Practical Real Estate Law

Fourth Edition

By Daniel Hinkel

Texas State Supplement

By Lynn Crossett

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Table of Contents

CHAPTER 1: INTRODUCTION TO THE LAW OF REAL PROPERTY 4

REAL PROPERTY LAW 4

CHAPTER 2: CONCURRENT OWNERSHIP 20

CHAPTER 3: SURVEYS AND LAND DESCRIPTIONS 21

LAND DESCRIPTIONS 21

CHAPTER 4: PUBLIC REGULATION AND ENCUMBRANCES 22

MECHANICS’ AND MATERIALMEN’S LIENS 22

CHAPTER 5: EASEMENTS AND LICENSES 23

CHAPTER 6: CONTRACTS 24

CHAPTER 7: PREPARATION AND REVIEW OF A REAL ESTATE CONTRACT 25

THE AGREEMENT 25

EXECUTION 25

CHAPTER 8: DEEDS 35

BASIC REQUIREMENTS OF A VALID DEED 35

ADDENDUM 35

CHAPTER 9: FINANCING SOURCES IN REAL ESTATE TRANSACTIONS 36

CHAPTER 10: LEGAL ASPECTS OF REAL ESTATE FINANCE 37

USURY 37

SECOND MORTGAGE LOANS 37

EFFECT OF A VALID FORECLOSURE SALE 38

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CHAPTER 11: MORTGAGE FORMS AND PROVISIONS 40

RESIDENTIAL MORTGAGE PROVISIONS 40

CHAPTER 12: TITLE EXAMINATIONS 41

RECORDING STATUTES 41

JUDGMENT LIENS 42

CHAPTER 13: TITLE INSURANCE 44

CHAPTER 14: REAL ESTATE CLOSINGS 45

CHAPTER 15: GOVERNMENT REGULATION OF REAL ESTATE CLOSINGS 46

CHAPTER 16: REAL ESTATE CLOSING FORMS AND EXAMPLES 47

CHAPTER 17: CONDOMINIUMS AND COOPERATIVES 48

CHAPTER 18: LEASES 49

COMMERCIAL LEASE PROVISIONS 49

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CHAPTER 1: INTRODUCTION TO THE LAW OF REAL PROPERTY

REAL PROPERTY LAW

Textbook page 2

Texas Homestead Rights

Central to an understanding of Texas property law are Texas homestead rights. A

homestead is a place used as a home or as a place to exercise the calling or business for a

family or a single adult person. When originally passed, the Texas homestead had as its

objectives the preservation of the family as a basic element of social organization,

providing the debtor with a home for his family and some means of support to recoup

economic losses so the family would not become a burden upon the public, and the

retention of the feeling of freedom and sense of independence which is deemed necessary

to democratic institutions. Accordingly, except for those permissible exceptions provided

in the Texas Constitution the Texas homestead is generally safe from creditor actions and

liens. This protection from forced sales is set forth in the Texas Constitution, Article 16, §

50, which states as follows:

§ 50. Homestead; protection from forced sale; mortgages, trust deeds, and liens

(a) The homestead of a family, or of a single adult person, shall be, and is hereby

protected from forced sale, for the payment of all debts except for:

(1) the purchase money thereof, or a part of such purchase money;

(2) the taxes due thereon;

(3) an owelty of partition imposed against the entirety of the property by a court order or

by a written agreement of the parties to the partition, including a debt of one spouse in

favor of the other spouse resulting from a division or an award of a family homestead in

a divorce proceeding;

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(4) the refinance of a lien against a homestead, including a federal tax lien resulting

from the tax debt of both spouses, if the homestead is a family homestead, or from the

tax debt of the owner;

(5) work and material used in constructing new improvements thereon, if contracted for

in writing, or work and material used to repair or renovate existing improvements

thereon if:

(A) the work and material are contracted for in writing, with the consent of both

spouses, in the case of a family homestead, given in the same manner as is required in

making a sale and conveyance of the homestead;

(B) the contract for the work and material is not executed by the owner or the owner’s

spouse before the fifth day after the owner makes written application for any extension of

credit for the work and material, unless the work and material are necessary to complete

immediate repairs to conditions on the homestead property that materially affect the

health or safety of the owner or person residing in the homestead and the owner of the

homestead acknowledges such in writing;

(C) the contract for the work and material expressly provides that the owner may rescind

the contract without penalty or charge within three days after the execution of the

contract by all parties, unless the work and material are necessary to complete immediate

repairs to conditions on the homestead property that materially affect the health or safety

of the owner or person residing in the homestead and the owner of the homestead

acknowledges such in writing; and

(D) the contract for the work and material is executed by the owner and the owner’s

spouse only at the office of a third-party lender making an extension of credit for the

work and material, an attorney at law, or a title company;

(6) an extension of credit that:

(A) is secured by a voluntary lien on the homestead created under a written agreement

with the consent of each owner and each owner’s spouse;

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(B) is of a principal amount that when added to the aggregate total of the outstanding

principal balances of all other indebtedness secured by valid encumbrances of record

against the homestead does not exceed 80 percent of the fair market value of the

homestead on the date the extension of credit is made;

(C) is without recourse for personal liability against each owner and the spouse of each

owner, unless the owner or spouse obtained the extension of credit by actual fraud;

(D) is secured by a lien that may be foreclosed upon only by a court order;

(E) does not require the owner or the owner’s spouse to pay, in addition to any interest,

fees to any person that are necessary to originate, evaluate, maintain, record, insure, or

service the extension of credit that exceed, in the aggregate, 3 percent of the original

principal amount of the extension of credit;

(F) is not a form or open-end account that may be debited from time to time or under

which credit may be extended from time to time;

(G) is payable in advance without penalty or other charge;

(H) is not secured by any additional real or personal property other than the homestead;

(I) is not secured by homestead property designated for agricultural use as provided by

statutes governing property tax, unless such homestead property is used primarily for the

production of milk;

(J) may not be accelerated because of a decrease in the market value of the homestead or

because of the owner’s default under other indebtedness not secured by a prior valid

encumbrance against the homestead;

(K) is the only debt secured by the homestead at the time the extension of credit is made

unless the other debt was made for a purpose described by Subsections (a)(1)–(a)(5) of

this section;

(L) is scheduled to be repaid in substantially equal successive monthly installments

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beginning no later than two months from the date the extension of credit is made, each of

which equals or exceeds the amount of accrued interest as of the date of the scheduled

installment;

(M) is closed not before:

(i) the 12th day after the later of the date that the owner of the homestead submits an

application to the lender for the extension of credit or the date that the lender provides

the owner a copy of the notice prescribed by Subsection (g) of this section; and

(ii) the first anniversary of the closing date of any other extension of credit described by

Subsection (a)(6) of this section secured by the same homestead property;

(N) is closed only at the office of the lender, an attorney at law, or a title company;

(O) permit’s a lender to contract for and receive any fixed or variable rate of interest

authorized under statute;

(P) is made by one of the following that has not been found by a federal regulatory

agency to have engaged in the practice of refusing to make loans because the applicants

for the loans reside or the property proposed to secure the loans is located in a certain

area:

(i) a bank, savings and loan association, savings bank, or credit union doing business

under the laws of this state or the United States;

(ii) a federally chartered lending instrumentality or a person approved as a mortgagee by

the United States government to make federally insured loans;

(iii) a person licensed to make regulated loans, as provided by statute of this state;

(iv) a person who sold the homestead property to the current owner and who provided

all or part of the financing for the purchase; or

(v) a person who is related to the homestead property owner within the second degree of

affinity or consanguinity; and

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(Q) is made on the condition that:

(i) the owner of the homestead is not required to apply the proceeds of the extension of

credit to repay another debt except debt secured by the homestead or debt to another

lender;

(ii) the owner of the homestead not assign wages as security for the extension of credit;

(iii) the owner of the homestead not sign any instrument in which blanks are left to be

filled in;

(iv) the owner of the homestead not sign a confession of judgment or power of attorney

to the lender or to a third person to confess judgment or to appear for the owner in a

judicial proceeding;

