PRACTICAL REAL ESTATE LAW

PRACTICAL REAL ESTATE LAW Sixth Edition Daniel Hinkel Texas State Supplement By Lynn Crossett & Stonewall Van Wie III Updated in 2010 by Lynn Crossett, Texas State University-San Marcos Australia Brazil Japan Korea Mexico Singapore Spain United Kingdom United States

TABLE OF CONTENTS CHAPTER 1 INTRODUCTION TO THE LAW OF REAL PROPERTY 1 Real Property Law 1 Fixtures 15 Physical Elements of Real Property 15 Water Rights 15 Inheritance and Devise 16 Adverse Possession 16 Trespass to Try Title 16 CHAPTER 2 CONCURRENT OWNERSHIP 17 Joint Tenancy with Right of Survivorship 17 Tenancy by the Entirety 17 Community Property 17 Dower and Curtesy 18 Elective Share 18 Other Legal Entities 18 CHAPTER 3 SURVEYS AND LAND DESCRIPTIONS 19 Land Descriptions 19 CHAPTER 4 PUBLIC REGULATION AND PRIVATE ENCUMBRANCES 20 Power of Eminent Domain 20 Taxation 20 Mechanic s and Materialmen s Liens 20 CHAPTER 5 EASEMENTS AND LICENSES 21 Creation of Easements 21 ii

CHAPTER 6 CONTRACTS 22 Real Estate Broker 22 Services Provided by a Real Estate Broker 22 CHAPTER 7 PREPARATION AND REVIEW OF A REAL ESTATE CONTRACT 23 The Agreement 23 Execution 23 CHAPTER 8 DEEDS 31 Basic Requirements of a Valid Deed 31 General Warranty Deed Texas 31 Quitclaim Deed Georgia 32 CHAPTER 9 FINANCING SOURCES IN REAL ESTATE TRANSACTIONS 33 Savings and Loan Associations 33 CHAPTER 10 LEGAL ASPECTS OF REAL ESTATE FINANCE 34 Usury 34 Mortgages, Deed of Trust, and Security Deeds 34 Effect of a Valid Foreclosure Sale 35 CHAPTER 11 MORTGAGE FORMS AND PROVISIONS 37 Residential Mortgage Provisions 37 Nonuniform Covenants 37 iii

CHAPTER 12 TITLE EXAMINATIONS 38 Recording Statutes 38 Judgment Liens 41 CHAPTER 13 TITLE INSURANCE 43 Insuring Provisions of an ALTA Owner s Policy 43 CHAPTER 14 REAL ESTATE CLOSINGS 44 CHAPTER 15 GOVERNMENT REGULATION OF REAL ESTATE CLOSINGS 45 Mortgage Fraud 45 CHAPTER 16 REAL ESTATE CLOSING FORMS AND EXAMPLES 46 CHAPTER 17 CONDOMINIUMS AND COOPERATIVES 47 Condominiums 47 Time-shares 47 CHAPTER 18 LEASES 48 Landlord s Remedies for Tenant s Default 48 Lease Guaranty 48 iv

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: Section 50. (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; (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 1

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 3 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; 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, three percent of the original principal amount of the extension of credit; (F) is not a form of open-end account that may be debited from time to time or under which credit may be extended from time to time unless the open-end account is a home equity line of credit; (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 that on the date of closing is 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) or Subsection (a)(8) of this section; (L) is scheduled to be repaid: (i) in substantially equal successive periodic installments, not more often than every 14 days and not less often than monthly, beginning no later than 2 2

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; or (ii) if the extension of credit is a home equity line of credit, in periodic payments described under Subsection (t)(8) of this section; (M) is closed not before: (i) the 12th day after the later of the date that the owner of the homestead submits a loan 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; (ii) one business day after the date that the owner of the homestead receives a copy of the loan application if not previously provided and a final itemized disclosure of the actual fees, points, interest, costs, and charges that will be charged at closing. If a bona fide emergency or another good cause exists and the lender obtains the written consent of the owner, the lender may provide the documentation to the owner or the lender may modify previously provided documentation on the date of closing; and (iii)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, except a refinance described by Paragraph (Q)(x)(f) of this subdivision, unless the owner on oath requests an earlier closing due to a state of emergency that: (a) has been declared by the president of the United States or the governor as provided by law; and (b) applies to the area where the homestead is located; (N) is closed only at the office of the lender, an attorney at law, or a title company; (O) permits 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; (v) a person who is related to the homestead property owner within the second degree of affinity or consanguinity; or (vi) a person regulated by this state as a mortgage broker; and 3

