Last updated 11 a.m. 10/6/2010
FAQ: Texas AG action against banks with foreclosed properties
What is the Texas Attorney General doing regarding foreclosures?
Texas Attorney General Greg Abbott has sent a demand letter to 30 mortgage banking and servicing
institutions asking that these institutions immediately “suspend all foreclosures, all sales of properties
previously foreclosed upon, and all evictions of persons residing in previously foreclosed upon properties”
until these institutions have taken eight specific steps to rectify possible past errors in mortgage
documents.
Read the AG’s demand letter
See the list of banks
What is a demand letter?
A demand letter is a tool lawyers use to ask someone to do something. The demand letter by itself does
not have the force and effect of law. A demand letter typically will describe possible future legal action
against the recipient of the letter if the recipient does not take certain actions. In this case, Texas Attorney
General Abbott has noted possible violation by these banking institutions of the Texas Deceptive Trade
Practices Act, the Texas Debt Collection Act, the Texas Penal Code, the Texas Property Code, the Texas
Government Code, and the Texas Constitution.
How will the banks respond?
We don’t know how individual banks will respond to the demand letter. Anecdotally, we’ve been told that
some banks had already halted foreclosures due to concerns about the accuracy of documents and the
integrity of the loan servicing and administration of the foreclosure process. The Houston Chronicle
reported on Oct. 6 that some banks will not honor the AG’s request.
How will the demand letter affect current transactions?
If an institution chooses not to respond to or honor the demand letter, then the transaction should proceed
as if no demand letter had been sent.
If an institution chooses to respond to the demand letter, then the transaction could be affected in various
ways:
Foreclosures: Institutions that honor the AG’s request will likely postpone foreclosures that have
already been posted and will likely not post additional foreclosures until the dispute has been
resolved.
Foreclosed properties that are listed for sale: Institutions that honor the AG’s request will likely
not enter into a sales contract for a listed foreclosure until the dispute has been resolved.
Foreclosed properties that are under contract for sale: Institutions that honor the AG’s request
may delay closing a sales contract for a listed foreclosure under contract until the dispute has been
resolved.
Short sales: Institutions that honor the AG’s request may choose to delay closing on a pending
short-sale transaction until the dispute has been resolved.
Evictions of persons residing in previously foreclosed upon properties: Institutions that honor
the AG’s request will likely not evict previous homeowners who continue to live in the foreclosed
house until the dispute has been resolved. The institutions could, however, attempt to convince the
occupant to leave the property by offering cash for keys.
Commercial vs. residential properties: The demand letter makes no distinction between
commercial and residential properties.
What does the demand letter mean regarding Texas REALTOR® liability?
The demand letter should have no effect on Texas REALTOR® liability for individual transactions. The
REALTOR® remains an agent of and fiduciary to the REALTOR®’s client. The demand letter does not
change this relationship.