(v) the lender, at the time the extension of credit is made, provide the owner of the

homestead a copy of all documents signed by the owner related to the extension of credit;

(vi) the security instruments securing the extension of credit contain a disclosure that the

extension of credit is the type of credit defined by Section 50(a)(6), Article XVI, Texas

Constitution;

(vii) within a reasonable time after termination and full payment of the extension of

credit, the lender cancel and return the promissory note to the owner of the homestead

and give the owner, in recordable form, a release of the lien securing the extension of

credit or a copy of an endorsement and assignment of the lien to a lender that is

refinancing the extension of credit;

(viii) the owner of the homestead and any spouse of the owner may, within three days

after the extension of credit is made, rescind the extension of credit without penalty or

charge;

(ix) the owner of the homestead and the lender sign a written acknowledgment as to the

fair market value of the homestead property on the date the extension of credit is made;

and

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(x) the lender or any holder of the note for the extension of credit shall forfeit all

principal and interest of the extension of credit if the lender or holder fails to comply

with the lender’s or holder’s obligations under the extension of credit within a reasonable

time after the lender or holder is notified by the borrower of the lender’s failure to

comply;

(7) a reverse mortgage; or

(8) the conversion and refinance of a personal property lien secured by a manufactured

home to a lien on real property, including the refinance of the purchase price of the

manufactured home, the cost of installing the manufactured home on the real property,

and the refinance of the purchase price of the real property.

(b) An owner or claimant of the property claimed as homestead may not sell or abandon

the homestead without the consent of each owner and the spouse of each owner, given in

such manner as may be prescribed by law.

(c) No mortgage, trust deed, or other lien on the homestead shall ever be valid unless it

secures a debt described by this section, whether such mortgage, trust deed, or other lien,

shall have been created by the owner alone, or together with his or her spouse, in case the

owner is married. All pretended sales of the homestead involving any condition of

defeasance shall be void.

(d) A purchase or lender for value without actual knowledge may conclusively rely on an

affidavit that designates other property as the homestead of the affiant and that states that

the property to be conveyed or encumbered is not the homestead of the affiant.

(e) A refinance of debt secured by a homestead and described by any subsection under

Subsections (a)(1)–(a)(5) that includes the advance of additional funds may not be

secured by a valid lien against the homestead unless:

(1) the refinance of the debt is an extension of credit described by Subsection (a)(6) of

this section; or

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(2) the advance of all the additional funds is for reasonable costs necessary to refinance

such debt or for a purpose described by Subsection (a)(2), (a)(3), or (a)(5) of this section.

(f) A refinance of debt secured by the homestead, any portion of which is an extension of

credit described by Subsection (a)(6) of this section, may not be secured by a valid lien

against the homestead unless the refinance of the debt is an extension of credit described

by Subsection (a)(6) of this section.

(g) An extension of credit described by Subsection (a)(6) of this section may be secured

by a valid lien against homestead property if the extension of credit is not closed before

the 12th day after the lender provides the owner with the following written notice on a

separate instrument:

“NOTICE CONCERNING EXTENSIONS OF CREDIT DEFINED BY SECTION 50(a)

(6), ARTICLE XVI, TEXAS CONSTITUTION: SECTION 50(a)(6), ARTICLE XVI,

OF THE TEXAS CONSTITUTION ALLOWS CERTAIN LOANS TO BE SECURED

AGAINST THE EQUITY IN YOUR HOME. SUCH LOANS ARE COMMONLY

KNOWN AS EQUITY LOANS. IF YOU DO NOT REPAY THE LOAN OR IF YOU

FAIL TO MEET THE TERMS OF THE LOAN, THE LENDER MAY FORECLOSE

AND SELL YOUR HOME. THE CONSTITUTION PROVIDES THAT:

(A) THE LOAN MUST BE VOLUNTARILY CREATED WITH THE CONSENT OF

EACH OWNER OF YOUR HOME AND EACH OWNER’S SPOUSE;

(B) THE PRINCIPAL LOAN AMOUNT AT THE TIME THE LOAN IS MADE MUST

NOT EXCEED AN AMOUNT THAT, WHEN ADDED TO THE PRINCIPAL

BALANCES OF ALL OTHER LIENS AGAINST YOUR HOME, IS MORE THAN 80

PERCENT OF THE FAIR MARKET VALUE OF YOUR HOME;

(C) THE LOAN MUST BE WITHOUT RECOURSE FOR PERSONAL LIABILITY

AGAINST YOU AND YOUR SPOUSE UNLESS YOU OR YOUR SPOUSE

OBTAINED THIS EXTENSION OF CREDIT BY ACTUAL FRAUD;

(D) THE LIEN SECURING THE LOAN MAY BE FORECLOSED UPON ONLY

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WITH A COURT ORDER;

(E) FEES AND CHARGES TO MAKE THE LOAN MAY NOT EXCEED 3 PERCENT

OF THE LOAN AMOUNT;

(F) THE LOAN MAY NOT BE AN OPEN-END ACCOUNT THAT MAY BE

DEBITED FROM TIME TO TIME OR UNDER WHICH CREDIT MAY BE

EXTENDED FROM TIME TO TIME;

(G) YOU MAY PREPAY THE LOAN WITHOUT PENALTY OR CHARGE;

(H) NO ADDITIONAL COLLATERAL MAY BE SECURITY FOR THE LOAN;

(I) THE LOAN MAY NOT BE SECURED BY AGRICULTURAL HOMESTEAD

PROPERTY, UNLESS THE AGRICULTURAL HOMESTEAD PROPERTY IS USED

PRIMARILY FOR THE PRODUCTION OF MILK;

(J) YOU ARE NOT REQUIRED TO REPAY THE LOAN EARLIER THAN AGREED

SOLELY BECAUSE THE FAIR MARKET VALUE OF YOUR HOME DECREASES

OR BECAUSE YOU DEFAULT ON ANOTHER LOAN THAT IS NOT SECURED BY

YOUR HOME;

(K) ONLY ONE LOAN DESCRIBED BY SECTION 50(a)(6), ARTICLE XVI, OF

THE TEXAS CONSTITUTION MAY BE SECURED WITH YOUR HOME AT ANY

GIVEN TIME;

(L) THE LOAN MUST BE SCHEDULED TO BE REPAID IN PAYMENTS THAT

EQUAL OR EXCEED THE AMOUNT OF ACCRUED INTEREST FOR EACH

PAYMENT PERIOD;

(M) THE LOAN MAY NOT CLOSE BEFORE 12 DAYS AFTER YOU SUBMIT A

WRITTEN APPLICATION TO THE LENDER OR BEFORE 12 DAYS AFTER YOU

RECEIVE THIS NOTICE, WHICHEVER DATE IS LATER; AND IF YOUR HOME

WAS SECURITY FOR THE SAME TYPE OF LOAN WITHIN THE PAST YEAR, A

NEW LOAN SECURED BY THE SAME PROPERTY MAY NOT CLOSE BEFORE

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ONE YEAR HAS PASSED FROM THE CLOSING DATE OF THE OTHER LOAN;

(N) THE LOAN MAY CLOSE ONLY AT THE OFFICE OF THE LENDER, TITLE

COMPANY, OR AN ATTORNEY AT LAW;

(O) THE LENDER MAY CHARGE ANY FIXED OR VARIABLE RATE OF

INTEREST AUTHORIZED BY STATUTE;

(P) ONLY A LAWFULLY AUTHORIZED LENDER MAY MAKE LOANS

DESCRIBED BY SECTION 50(a)(6), ARTICLE XVI, OF THE TEXAS

CONSTITUTION; AND

(Q) LOANS DESCRIBED BY SECTION 50(a)(6), ARTICLE XVI, OF THE TEXAS

CONSTITUTION MUST:

(1) NOT REQUIRE YOU TO APPLY THE PROCEEDS TO ANOTHER DEBT THAT

IS NOT SECURED BY YOUR HOME OR TO ANOTHER DEBT TO THE SAME

LENDER;

