Texas mortgage laws combine some of the strongest homestead protections in the country with strict limits on how much you can borrow against your home, mandatory waiting periods before closing, and a fast non-judicial foreclosure process. The rules sit in the Texas Constitution, the Property Code, the Finance Code, and the Tax Code, and together they shape almost every decision a Texas homeowner or buyer makes about a mortgage.
What the Homestead Protection Covers
Your primary residence in Texas is protected from forced sale by most creditors. Article XVI, Section 50 of the Texas Constitution limits the kinds of liens that can attach to a homestead, which is why unsecured creditors, credit card companies, and holders of ordinary civil judgments generally cannot take a Texas home.1Justia. Texas Constitution Article 16 – Section 50
Texas does not cap the homestead exemption at a dollar figure. It caps size instead: up to 10 acres in an urban area, and up to 100 acres for a single adult or 200 acres for a family in a rural area.2State of Texas. Texas Property Code 41.002 You don’t file paperwork to claim the protection. It attaches automatically once you occupy the property as your primary residence.
The shield has real limits. A homestead can still be foreclosed for purchase-money mortgages, unpaid property taxes, home equity loans, mechanic’s liens for home improvements, and owelty-of-partition liens from a divorce. Outside that short list, a creditor generally cannot force the sale of your home even after winning a judgment.
Homestead status also cuts property taxes. Texas school districts must apply a $140,000 exemption to a residence homestead, so a home appraised at $350,000 is taxed by the school district as if it were worth $210,000.3Texas Comptroller of Public Accounts. Property Tax Exemptions Counties collecting farm-to-market or flood control taxes must add a separate $3,000 exemption, and local taxing units can offer up to 20% more of appraised value, with a $5,000 floor. Homeowners 65 or older or with a disability get another $60,000 school district exemption on top of the standard $140,000. File the exemption application with your county appraisal district as soon as you close; the savings compound each year.
Home Equity Borrowing Limits
Texas restricts home equity lending more tightly than any other state. The total of all liens against a homestead, including your existing mortgage plus any new home equity loan, cannot exceed 80% of the property’s fair market value at the time the equity loan closes.4Fannie Mae. Texas Section 50(a)(6) Loan Underwriting, Collateral, and Closing Considerations If your home is worth $400,000 and you owe $250,000 on your first mortgage, the largest home equity loan you could take is $70,000, not the full $150,000 of equity.
Before an equity loan closes, the lender must give you a specific written notice and then wait at least 12 calendar days.1Justia. Texas Constitution Article 16 – Section 50 The closing itself has to happen at the office of a lender, an attorney, or a title company. No kitchen-table signings. These rules apply to home equity loans and cash-out refinances alike, and you have a three-day right to rescind after closing.
On top of the state waiting period, the federal TILA-RESPA Integrated Disclosure rule requires lenders to deliver a Closing Disclosure at least three business days before closing.5Consumer Financial Protection Bureau. TILA-RESPA Integrated Disclosure FAQs If the APR becomes inaccurate or a prepayment penalty is added after that disclosure goes out, a new three-day clock starts. Combined with the 12-day state wait, a Texas equity closing takes longer than borrowers used to other states may expect.
How a Texas Foreclosure Runs
Texas is a non-judicial foreclosure state for most residential mortgages. The lender does not have to file a lawsuit as long as it follows Property Code Chapter 51. The process is fast and runs on a rigid timeline.
The servicer must first send a written notice of default by certified mail, giving you at least 20 days to cure the default before any notice of sale can be issued.6State of Texas. Texas Property Code 51.002 If you don’t catch up, the lender can then file and post a Notice of Trustee’s Sale at least 21 days before the auction. That notice goes on the courthouse posting board and into the county clerk’s records.
Auctions happen on the first Tuesday of each month, between 10 a.m. and 4 p.m., at the county’s designated location. If the first Tuesday falls on January 1 or July 4, the sale moves to the first Wednesday.6State of Texas. Texas Property Code 51.002 The sale must begin at the noticed time or within three hours after. If you want to stop it, act well before auction day. The window is narrow.
