance with Rule 21a to each person who files a response. A duplicate copy of the notice of hearing sent to each person filing a response shall be mailed or delivered to the clerk of the court. Proof of mailing or delivery of the notice of hearing to each respondent filing a response shall be retained by applicant or applicant s attorney. (b) The only issue to be determined at a Rule 736 hearing is whether the applicant is entitled to proceed with foreclosure under Chapter 51, Property Code, the debtor s loan agreement, and, if the debtor s loan agreement is a property tax loan or transferred tax lien loan agreement, Sections 32.06 and 32.065, Tax Code. 736.11. Default (a) If a respondent fails to file a response, to obtain a default order the applicant must file with the clerk of the court: (1) a motion for default; (2) a proposed order submitted to the court for; and (3) in accordance with the Servicemember s Civil Relief Act, 50 U.S.C. App. 521, ( SCRA Act ) a statement made under penalty of perjury that each Respondent who is a natural person is not in military service and dated within 20 days of the date the motion for default was sent for filing. (Note: a copy of an electronic image obtained from the official SCRA website of the U.S. Department of Defense Manpower Data Center, at www.dmdc.osd.mil/scra/ or the successor website and dated within 20 days of the date the motion for default was sent for filing, shall be accepted as true as to SCRA status unless a respondent files a specific denial) 11

519 520 521 522 523 524 525 526 527 528 529 530 531 532 533 534 535 536 537 538 539 540 541 542 543 544 545 546 547 548 549 550 551 552 553 554 555 556 557 558 559 560 561 562 563 564 565 (4) certification of respondent s last known address in accordance with Rule 239a (b) All matters alleged in the application and declaration shall be accepted as prima facie evidence of the truth of the matters alleged if the respondent fails to file a timely response. (c) Within 20 days after a motion for default, proposed order, and SCRA Act statement are filed with the clerk of the court, the court shall sign a default order without a hearing provided: (1) the record shows the application, declaration, and order substantially conform to the Official and Procedural Rule 736 Forms under this rule; and (2) the record shows proper service on all respondents and that the return of service of citation has been on file with the clerk of the court for at least 10 days exclusive of the date of filing or, if the return of service relates to service on the property, 20 days exclusive of the date of filing. 736.12. Discovery No discovery of any kind shall be permitted in a Rule 736 proceeding. 736.13. Order (a) An order granting or denying an application under Rule 736 is final and is not subject to a motion for rehearing, new trial, bill of review, or appeal. (b) The presiding judge must provide the applicant or respondent filing a response. with a reason or reasons for denial of an order and record the reason or reasons for denial on the court s docket sheet. (c) Any challenge or appeal of an order signed under this rule must be made in the form of a new suit filed in a separate and independent original proceeding in a court of competent jurisdiction. (d) An order signed under this rule is void if the property is not sold at foreclosure sale within 180 days after the order was signed. 736.14. Effect of the Order An order and any determination of law or fact made under this rule is without prejudice and has no res judicata, collateral estoppel, or estoppel by judgment effect in any other proceeding or suit. The failure of a respondent to dispute the validity of the debt under this section may not be construed by any court as an admission of liability by the respondent. 736.15. Bankruptcy (a) If a respondent files bankruptcy before and order is signed and a true and correct file stamped copy of the first page of the bankruptcy petition is filed with the clerk of the court, the Rule 736 proceeding shall be dismissed unless, within 90 days after the respondent was served with citation under this rule, the automatic stay under the United States Bankruptcy Code, 11 U.S.C. 362, is lifted or the bankruptcy case is closed, dismissed, or respondent is discharged. (b) If a respondent files bankruptcy after a Rule 736 order is signed, the order is void if the property is not sold at foreclosure sale within 180 days after the order was signed. 12