By Thomas Korosec

May 18 (Bloomberg) — Carlos Perez and Belinda Castillo of El Paso, Texas, were two months behind on their mortgage in January when the lender demanded that they catch up or face foreclosure. Two months later, their three-bedroom, Southwestern- style house was auctioned on the courthouse steps.

Forty-one days is all it takes for some Texans to lose a home to foreclosure. That fast track from default notice to forced sale is the quickest of any U.S. state, according to a report from the Texas Housing and Community Affairs Department.

A bill in the Texas House, already approved by the state Senate, would give homeowners more time to rework loans, seek legal help or find their own buyers. Homeowner advocates say it doesn’t go far enough.

“We have seniors who were put into these adjustable-rate loans when they needed to pay their hospital bills,” said Jane Junkin, lead organizer for Houston Acorn, a community group that advises homeowners. “To save their houses, we need more tools.”

Current law allowed lenders to foreclose on 25,259 Texas residences in the first quarter, a 14 percent increase from the fourth quarter, according to Irvine, California-based RealtyTrac Inc., a real estate data service. That compares with a 9 percent increase for the U.S. as a whole, according to RealtyTrac. The state’s jobless rate rose to 6.7 percent in March from 4.6 percent a year earlier.

“It can be complicated,” said Julian San Miguel, 42, who was unable to stop foreclosure in April on a house in Houston after she and her husband separated. “I had to find the right person at the bank. It took me a while to find someone to help. I honestly could have used another month and probably more.”

One Year Elsewhere

Borrowers get more time in states such as Illinois and Delaware, where the foreclosure process can take as long as a year, according to data from RealtyTrac.

The first part of the foreclosure process, the so-called cure period, would be extended to 45 days from 20 under the bill, which Texas state Senator Craig Estes sponsored and state Attorney General Greg Abbott proposed. Governor Rick Perry hasn’t taken a position on the bill, said Allison Castle, a spokeswoman. All three are Republicans.

The House has until it adjourns June 1 to vote on the measure, which the Senate passed April 24. The Legislature isn’t scheduled to reconvene until 2011. The bill is supported by the Independent Bankers Association of Texas, a lobbying organization for lenders.

“It’s good old-fashioned politics,” said Robert Doggett, a lawyer with the Texas Low Income Housing Information Service. “The lender lobby won’t let any significant changes advance.”

Grace Period

Most banks already give customers longer than the 45 days in the bill, said Stephen Scurlock, the association’s executive vice president. Lenders usually don’t start proceedings until a homeowner has missed three months of payments and received several notices, he said.

“They do try to work with borrowers,” Scurlock said. “They really don’t want the houses back.”

Acorn and other groups are pushing for the cure period to be extended to at least 90 days. Lengthening the timetable is likely to be the focus of debate in the House, Doggett said.

Advocates also want to require mediation, and judicial review of foreclosures involving adjustable-rate loans. Neither idea has advanced in the Legislature.

Brenda Rogers, a real estate agent in suburban Dallas, said extra time would help people trying to sell their houses for less than the balance outstanding and to negotiate with the lender to forgive the shortfall.

“My average selling time on a short sale is around 30 days, so every day counts,” said Rogers, who started specializing in such transactions two years ago.

Investment in Upgrades

In El Paso, Perez, 36, and his wife, Castillo, 39, borrowed most of the $155,000 to buy their two-story house on a cul-de-sac in 2006. That was the year that home prices peaked, before subprime defaults triggered a collapse in the U.S. mortgage market.

Perez’s income from selling commercial signs slumped with the state’s economy late last year. He said he was surprised to hear from the lender’s attorneys after missing November and December mortgage payments.

In January, he said, loan agents at American Home Mortgage Servicing Inc. said he might qualify for a new payment schedule. At the same time, a law firm hired by the company pressed the foreclosure, he said.

The mortgage-servicing company made the foreclosure decisions, said John T. Gallagher, a spokesman for Frankfurt- based Deutsche Bank AG, trustee for a pool of loans including the Perez home. American Home Mortgage Servicing is owned by Wilbur Ross’s New York-based WL Ross & Co.

Help for Borrowers

Christine Sullivan, a spokeswoman for American Home Mortgage Servicing, declined to discuss the loan. In an e-mailed response to questions, she wrote, “If the state of Texas determines a longer timeline would help even one borrower, we would consider that a good thing.”

Deutsche Bank won the public auction for the house with a bid of $154,800 on March 3, according to the foreclosure sale deed.

A few days later, Perez said, a letter from the mortgage- servicing company invited him to apply for a loan modification.

“I could have saved my house if I had a little more time,” Perez said, because his income picked up in February. He continued to live in the foreclosed home with his family while awaiting eviction.