(2) NOT REQUIRE THAT YOU ASSIGN WAGES AS SECURITY;

(3) NOT REQUIRE THAT YOU EXECUTE INSTRUMENTS WHICH HAVE

BLANKS LEFT TO BE FILLED IN;

(4) NOT REQUIRE THAT YOU SIGN A CONFESSION OF JUDGMENT OR POWER

OF ATTORNEY TO ANOTHER PERSON TO CONFESS JUDGMENT OR APPEAR

IN A LEGAL PROCEEDING ON YOUR BEHALF;

(5) PROVIDE THAT YOU RECEIVE A COPY OF ALL DOCUMENTS YOU SIGN AT

CLOSING;

(6) PROVIDE THAT THE SECURITY INSTRUMENTS CONTAIN A DISCLOSURE

THAT THIS LOAN IS A LOAN DEFINED BY SECTION 50(a)(6), ARTICLE XVI, OF

THE TEXAS CONSTITUTION;

(7) PROVIDE THAT WHEN THE LOAN IS PAID IN FULL, THE LENDER WILL

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SIGN AND GIVE YOU A RELEASE OF LIEN OR AN ASSIGNMENT OF THE LIEN,

WHICHEVER IS APPROPRIATE;

(8) PROVIDE THAT YOU MAY, WITHIN 3 DAYS AFTER CLOSING, RESCIND

THE LOAN WITHOUT PENALTY OR CHARGE;

(9) PROVIDE THAT YOU AND THE LENDER ACKNOWLEDGE THE FAIR

MARKET VALUE OF YOUR HOME ON THE DATE THE LOAN CLOSES; AND

(10) PROVIDE THAT THE LENDER WILL FORFEIT ALL PRINCIPAL AND

INTEREST IF THE LENDER FAILS TO COMPLY WITH THE LENDER’S

OBLIGATIONS.” If the discussions with the borrower are conducted primarily in a

language other than English, the lender shall, before closing, provide an additional copy

of the notice translated into the written language in which the discussions were

conducted.

(h) A lender or assignee for value may conclusively rely on the written acknowledgment

as to the fair market value of the homestead property made in accordance with

Subsection (a)(6)(Q)(ix) of this section if:

(1) the value acknowledged to is the value estimate in an appraisal or evaluation

prepared in accordance with a state or federal requirement applicable to an extension of

credit under Subsection (a)(6); and

(2) the lender or assignee does not have actual knowledge at the time of the payment of

value or advance of funds by the lender or assignee that the fair market value stated in

the written acknowledgment was incorrect.

(i) This subsection shall not affect or impair any right of the borrower to recover

damages from the lender or assignee under applicable law for wrongful foreclosure. A

purchaser for value without actual knowledge may conclusively presume that a lien

securing an extension of credit described by Subsection (a)(6) of this section was a valid

lien securing the extension of credit with homestead property if:

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(1) the security instruments securing the extension of credit contain a disclosure that the

extension of credit secured by the lien was the type of credit defined by Section 50(a)(6),

Article XVI, Texas Constitution;

(2) the purchaser acquires the title to the property pursuant to or after the foreclosure of

the voluntary lien; and

(3) the purchaser is not the lender or assignee under the extension of credit.

(j) Subsection (a)(6) and Subsections (e)–(i) of this section are not severable, and none

of those provisions would have been enacted without the others. If any of those

provisions are held to be preempted by the laws of the United States, all of those

provisions are invalid. This subsection shall not apply to any lien or extension of credit

made after January 1, 1998, and before the date any provision under Subsection (a)(6) or

Subsections (e)–(i) is held to be preempted.

(k) “Reverse mortgage” means an extension of credit:

(1) that is secured by a voluntary lien on homestead property created by a written

agreement with the consent of each owner and each owner’s spouse;

(2) that is made to a person who is or whose spouse is 62 years or older;

(3) that is made without recourse for personal liability against each owner and the

spouse of each owner;

(4) under which advances are provided to a borrower based on the equity in a borrower’s

homestead;

(5) that does not permit the lender to reduce the amount or number of advances because

of an adjustment in the interest rate if periodic advances are to be made;

(6) that requires no payment of principal or interest until:

(A) all borrowers have died;

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(B) the homestead property securing the loan is sold or otherwise transferred;

(C) all borrowers cease occupying the homestead property for a period of longer than 12

consecutive months without prior written approval from the lender; or

(D) the borrower:

(i) defaults on an obligation specified in the loan documents to repair and maintain, pay

taxes and assessments on, or insure the homestead property;

(ii) commits actual fraud in connection with the loan; or

(iii) fails to maintain the priority of the lender’s lien on the homestead property, after the

lender gives notice to the borrower, by promptly discharging any lien that has priority or

may obtain priority over the lender’s lien within 10 days after the date the borrower

receives the notice, unless the borrower:

(a) agrees in writing to the payment of the obligation secured by the lien in a manner

acceptable to the lender;

(b) contests in good faith the lien by, or defends against enforcement of the lien in, legal

proceedings so as to prevent the enforcement of the lien or forfeiture of any part of the

homestead property; or

(c) secures from the holder of the lien an agreement satisfactory to the lender

subordinating the lien to all amounts secured by the lender’s lien on the homestead

property;

(7) that provides that if the lender fails to make loan advances as required in the loan

documents and if the lender fails to cure the default as required in the loan documents

after notice from the borrower, the lender forfeits all principal and interest of the reverse

mortgage, provided, however, that this subdivision does not apply when a governmental

agency or instrumentality takes an assignment of the loan in order to cure the default;

(8) that is not made unless the owner of the homestead attests in writing that the owner

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received counseling regarding the advisability and availability of reverse mortgages and

other financial alternatives;

(9) that requires the lender, at the time the loan is made, to disclose to the borrower by

written notice the specific provisions contained in Subdivision (6) of this subsection

under which the borrower is required to repay the loan;

(10) that does not permit the lender to commence foreclosure until the lender gives

notice to the borrower, in the manner provided for a notice by mail related to the

foreclosure of liens under Subsection (a)(6) of this section, that a ground for foreclosure

exists and gives the borrower at least 30 days, or at least 20 days in the event of a default

under Subdivision (6)(D)(iii) of this subsection, to:

(A) remedy the condition creating the ground for foreclosure;

(B) pay the debt secured by the homestead property from proceeds of the sale of the

homestead property by the borrower or from any other sources; or

(C) convey the homestead property to the lender by a deed in lieu of foreclosure; and

(11) that is secured by a lien that may be foreclosed upon only by a court order, if the

foreclosure is for a ground other than a ground stated by Subdivision (6)(A) or (B) of this

subsection.

(1) Advances made under a reverse mortgage and interest on those advances have

priority over a lien filed for record in the real property records in the county where the

homestead property is located after the reverse mortgage is filed for record in the real

property records of that county.

(m) A reverse mortgage may provide for an interest rate that is fixed or adjustable and

may also provide for interest that is contingent on appreciation in the fair market value of

the homestead property. Although payment of principal or interest shall not be required

under a reverse mortgage until the entire loan becomes due and payable, interest may

accrue and be compounded during the term of the loan as provided by the reverse

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mortgage loan agreement.

(n) A reverse mortgage that is secured by a valid lien against homestead property may be

made or acquired without regard to the following provisions of any other law of this

state:

(1) a limitation on the purpose and use of future advances or other mortgage proceeds;

(2) a limitation on future advances to a term of years or a limitation on the term of open-

end account advances;

(3) a limitation on the term during which future advances take priority over intervening

advances;

(4) a requirement that a maximum loan amount be stated in the reverse mortgage loan

documents;

(5) a prohibition on balloon payments;

(6) a prohibition on compound interest and interest on interest;

(7) a prohibition on contracting for, charging, or receiving any rate of interest authorized

by any law of this state authorizing a lender to contract for a rate of interest; and

(8) a requirement that a percentage of the reverse mortgage proceeds be advanced before

the assignment of the reverse mortgage.