Extra Protection for Active-Duty Military
Texas Property Code Section 51.015 applies to mortgages that predate a servicemember’s active duty. The foreclosure notice must include a conspicuous statement telling the borrower to assert their armed forces rights and notify the lender of active-duty status. The federal Servicemembers Civil Relief Act adds a 6% interest rate cap on pre-service debts and the ability to seek a court stay of foreclosure.7U.S. Department of Veterans Affairs. Servicemembers Civil Relief Act A lender that skips these steps risks having the foreclosure set aside.
After the Sale: Deficiency Judgments
If a foreclosure sale brings in less than what you owe, the lender can sue for the shortfall. Texas Property Code Section 51.003 gives lenders two years from the date of the foreclosure sale to file a deficiency action.8State of Texas. Texas Property Code Section 51.003 – Deficiency Judgment After that, the claim is barred.
You have a real defense. In a deficiency suit, you can ask the court to determine the fair market value of the property on the date of the foreclosure sale. If the court finds the fair market value exceeded the sale price, the deficiency is reduced by the gap.8State of Texas. Texas Property Code Section 51.003 – Deficiency Judgment Foreclosure auctions often bring below-market prices, and the offset can shrink or wipe out the deficiency. Any private mortgage insurance the lender collects must also be credited against your balance before it sues.
Property Tax Liens and Tax Sale Redemption
Property tax liens outrank everything else. Under Texas Tax Code Section 32.01, a tax lien automatically attaches to every taxable property on January 1 of each year, and Section 32.05 makes that lien superior to any creditor’s claim, any other lienholder including mortgage holders and HOA assessment liens, and any future interest in the property.9State of Texas. Texas Tax Code Chapter 32 – Tax Liens and Personal Liability Your mortgage lender’s first-recorded deed of trust still stands behind the county’s tax lien.
If a property is sold at a tax foreclosure, the former owner can often get it back. Texas Tax Code Section 34.21 gives a homestead owner two years from the date the purchaser’s deed is filed for record to redeem.10State of Texas. Texas Tax Code Section 34.21 – Right of Redemption The cost isn’t small: the purchase price plus a 25% premium in the first year, or a 50% premium in the second. Owners who were 65 or older when the tax suit was filed get four years instead of two. Non-homestead properties get a shorter window, with the same premium structure. If you’re going to redeem, do it early. Waiting doubles the premium.
HOA Foreclosure Rules
Homeowners association assessments can also lead to foreclosure, and Texas Property Code Chapter 209 layers on protections that other states don’t have.
Even when the HOA’s governing documents grant a power of sale for non-judicial foreclosure, the association must first obtain a court order. Under Section 209.0092, you receive notice of the court application and can file a response contesting the foreclosure and asking for a hearing.11State of Texas. Texas Property Code Chapter 209 – Texas Residential Property Owners Protection Act If you don’t respond, the court can issue the order without a hearing.
After an HOA foreclosure sale, you have 180 days from the date the association mails written notice of the sale to redeem the property by paying the amounts owed plus costs.11State of Texas. Texas Property Code Chapter 209 – Texas Residential Property Owners Protection Act A lienholder of record, such as your mortgage lender, cannot redeem until at least 90 days after that notice is mailed, and only if you haven’t already redeemed. If either party sends a written redemption request by certified mail before the 180-day deadline, the period extends 10 more days after the association provides the exact payoff amounts.
Rules for Seller-Financed and Wraparound Deals
Seller financing helps buyers who can’t qualify for a conventional loan, but Texas regulates these deals heavily because of past abuses, especially in contract-for-deed sales.
Under the Texas SAFE Act, an individual who finances more than five residential properties in a 12-month period must hold a Residential Mortgage Loan Originator license or use a licensed originator. Federal rules set a lower threshold: more than three properties in 12 months ends the exemption from the federal loan originator definition. Sellers must also comply with the federal Ability-to-Repay rule, verifying the buyer’s income and financial capacity before closing.
