Mortgage Note Investing in Texas

Texas is one of the fastest foreclosure states in the country, and that speed is the core of the Texas note thesis. Foreclosure is non-judicial: a trustee exercises the power of sale in the deed of trust with no court involvement, on a fixed timeline — a 21-day notice of sale, then a public auction on the first Tuesday of the month (Tex. Prop. Code §51.002). There is no post-sale statutory right of redemption on a home-loan foreclosure, so once the trustee's sale closes, title is clean. For a buyer of distressed Texas paper, that combination — short, predictable timeline plus immediate clean title — is why the state stays a perennial favorite.

The trade-off is the Texas homestead, among the strongest borrower protections in the nation. A homestead can be encumbered only for an enumerated set of debts — purchase money, taxes, owelty, and home-equity loans that meet the strict requirements of Tex. Const. art. XVI §50(a)(6), including an 80% combined loan-to-value cap and a 2% fee cap. A home-equity lien that misses those rules can be invalid (and is constitutionally non-recourse — no deficiency at all). Before you buy a Texas note secured by a residence, confirm the lien is a valid homestead lien; a defective one can be worth far less than its balance.

Two more numbers shape the underwrite. Texas has no state income tax but high property taxes, and a delinquent property-tax lien is senior to your mortgage (Tex. Tax Code §32.05) — a tax foreclosure can wipe a note holder's position, so monitor tax status on every file. Deficiency judgments are available, but the borrower can ask the court to set the property's fair market value, and the deficiency is measured against that value rather than a lowball auction bid (Tex. Prop. Code §51.003). Note that, unlike the true super-lien states, a Texas HOA or condo assessment lien does not prime a prior-recorded first deed of trust — property taxes, not association dues, are the priming risk here.