(o) For the purposes of determining eligibility under any statute relating to payments,

allowances, benefits, or services provided on a means-tested basis by this state, including

supplemental security income, low-income energy assistance, property tax relief, medical

assistance, and general assistance:

(1) reverse mortgage loan advances made to a borrower are considered proceeds from a

loan and not income; and

(2) undisbursed funds under a reverse mortgage loan are considered equity in a

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borrower’s home and not proceeds from a loan.

(p) The advances made on a reverse mortgage loan under which more than one advance

is made must be made according to the terms established by the loan documents by one

or more of the following methods:

(1) at regular intervals;

(2) at regular intervals in which the amounts advanced my be reduced, for one or more

advances, at the request of the borrower; or

(3) at any time by the lender, on behalf of the borrower, if the borrower fails to timely

pay any of the following that the borrower is obligated to pay under the loan documents

to the extent necessary to protect the lender’s interest in or the value of the homestead

property:

(A) taxes;

(B) insurance;

(C) costs of repairs or maintenance performed by a person or company that is not an

employee of the lender or a person or company that directly or indirectly controls, is

controlled by, or is under common control with the lender;

(D) assessments levied against the homestead property; and

(E) any lien that has, or may obtain, priority over the lender’s lien as it is established in

the loan documents.

(q) To the extent that any statutes of this state, including without limitation, Section

41.001 of the Texas Property Code, purport to limit encumbrances that may properly be

fixed on homestead property in a manner that does not permit encumbrances for

extensions of credit described in Subsection (a)(6) or (a)(7) of this section, the same shall

be superseded to the extent that such encumbrances shall be permitted to be fixed upon

homestead property in the manner provided for by this amendment.

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(r) 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.

(s) The Finance Commission of Texas shall appoint a director to conduct research on the

availability, quality, and prices of financial services and research the practices of business

entities in the state that provide financial services under this section. The director shall

collect information and produce reports on lending activity of those making loans under

this section. The director shall report his or her findings to the legislature not later than

December 1 of each year. (Amended Nov. 6, 1973, and Nov. 7, 1995; Subsecs. (a)–(d)

amended and (e)–(s) added Nov. 4, 1997; Subsecs. (k), (p), and (r) amended Nov. 2,

1999; Subsec. (a) amended Nov. 6, 2001.)

Obviously, Article 16, Section 50 is a long and complex provision, primarily as a

result of all of the requirements relating to home equity loans and reverse mortgages, the

two new types of claims allowed on a homestead. However, the list of claims that can be

asserted against a Texas homestead can be summarized as follows:

1) purchase money mortgages;

2) taxes on the homestead;

3) builder’s and mechanic’s liens that comply with Section 53.254 of the Property Code,

which requires, among other things, that the lien is created in a written agreement that is

signed by both spouses, contains detailed disclosures required by statute, and filed in the

county records in the county in which the property is located;

4) on owelty of partition (when the homestead is partitioned by agreement or court order

[divorce, for example], and one gets a large share but subject to a lien in favor of the

recipient of the smaller share to make up the difference in value);

5) refinance of a lien against a homestead;

6) a home equity loan that meets the Texas constitutional requirements, which are

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numerous, the most notably of which requiring detailed disclosures, precluding

prepayment penalties, and prohibiting more than 80 percent of the fair market value of

the property from becoming encumbered by the sum of the original mortgage and the

equity loan;

7) a reverse mortgage that meets the Texas constitutional requirements, which again are

numerous and restrict use of the financing device to individuals 55 years of age or older.

See Texas Property Code § 41.001.

Curiously, in order to take advantage of tax savings, the Texas Property Tax Code

also provides for a “residence homestead” to be owned directly or through a beneficial

interest in a qualifying trust, Texas Tax Code, § 11.13(j), even though in the past,

homestead rights have vested solely in individuals, not business entities.

The Texas homestead may be either urban or rural in nature. This is described in the

Texas Constitution, as follows:

§ 51. Amount of homestead; uses

Sec. 51. The homestead, not in a town or a city, shall consist of not more than two

hundred acres of land, which may be in one or more parcels, with the improvements

thereon; the homestead in a city, town, or village shall consist of lot or contiguous lots

amounting to not more than 10 acres of land, together with any improvements on the

land; provided, that the homestead in a city, town, or village shall be used for the

purposes of a home, or as both an urban home and a place to exercise the calling or

business of the homestead claimant, whether a single adult person, or the head of a

family; provided, also, that any temporary renting of the homestead shall not change the

character of the same, when no other homestead has been acquired; provided, further,

that a release or refinance of an existing lien against a homestead as to a part of the

homestead does not create an additional burden on the part of the homestead property

that is unreleased or subject to the refinance, and a new lien is not invalid only for that

reason. Amended Nov. 3, 1970; Nov. 6, 1973; Nov. 8, 1983; and Nov. 2, 1999.

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There is no set procedure nor formal designation necessary to create a Texas

homestead. A present right to possession is required even though it is not necessary that

premises actually be occupied. Even raw land can be a homestead if the claimant intends

to occupy the land as a home, and evidences that intention in some manner, such as

cultivating the land, having plans drawn, or having construction supplies delivered to the

construction site. On the other hand, voluntary designations of homestead property may

be made, for further protection. See Texas Property Code §§ 41.005, 41.022.

Only one homestead can be maintained, however, either urban or rural. For a

rural homestead, the land must be used for a residence, the balance of the tract for the

support of the family. Texas Property Code §§ 41.005, 41.021. A rural homestead

consisting of one or more parcels of land containing more acreage than the constitutional

requirements may be voluntarily designated as “homestead” by specifying which acres of

the acreage, up to the constitutional limit, constitutes the rural homestead. An urban

homestead, as long as the constitutional acreage requisites are met, may be used as both a

residence and a place to exercise a calling or business. The law clearly provides that the

homestead can be on more than one lot, but the lots must be contiguous. See Texas

Property Code § 41.002. There can be no joinder of an urban homestead and a rural

homestead.

Homestead problem

A person having 20 rural acres with a house and another large building used for the

family hardware business wants to include the hardware building as part of the

homestead. Can he? No—(rural business homestead) Exall v. Security Mortgage and

Trust Company, 39 S.W. 959 (Tex.Civ.—App.1987, writ ref’d).

21

CHAPTER 2: CONCURRENT OWNERSHIP

Joint Tenancy with Right of Survivorship

Textbook page 18

Texas law disfavors joint tenancy because its right of survivorship feature can

effectively disinherit family members. Therefore, to create a joint tenancy with a right of

survivorship in Texas, the joint property owners must have a written agreement that

expressly creates a right of survivorship; a right of survivorship will not be presumed

from the mere creation of a joint tenancy. See Texas Probate Code § 46.

Tenancy by the Entirety

Textbook page 21

Texas does not recognize the tenancy by the entirety—which is an estate created

by the conveyance to husband and wife—because Texas uses the concept of community

property instead.

22

CHAPTER 3: SURVEYS AND LAND DESCRIPTIONS

LAND DESCRIPTIONS

Textbook page 39

In Texas, real property is described either by (1) metes and bounds or (2)

reference to lot and block number within a recorded subdivision plat. The Rectangular

Survey System is not used in Texas. It is not considered to be sufficiently precise for

describing small parcels of land.

23

CHAPTER 4: PUBLIC REGULATION AND ENCUMBRANCES

MECHANICS’ AND MATERIALMEN’S LIENS

Textbook page 74

Mechanics’ and Materialmen’s Liens

In Texas, mechanics’ and materialmen’s liens may be created by contract, the

Texas Constitution, or by appropriate statute. The Texas Constitution, Art. § 37 provides

for an automatic lien available only to the owner or those in privity with the owner of the

property on which work is performed. To be protected against the rights of third parties,

the lien claimant must give the third party notice of the lien. A co-existing statutory lien

procedure, Texas Property Code § 53.001 et seq., is also available to those claimants and

types of construction not covered by the constitutional lien.