Contract-for-Deed Limits
Texas has largely dismantled the old contract-for-deed model where the seller kept title until the buyer paid in full. A seller cannot enter an executory contract to sell residential property unless the seller owns the property free and clear of liens.12State of Texas. Texas Property Code Chapter 5 – Conveyances Where an executory contract is allowed, the buyer has the right to convert it into a recorded deed of trust and gain legal title.
If a buyer defaults after paying less than 40% of the total or making fewer than 48 monthly payments, the seller still has to give at least 30 days’ written notice and an opportunity to cure before enforcing any remedy.12State of Texas. Texas Property Code Chapter 5 – Conveyances Once the buyer has paid 40% or more, or the contract has been recorded, the seller can no longer simply rescind. Enforcement then requires a trustee sale process similar to a deed-of-trust foreclosure, with a 60-day cure period.
Wraparound Mortgage Disclosures
In a wraparound, the seller’s existing mortgage stays in place, the buyer pays the seller, and the seller continues paying the original lender. Texas Finance Code Chapter 159 requires the wrap lender to deliver a written disclosure statement to the buyer at least seven days before closing, including a warning that the seller’s insurance may not cover the buyer’s interests.13State of Texas. Texas Finance Code Section 159.101 – Disclosure Statement; Option to Rescind
If the disclosure arrives on or before the closing date, the buyer has seven days after receiving it to rescind the entire transaction and recover all earnest money, escrow payments, and fees. If the seller never provides the disclosure at all, the buyer’s right to rescind has no expiration.14State of Texas. Texas Finance Code Chapter 159 – Wrap Mortgage Loan Financing That open-ended rescission right gives buyers significant leverage when a wrap lender cuts corners.
Reverse Mortgages in Texas
Reverse mortgages let homeowners 62 or older tap equity without monthly payments. The loan balance grows over time and becomes due when the borrower sells the home, moves out permanently, or dies.15Consumer Financial Protection Bureau. Can Anyone Take Out a Reverse Mortgage Loan? Texas adds requirements on top of federal rules.
Before closing, Texas borrowers must complete an independent counseling session with a HUD-approved counselor.16Federal Trade Commission. Reverse Mortgages The same 12-day cooling-off period that applies to home equity loans applies to reverse mortgages, running from the date the lender delivers required disclosures.1Justia. Texas Constitution Article 16 – Section 50 The 80% combined loan-to-value cap applies too.
Borrowers must stay current on property taxes, homeowners insurance, and home maintenance. Falling behind on any of these can trigger a default. Occupancy matters as well: leaving the home for more than six consecutive months for non-medical reasons without a co-borrower in residence lets the lender call the loan due, and a stay in a healthcare facility triggers the same result after 12 consecutive months.17Consumer Financial Protection Bureau. You Have a Reverse Mortgage – Know Your Rights and Responsibilities Lenders send annual occupancy certifications, and failing to return one can create problems even if you’re still living in the house. Before foreclosure, Texas law requires written notice and a chance to cure.
Loan Origination and Fee Rules
Anyone originating residential mortgage loans in Texas has to be licensed through the Nationwide Multistate Licensing System. The Texas Department of Savings and Mortgage Lending oversees this under the Texas SAFE Act, which aligns with the federal SAFE Act.18Legal Information Institute (LII). 7 Tex. Admin. Code 55.1 – Purpose and Applicability
Texas Finance Code Chapter 343 governs home loan disclosures and restrictions. For loans with interest rates of 12% or higher, lenders must give borrowers information about mortgage counseling resources and HUD-approved housing counseling agencies at application.19State of Texas. Texas Finance Code Chapter 343 – Home Loans Loans that meet the federal high-cost mortgage thresholds under the Truth in Lending Act face further restrictions, including bans on balloon payments due before 60 months, negative amortization schedules, and certain prepayment penalties.
The Office of Consumer Credit Commissioner also caps administrative fees. The maximum administrative fee for regulated loans is $125, adjusted each year based on the Consumer Price Index, with the updated figure published by May 1 for the period beginning July 1.20Legal Information Institute (LII). 7 Tex. Admin. Code 83.503 – Administrative Fee Lenders cannot charge this fee more than once a year on a renewal or modification of certain existing loans. If you’re being asked to pay it repeatedly on the same obligation, push back.