For a mechanics lien to be fixed and enforceable against a Texas homestead, it

must be in writing (with certain statutory warnings), signed by the owner (if the owner is

married, both spouses must sign), before the material is furnished or work is done, and

recorded with the county clerk for the county in which the land is located. Texas

Const.Art. 16 § 50; Tex.Prop.Code § 53.254.

24

CHAPTER 5: EASEMENTS AND LICENSES

There is no Texas-specific law dealing with this chapter.

25

CHAPTER 6: CONTRACTS

There is no Texas-specific law dealing with this chapter.

26

CHAPTER 7: PREPARATION AND REVIEW OF A REAL ESTATE

CONTRACT

THE AGREEMENT

Textbook page 138

It is likely that the earnest money contract will be prepared by the real estate

broker or agent on standard, pre-printed forms published by the Texas Real Estate

Commission.

As of January 1, 1994, the seller of residential realty consisting of not more than

one dwelling unit must give the buyer a written disclosure of property condition

substantially similar to the notice set forth in Tex.Prop.Code § 5.008.

Other disclosures also are provided such as water district disclosures, certain

pipeline and rollback taxes disclosures, and informational disclosures concerning EPA

rules covering lead-based paint.

EXECUTION

Textbook page 152

Non-Homestead Community Property Issues in Texas

Can an interest in non-homestead joint management community property

(Tex.Fam.Code § 3.102) be conveyed by solely one spouse? Courts appear split.

Compare the following cases: Williams v. Portland State Bank, 514 S.W.2d 124

(Tex.Civ.App.—Beaumont 1974, writ dism’d) with Dalton v. Don J. Jackson, Inc., 691

S.W.2d 765 (Tex.Civ.App.—Austin 1985, no writ). Nevertheless, third parties may be

protected if the intended sale meets the requisites of Texas Family Code § 3.104. On the

other hand, an earnest money contract listing both spouses as buyers, where one spouse

does not sign, may be enforced against the signing spouse. Greve v. Cox, 683 S.W.2d 535

(Tex.Civ.App.—Dallas, 1984, no writ).

27

Rose Lee Chivers WILLIAMS, Appellant,

v.

PORTLAND STATE BANK, Appellee.

No. 7569.

Court of Civil Appeals of Texas, Beaumont.

Aug, 29, 1974.

Rehearing denied Sept. 19, 1974.

Action to remove cloud upon title to land in which bank filed cross claim against

plaintiff and her former husband to recover on note and for foreclosure of lien upon land.

The District Court, Bastrop County, C. B. Maynard, J., rendered judgment that plaintiff

take nothing and that bank recover on its note and foreclose its lien, and plaintiff

appealed. The Court of Civil Appeals, Stephenson, J., held that husband did not have

authority to encumber wife’s interest in 77.44-acre tract held as community property in

both parties’ names, that bank’s actual knowledge that wife refused to sign first note and

deed of trust covering 100-acre tract was sufficient to put it on notice of husband’s lack

of authority to encumber wife’s interest, and that husband’s execution of note and deed of

trust created valid lien.

Affirmed in part and reversed and rendered in part.

____________

Guy P. Allison, San Antonio, for appellant.

Allen McMurrey, Bastrop, Robert L. Davis, Austin, for appellee.

STEPHENSON, Justice.

Rose Lee Chivers Williams (plaintiff) brought this action to remove a cloud upon

28

the title to the land involved. Portland State Bank (Bank) filed a cross-action against

plaintiff and Thurman Lee Williams (Williams), her former husband, to recover note and

for foreclosure of its lien upon such land. Trial was before the court, and judgment was

rendered that plaintiff take nothing and the Bank recover on its note and foreclosing its

lien. Williams did not appeal.

The basic questions in the case involve construction of Sections 5.22 and 5.24 of

the V.T.C.A., Family Code, as amended (1971), and are of first impression. The material

part of those sections reads as follows:

Ҥ 5.22 Community Property: General Rules

(a) During marriage, each spouse has the sole management, control, and disposition of

the community property that he or she would have owned if single, including but not

limited to:

(1) personal earnings;

(2) revenue from separate property;

(3) recoveries from personal injuries; and

(4) the increase and mutations of, and the revenue from, all property subject to his or her

sole management, control, and disposition.

(b) If community property subject to the sole management, control, and disposition of

one spouse is mixed or combined with community property subject to the sole

management, control, and disposition of the other spouse, then the mixed or combined

community property is subject to the joint management, control, and disposition of the

spouses, unless the spouses provide otherwise by power of attorney in writing or other

agreement.

(c) Except as provided in Subsection (a) of this section, the community property is

subject to the joint management, control, and disposition of the husband and wife, unless

the spouses provide otherwise by power of attorney in writing or other agreement.”

29

Ҥ 5.24. Presumption

(a) During marriage, property is presumed to be subject to the sole management, control,

and disposition of a spouse if it is held in his or her name, as shown by muniment,

contract, deposit of funds, or other evidence of ownership, or if it is in his or her

possession and is not subject to such evidence of ownership.

(b) A third person dealing with a spouse is entitled to rely (as against the other spouse or

anyone claiming from that spouse) on that spouse’s authority to deal with the property if:

(1) the property is presumed to be subject to the sole management, control, and

disposition of the spouse; and

(2) the person dealing with the spouse:

(A) is not party to a fraud upon the other spouse or another person; and

(B) does not have actual or constructive notice of the spouse’s lack of authority.”

The record before us shows the following transpired:

(1) Plaintiff and Williams were married January 22, 1954.

(2) 77.44 acres of land, involved in this suit, were acquired as community property by

deed dated April 4, 1963, in which plaintiff and Williams were named as grantees.

(3) 100 acres of land, involved in this suit, were acquired as community property by

deed dated December 30, 1963, in which Williams was the sole grantee.

(4) A note in the amount of $25,000 and a deed of trust covering both tracts of land,

dated June 23, 1971, were prepared to be executed by both plaintiff and Williams.

(5) Plaintiff refused to execute either of the papers, and Williams gave this information

to Jeff E. Bell, Jr., president of defendant Bank.

(6) A new note and deed of trust of the same date and terms were immediately prepared

30

for Williams to execute alone, which he did, and the loan was concluded.

(7) Plaintiff filed suit for divorce from Williams June 30, 1971.

(8) The Bank’s deed of trust was filed for record July 27, 1971.

(9) Such divorce was granted November 17, 1971, and plaintiff was awarded title to the

land involved in this suit, in the divorce decree. The Bank was not a party to such divorce

suit.

(10) Williams did not pay the first annual installment on the note given the Bank, and

plaintiff received a letter from the Bank dated July 11, 1972, informing her that notices

were being posted to sell this land.

(11) This suit was filed July 25, 1972.

The trial court made findings of fact and conclusions of law, including the

following: The land involved was not the homestead of plaintiff and Williams. Such land

was their community property. The Bank and Williams were not a party to any fraud as

to plaintiff.

We consider first the points of error complaining about the action of the trial

court in permitting foreclosure of the deed of trust lien as to the 77.44 acre tract which

was held in the names of both plaintiff and Williams. We conclude that this situation is

controlled by Section 5.22(c) of the Family Code which provides, in essence, that

community property is subject to the joint management, control, and disposition of the

husband and wife except under certain circumstances which do not exist here. We

construe this section to mean that Williams had no legal authority to encumber plaintiff’s

interest in this tract of land in both of their names.

We consider next the points of error complaining about the action of the trial

court permitting foreclosure of the deed of trust lien as to the 100-acre tract of land held

in Williams’ name alone. Section 5.24 of the Family Code provides in part, in essence,

that it is presumed that property held in the name of one spouse alone is subject to the

31

sole management, control, and disposition of such spouse, and a third person dealing

with that spouse is entitled to rely upon that spouse’s authority to deal with the property

in the absence of fraud or notice of the spouse’s lack of authority. From the factual

situation before us in this case, we meet the question as to whether knowledge by the

president of the Bank making this loan that plaintiff had refused to execute the first note

and deed of trust was notice that Williams lacked the authority to encumber plaintiff’s

interest in this tract of land.

There is no evidence in this record that Williams had actual authority to encumber

plaintiff’s interest in this land. Both testified upon this trial, and it is clear that he did not

have such authority. There is also no evidence in this record that the Bank had actual

specific knowledge that Williams had no authority from plaintiff to encumber her interest

in this tract of land. However, this section of the Family Code does not require

“knowledge” of lack of authority, but uses the term “notice.” There is an excellent

discussion in Flack v. First Nat. Bank of Dalhart, 148 Tex. 495, 226 S.W.2d 638(1950),

as to the different meanings of the words “knowledge” and “notice” and the fact that the

two words are not synonymous. This statement is then made in that case at page 632, to

wit:

“Whatever puts a person on inquiry ordinarily amounts in law to

notice, provided inquiry has become a duty and would lead to knowledge

of the facts by the exercise of ordinary diligence and understanding. In

other words, one who has knowledge of such facts as would cause a

prudent man to make further inquiry, is chargeable with notice of the facts

which, by use of ordinary intelligence, he would have ascertained.”

See also Continental Insur. Co. v. Stewart & Stevenson Serv., 306 S.W.2d 415, 422

(Tex.Civ.App.—Houston, 1957, error ref. n.r.e.).

Applying the law of the Flack Case, supra, to the case before us, we hold the

actual knowledge by the Bank that plaintiff had refused to sign the first note and deed of

trust was sufficient as a matter of law to put the Bank on “notice” to make further inquiry

as to the extent to Williams’ authority to encumber plaintiff’s interest in this tract of land.

32

The use of ordinary diligence by the Bank would have revealed to the Bank that Williams

had no such authority, and the presumption that he had such authority would have been

rebutted.

We must still determine whether or not the execution of the note and deed of trust

created a valid lien upon Williams’ interest in both tracts of land. We hold that it did, and

the trial court properly ordered foreclosure of such liens as to Williams’ interest. A study

of the pertinent sections gives us no reason to believe such a lien would be either void or

voidable as to his interest.

We proceed to enter the judgment which should have been rendered by the trial

court. That portion of the judgment decreeing that the Bank should have and recover

from Williams the sum of $25,000 with interest as provided, and for its attorney’s fee and

foreclosure of the deed of trust liens as to the undivided one-half interest owned by

Williams is affirmed. The remaining portion of the original judgment as to the order of

sale shall remain as stated. It is further ordered that the Bank take nothing as to plaintiff,

and the cloud upon her one-half undivided interest, in both tracts of lands, is removed.

The cost of this appeal shall be paid one-half by plaintiff and one-half by the Bank.

Affirmed in part and reversed in part.

Carmen Reddick DALTON, In Her Capacity

As Independent Executrix of the

Estate of Robert Arthur Dalton,

Deceased, Appellant,

v.

DON J. JACKSON, INC., d/b/a Austin

Properties, Appellee.

No. 14234.

33

Court of Appeals of Texas, Austin.

May 1, 1985.

Rehearing Denied June 19, 1985.

Purchaser sought specific performance of contract to sell real estate against

husband, both personally and as the executor of his wife’s estate. The 98th Judicial

District Court, Travis County, Jon Wisser, J., entered judgment ordering husband’s

executrix to convey a one-half interest in the property to purchaser, finding that failure of

wife to sign contract prior to her death precluded transfer of her interest, and purchaser

appealed. The Court of Appeals, Shannon, C. J., held that contract could not convey

husband’s interest in joint community property to third party so as to effectuate partition

by creating tenancy-in-common between wife’s interest and the interest of purchaser.

Reversed and rendered.

____________

Thomas H. Watkins, Hilgers, Watkins & Kazen, P. C., Austin, for appellant.

Jeff D. Otto, Meadows & Otto, Austin, for appellee.

Before SHANNON, C. J., and EARL W. SMITH and BRADY J. J.

SHANNON, Chief Justice.

Appellee Don J. Jackson, Inc. filed suit against Robert A. Dalton, individually

and as Independent Executor of the estate of his wife, Ethel Creager Dalton,1 seeking

specific performance of a contract to sell real estate located on North Lamar Boulevard in

Austin. After a bench trial, the district court rendered judgment ordering the appellant

executrix to convey a one-half interest in the real estate to Jackson. This Court will

reverse the judgment.

On October 3, 1978, Robert and Ethel Dalton signed an exclusive listing

agreement with John H. Steinle to sell the real estate. The land was joint management

34

community

1After the case was tried, but before the judgment was signed, Robert A. Dalton died. Thereafter, Carmen Reddick

Dalton, Independent Executrix, was substituted as party defendant.

property and title was in the names of Robert and Ethel. Three days later, Jackson

tendered an escrow sales contract to Steinle offering $85,000 for the property. This offer

was rejected. On November 10, 1978, Jackson submitted a second contract which offered

$90,000. After several modifications, Robert signed the contract in one of the two spaces

for the names of “seller.” On November 30, 1978, Ethel Dalton died without ever

signing the contract.

After Ethel died, Robert refused to close the sale. Jackson then filed suit seeking,

among other things, specific performance of the contract to sell the entire tract of land.

The district court concluded that “[t]he contract for sale in this case is not void or even

voidable, but is enforceable to the extent of the signing spouse’s interest as a matter of

law.” The court then rendered judgment ordering the executrix to execute and deliver to

Jackson a general warranty of deed conveying Robert’s one-half undivided interest in the

real estate.

By a single point of error, the executrix asserts that the district court erred in

granting specific performance of the contract as to a one-half undivided interest in the

real estate.

The executrix’s principal argument is that Tex.Fam.Code Ann. § 5.22 (c)(1975)

precludes enforcement of the contract of sale without the signature of both spouses.

Section 5.22(c) provides that with several exceptions, community property is subject to

the joint management, control, and disposition of the husband and wife. The executrix

asserts that, as a matter of law, § 5.22(c) mandates that a contract to sell joint

management community property may not be enforced without the signature of both

spouses. To permit one spouse to convey a one-half interest in joint community property,

the executrix asserts, would allow such property to be involuntarily partitioned as to the

nonconveying spouse.

35

In support of the judgment, Jackson advances Williams v. Portland State Bank,

514 S.W.2d 124 (Tex.Civ.App.1974, writ dism’d) and Vallone v. Miller, 663 S.W.2d 97

(Tex.App.1983, writ ref’d n.r.e.). In Williams, a husband and wife held title to real estate

in both of their names. The real estate was non-homestead joint management community

property. The husband borrowed against the real estate, executing a note and deed of trust

in which the wife refused to join. Thereafter, the parties were divorced. The husband

defaulted on the note and the bank instructed the trustee to conduct the sale. Relying

upon § 5.22(c), the court held that the husband had no authority to encumber his wife’s

interest in the real estate. The court held, nevertheless, that the husband’s execution of the

note and deed of trust created a valid lien upon his interest in the real estate:

We must still determine whether or not the execution of the note and deed

of trust created a valid lien upon Williams’ interest in both tracts of land.

We hold that it did, and the trial court properly ordered foreclosure of

such lien as to Williams’ interest. A study of the pertinent sections gives us

no reason to believe such a lien would either be void or voidable as to his

interest.

514 S.W.2d at 127. The holding in Williams has been criticized. Professor Dorsaneo

characterized the holding as “very questionable authority” and stated that the court

improperly inserted the word “several” into § 5.22 so as to result in that section stating

that community property is subject to “joint and several” disposition. Dorsaneo,

Compulsory Joinder of Parties in Texas, 14 Hous.L.Rev. 346, 364 (1977). Professor

McKnight in Annual Survey of Texas Law: Family Law, 29 Sw.L.J. 67, 89 (1975), wrote

that the court’s holding in Williams would allow one spouse to achieve an involuntary

partition of a community asset contrary to the long-established rule.

In Vallone, v. Miller, supra, the plaintiff sought specific performance of a contract

to purchase non-homestead joint management community property. The contract

contained both the husband’s and the wife’s name typed-in under the term “seller.” Only

the husband signed the contract. The court relied upon Williams and stated:

It is clear that a husband has the right to convey his one-half interest in

36

non-homestead joint management community property without the

signature of his wife on the conveyance.

663 S.W.2d at 98. The court, however, concluded that the contract was “incomplete”

because the wife’s name was typed-in but not signed. Accordingly, the court held that the

purchaser was not entitled to specific performance of any interest in the property.

Presumably, if the contract were “complete” as in Williams where only the husband’s

name was typed-in as “seller,” the court in Vallone would have concluded that one spouse

has the right to unilaterally convey or encumber a one-half interest in non-homestead

joint management community property.

In response to the criticism of Williams, Jackson claims that the holding in that

opinion does no violence to the policy underlying community property law because at the

time of the trial for specific performance in Williams, the parties were divorced and the

community was dissolved. Accordingly, Jackson urges this Court to affirm the judgment,

adopting a rule that one spouse may convey a half interest in the non-homestead joint

management community property if, as in this appeal, at the time of the enforcement of

the conveyance, the community is dissolved. Adoption of Jackson’s argument would

require that a contract for sale executed by only one spouse not be effective while the

spouses were married, and would permit the substantive rights of the purchaser and

subscribing spouse to remain in a kind of limbo until the community was dissolved.

Upon dissolution of the community, the contract would spring to life bestowing the

subscribing spouse’s one-half interest upon the purchaser. Such a rule would be

unworkable and would produce an undesirable result. Further, it would infringe on the

divorce court’s right to make a division of the community property under § 3.63; if a

spouse could convey an interest in such community assets prior to the dissolution of the

marriage, such conveyance becomes effective upon rendition of the decree of divorce

dissolving the community.

The executrix asserts that Williams is wrongly decided in that it permits one

spouse to unilaterally effect a partition of joint management community property. Such

result is contrary to Tex.Fam.Code § 5.22(c). This Court agrees and declines to follow

37

Williams.

Community property may only be partitioned upon compliance with the

provisions of Tex.Const.Ann. Art.XVI, § 15 (Supp.1985) and §§ 5.42 and 5.44 of the

Family Code. See Maples v. Nimitz, 615 S.W.2d 690 (Tex.1981); Williams v. McKnight,

402 S.W.2d 505 (Tex.1966); Morgan v. Morgan, 622 S.W.2d 447 (Tex.App.1981, no

writ). Accordingly, one spouse may not convey his or her interest in joint community

property to a third party, so as to effectuate a partition by creating a tenancy-in-common

between the remaining spouse and the third party.

Homestead Issues in Texas

Unless a spouse is judicially incompetent (Tex.Fam.Code §§ 5.002, 5.107) or certain

other circumstances listed in the Family Code (see §§ 5.1015-5.107), a Texas homestead

may neither be sold nor encumbered without the joinder of both spouses. (Tex.Fam.C. §

5.001).

38

CHAPTER 8: DEEDS

BASIC REQUIREMENTS OF A VALID DEED

Textbook page 207

Witnesses of Deeds

Textbook page 208

Texas law does not require a deed to be acknowledged to be valid, but a deed

must be acknowledged to be recorded in the real property records. See Texas Property

Code § 12.001.

ADDENDUM

Textbook page 223

General Warranty Deed—Texas (see Exhibit 8-8 at Textbook page 226).

39

CHAPTER 9: FINANCING SOURCES IN REAL ESTATE

TRANSACTIONS

There is no Texas-specific law dealing with this chapter.

40

CHAPTER 10: LEGAL ASPECTS OF REAL ESTATE FINANCE

USURY

Textbook page 264

Loan late charges have been easily characterized as being usurious in Texas. See

Hardwick v. The Austin Gallery of Oriental Rug, Inc., 779 S.W.2d 438 (Tex.Civ.App.-

Austin, 1989, writ denied). Fisher v. Westinghouse Credit Corporation, 760 S.W.2d 802

(Tex.Civ.App.-Dallas, 1988, no writ). Generally, the federal statute controls this area

pursuant to V.A.T.S., Art. 5069-1C.103.

Points (fees charged by the lending institution making the loan), which are not

directly attributable to the lending institution’s expenses related to the making of the

loan, may be construed as interest. Gonzales County Savings and Loan Association v.

Freeman, 534 S.W.2d 903 (Tex.1976). Recent Texas legislation, however, provides that

prepayment penalties or fees are not considered interest. V.A.T.S., Art. 5069-1H.005.

SECOND MORTGAGE LOANS

Textbook page 271

Contract for Deed

An additional financing method used in Texas is a contract for deed. A contract

for deed or installment land contract (real estate installment contract, contract for sale,

executory sales contract or conditional sales contract) is often used to sell housing to

low-income families. The purchaser pays a small down payment to the seller, with the

balance of the purchase price paid directly to the seller over a period of time (commonly

15–20 years), during which period the buyer takes possession of the property, but does

not receive legal title from the seller (a deed) until the entire purchase price is paid. If the

purchaser defaults, the seller may rapidly regain possession under forcible entry and

detainer procedures (eviction proceedings, which are discussed in Chapter 18 of this

supplement). Some Texas courts have held that the purchaser under a contract for deed

41

becomes the holder of equitable title, and the bare legal title of the seller is in the nature

of a vendor’s lien security interest. Bucher v. Employers Casualty Co., 409 S.W.2d 583

(Tex.Civ.App.—Fort Worth 1966, no writ).

Other courts have held that the seller must hold both legal and equitable title; the

purchaser has no actual interest in the realty until all the conditions of the contract for

deed have been met. See Johnson v. Wood, 157 S.W.2d 146 (Tex.Com.App. 1941,

opinion adopted); In re Waldron, 65 BR 169 Bankr. N.D.Tex. 1986). The purchaser’s

interest is his right to perform under the contract. Upon performance, the purchaser

receives equitable title and the right to demand legal title.

Knowing the ease of the seller in declaring breach and enforcing the remedies of

rescission, acceleration, and forfeiture, the Texas Property Code provides for certain

written notices to be given by the seller to the Purchaser prior to the seller’s enforcement

of the remedies of rescission or of acceleration and forfeiture. Texas Property Code §§

5.061-063.

EFFECT OF A VALID FORECLOSURE SALE

Textbook page 274

Section 51.002 of the Texas Property Code provides the procedures, which must

be strictly followed, for non-judicial foreclosure sales. For example, the sale must be a

public sale at an auction held at the county courthouse in the county in which the land is

located. The auction must be conducted between 10 a.m. and 4 p.m. on the first Tuesday

of a month. If the property is the debtor’s residence, notice of default must be sent by

certified mail to the debtor providing 20 days to cure the default before accelerating the

debt and providing notice of sale. If default is not cured, or if the property is not the

debtor’s residence, the sale can take place on the first Tuesday after notice of the sale has

been given at least 21 days’ prior by (1) posting the notice on the courthouse door, (2)

filing a copy of the notice with the county clerk, and (3) providing written notice to the

debtor at his or her last known address by certified mail.

42

If the foreclosure sale is conducted in compliance with this provision, the

grantor’s (the borrower’s) rights in the property will be terminated, along with any other

lien-holders or others with rights in the property inferior to rights of the holder of the

deed of trust. The property is conveyed to the purchaser at the auction by a trustee’s deed.

If the proceeds of the sale from the auction are not enough to satisfy the debt, the

lender has two years to file an action to recover the deficiency. In a deficiency action, the

debtor has the opportunity to challenge the price paid at the auction. If the debtor can

prove that the fair market value was higher than the sales price, then the fair market value

amount will be used to offset the debt rather than the auction sales price. For example, if

property with an outstanding mortgage balance of $110,000 is sold at auction for

$90,000, and the lender then sues the debtor to recover the $20,000 deficiency, and the

debtor can show that the fair market value was $110,000, then the debtor would not have

to pay anything further. Similarly, if the debtor could demonstrate that the fair market

value was $100,000, then the debtor would owe only $10,000 rather than $20,000. The

deficiency provisions for non-judicial foreclosures are provided in Section 51.003 of the

Texas Property Code and Section 51.004 for judicial foreclosures.

Generally, other than Federal and state tax liens, unless specifically provided for

by the instrument, no right of redemption after the foreclosure sale exists in Texas. Jay

Corporation v. Nob Hill Properties, Ltd., 543 S.W.2d 691 (Tex.Civ.App.—Tyler,1976, no

writ). However, under certain circumstances, the foreclosure sale could be set aside. Two

examples of such circumstances include an improper foreclosure sale or a subsequent

bankruptcy filing by the debtor in which the bankruptcy court sets the foreclosure sale

aside.

As of 1995, a new provision in the Texas Property Code (Section 51.006) allows

a borrower to deed the property to the lender to avoid foreclosure, if the lender will

accept it. However, the provision allows the lender to void the deed and foreclosure

under the deed of trust within four years if the borrower failed to disclose some lien or

other encumbrance on the property.

43

CHAPTER 11: MORTGAGE FORMS AND PROVISIONS

RESIDENTIAL MORTGAGE PROVISIONS

Textbook page 318

As discussed in Chapter 1 of this supplement, the Texas Constitution no longer

prohibits equity lending on Texas homesteads. See Article 16, § 50.

Equity Lending on Texas Homesteads

As stated in Chapter 1, the Texas Constitution prohibits the forced sale of a

homestead for all debts except those specified in Article 16, § 50. This section, radically

altered by election vote effective January 1, 1998, provides for several new “exceptions”

such as homestead equity loans and reverse mortgage loans. Among numerous specific

restrictions and requirements, Texas equity lending against the homestead may not

include pre-payment penalties nor exceed 80 percent of the fair market value of the

homestead, and only may be foreclosed upon by court order, without borrower personal

liability (unless the loan was fraudulently obtained). Correspondingly, the restrictive

provisions concerning reverse mortgage lending, some believe, seem so complex and

“out of touch” with market realities, it appears unlikely that many lenders will be willing

to provide borrowers with this type of financing any time soon.

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CHAPTER 12: TITLE EXAMINATIONS

RECORDING STATUTES

Textbook page 360

The Texas Framework

The purpose of the Texas statutory framework for the recording of real estate

instruments is to put the world on notice of the existence of the instrument or the

underlying transaction. It provides some protection to the person acquiring a real estate

interest and provides some assurance to prospective purchasers and creditors as to the

title status of the property.

In Texas, those engaging in real estate transactions or contemplating such a

transaction are deemed to know whatever is filed of public record regarding the property

(called constructive knowledge). Texas Property Code § 13.002. If one possesses either

actual knowledge or constructive knowledge of a problem with the title, then that person

cannot claim ignorance and seek protection from the problem. For example, if a seller

conveyed property to a buyer but had previously granted a life estate to someone else,

and the deed granting the life estate is on file, the buyer is not protected (given superior

rights) against the life tenant, though the buyer may have claims for breach of warranty

of title against the seller. Even if the life estate deed had not been recorded, but the life

tenant is obviously occupying the premises, then the buyer in those circumstances would

be charged with notice as well. However, if previous deed had not been recorded and the

buyer’s inspection of the property did not reveal any indication of possession by another,

then the buyer’s title would be superior to that of the life tenant. The life tenant should

have made sure the deed was recorded. See Texas Property Code § 13.001.

Texas Requirements for Recording

In Texas, there are essentially five requirements for a properly recorded instrument:

1) It must be the original document, containing an original signature;

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2) It must be recorded in the county where the property is located (Section

11.001);

3) The instrument must be in English (Section 11.002);

4) It must contain the grantee’s mailing address or include a penalty filing fee

that can be as high as twice the statutory recording fee (Section 11.003); and

5) The instrument must be properly acknowledged, sworn to with a proper jurat,

or properly witnessed (Section 12.001).

An instrument is acknowledged in Texas if it is signed before an officer

authorized to administer oaths (notary public, judge, or court clerk) and states that the

instrument was executed for the purposes and consideration stated in the instrument. The

officer then signs and places the official seal on the instrument. A statutory form of

acknowledgement is provided in Section 121.007 of Texas Civil Practice and Remedies

Code. This form changed in 1997 to include a statement of the means used by the

acknowledging officer to identify the party signing the instrument.

JUDGMENT LIENS

Textbook page 374

Judgments

In Texas, recorded abstract of judgment liens do not attach to exempt homestead property

unless the underlying judgment is for one of the exceptions allowed under the Texas

Constitution, as discussed in Chapters 1 and 11 of this supplement. However, most title

companies will not insure title to the homestead realty without the judgment lien being

cured! (If the judgment creditor attempts to enforce the “invalid” lien after closing, the

title company may be forced to fund a legal action to prove the homestead nature of the

realty at the time of “lien attachment.” Additionally, the homestead may have been

abandoned, or the size of the land may exceed the homestead limits. It is the “possibility”

of legal action that title companies consider.)

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Even an action to declare the realty as homestead would probably not be

satisfactory to the title company, as the declaration applies only to the date of rendition,

and not afterward. One Texas court has held that an unenforceable judgment lien against

a homestead creates a cloud against title, affording the judgment debtor the right to sue

the judgment creditor for damages unless the judgment creditor provides the necessary

release for title company clearance. Tarrant Bank v. Miller, 833 S.W.2d 666

(Tex.Civ.App.—Eastland 1992, writ denied). The U.S. Fifth Circuit Court of Appeals has

similarly held in In re Henderson, 18 F.3d 1305 (5th Cir. 1994), cert. denied, Belknap v.

Henderson, 513 U.S. 1014, 115 S.Ct. 573 (1994).

Should the judgment debtor file bankruptcy, however, the invalid judgment lien

against homestead may be voidable under 11 U.S.C. § 522(f). Texas Property Code §§

52.021-.025 also provides a mechanism for removing a judgment lien against exempt

property after the lapse of one year following the bankruptcy discharge.

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CHAPTER 13: TITLE INSURANCE

There is no Texas-specific law dealing with this chapter.

48

CHAPTER 14: REAL ESTATE CLOSINGS

There is no Texas-specific law dealing with this chapter.

49

CHAPTER 15: GOVERNMENT REGULATION OF REAL

ESTATE CLOSINGS

There is no Texas-specific law dealing with this chapter.

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CHAPTER 16: REAL ESTATE CLOSING FORMS AND EXAMPLES

There is no Texas-specific law dealing with this chapter.

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CHAPTER 17: CONDOMINIUMS AND COOPERATIVES

There is no Texas-specific law dealing with this chapter.

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CHAPTER 18: LEASES

COMMERCIAL LEASE PROVISIONS

Textbook page 596

Landlord’s Remedies for Tenant’s Default

Textbook page 605

The Texas eviction proceeding is referred to as a forcible entry and detainer

action. The forcible entry and detainer action is a summary or relatively quick eviction

proceeding that is brought in the justice of the peace court for the precinct in the county

in which the leased property is located. Justice of the peace courts in Texas have original

jurisdiction over forcible entry and detainer actions. Texas Government Code § 27.031(a)

(2).

The requirements for initiating and maintaining a forcible entry and detainer

action are provided in Chapter 24 of the Texas Property Code. Essentially, the landlord

must give at least three days’ written notice to the tenant to vacate, unless the lease

agreement provides otherwise. The tenant must appear within ten days of service of

citation, but the tenant can postpone trial for up to six days upon a showing of good

cause. The only issue to be decided in a forcible entry and detainer action is possession,

determining who is entitled to possession (not title to the property over which the justice

of the peace court does not have subject matter jurisdiction). If the landlord prevails, a

writ of possession will be issued after five days from date of judgment. The writ is

executed by the county sheriff. The tenant can appeal to the county court at law for a trial

de novo (whole new proceeding) if the appeal is filed within five days of judgment.

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