(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 relating to substantive terms of agreement 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) at the time the extension of credit is made, the owner of the homestead shall receive a copy of the final loan application and all executed documents signed by the owner at closing 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 3 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; (x) except as provided by Subparagraph (xi) of this paragraph, 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 and fails to correct the failure to comply not later than the 60th day after the date the lender or holder is notified by the borrower of the lender s failure to comply by: (a) paying to the owner an amount equal to any overcharge paid by the owner under or related to the extension of credit if the owner has paid an amount that exceeds an amount stated in the applicable Paragraph (E), (G), or (O) of this subdivision; (b) sending the owner a written acknowledgement that the lien is valid only in the amount that the extension of credit does not exceed the percentage described by Paragraph (B) of this subdivision, if applicable, or is not secured by property described under Paragraph (H) or (I) of this subdivision, if applicable; 4

(c) sending the owner a written notice modifying any other amount, percentage, term, or other provision prohibited by this section to a permitted amount, percentage, term, or other provision and adjusting the account of the borrower to ensure that the borrower is not required to pay more than an amount permitted by this section and is not subject to any other term or provision prohibited by this section; (d) delivering the required documents to the borrower if the lender fails to comply with Subparagraph (v) of this paragraph or obtaining the appropriate signatures if the lender fails to comply with Subparagraph (ix) of this paragraph; (e) sending the owner a written acknowledgement, if the failure to comply is prohibited by Paragraph (K) of this subdivision, that the accrual of interest and all of the owner s obligations under the extension of credit are abated while any prior lien prohibited under Paragraph (K) remains secured by the homestead; or (f) if the failure to comply cannot be cured under Subparagraphs (x)(a) (e) of this paragraph, curing the failure to comply by a refund or credit to the owner of $1,000 and offering the owner the right to refinance the extension of credit with the lender or holder for the remaining term of the loan at no cost to the owner on the same terms, including interest, as the original extension of credit with any modifications necessary to comply with this section or on terms on which the owner and the lender or holder otherwise agree that comply with this section; and (xi) 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 extension of credit is made by a person other than a person described under Paragraph (P) of this subdivision or if the lien was not created under a written agreement with the consent of each owner and each owner s spouse, unless each owner and each owner s spouse who did not initially consent subsequently consents; (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. (a) 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. (b) 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. 5

(c) A purchaser 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. (d) 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 (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. (e) 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) or (a)(7) of this section. (f) 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 WITH A COURT ORDER; (E) FEES AND CHARGES TO MAKE THE LOAN MAY NOT EXCEED 3 PERCENT OF THE LOAN AMOUNT; 6

(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 UNLESS IT IS A HOME EQUITY LINE OF CREDIT; (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 HOMESTEAD PROPERTY THAT IS DESIGNATED FOR AGRICULTURAL USE AS OF THE DATE OF CLOSING, 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 LOAN APPLICATION TO THE LENDER OR BEFORE 12 DAYS AFTER YOU RECEIVE THIS NOTICE, WHICHEVER DATE IS LATER; AND MAY NOT WITHOUT YOUR CONSENT CLOSE BEFORE ONE BUSINESS DAY AFTER THE DATE ON WHICH YOU RECEIVE A COPY OF YOUR LOAN APPLICATION IF NOT PREVIOUSLY PROVIDED AND A FINAL ITEMIZED DISCLOSURE OF THE ACTUAL FEES, POINTS, INTEREST, COSTS, AND CHARGES THAT WILL BE CHARGED AT CLOSING; 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 ONE YEAR HAS PASSED FROM THE CLOSING DATE OF THE OTHER LOAN, UNLESS ON OATH YOU REQUEST AN EARLIER CLOSING DUE TO A DECLARED STATE OF EMERGENCY; (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; (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 EXCEPT A DEBT THAT IS SECURED BY YOUR HOME OR OWED TO ANOTHER LENDER; 7

(2) NOT REQUIRE THAT YOU ASSIGN WAGES AS SECURITY; (3) NOT REQUIRE THAT YOU EXECUTE INSTRUMENTS WHICH HAVE BLANKS FOR SUBSTANTIVE TERMS OF AGREEMENT 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 YOUR FINAL LOAN APPLICATION AND ALL EXECUTED 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 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 UNLESS THE LENDER CURES THE FAILURE TO COMPLY AS PROVIDED BY SECTION 50(a)(6)(Q)(x), ARTICLE XVI, OF THE TEXAS CONSTITUTION; AND (R) IF THE LOAN IS A HOME EQUITY LINE OF CREDIT: (1) YOU MAY REQUEST ADVANCES, REPAY MONEY, AND REBORROW MONEY UNDER THE LINE OF CREDIT; (2) EACH ADVANCE UNDER THE LINE OF CREDIT MUST BE IN AN AMOUNT OF AT LEAST $4,000; (3) YOU MAY NOT USE A CREDIT CARD, DEBIT CARD, OR SIMILAR DEVICE, OR PREPRINTED CHECK THAT YOU DID NOT SOLICIT TO OBTAIN ADVANCES UNDER THE LINE OF CREDIT; (4) ANY FEES THE LENDER CHARGES MAY BE CHARGED AND COLLECTED ONLY AT THE TIME THE LINE OF CREDIT IS ESTABLISHED AND THE LENDER MAY NOT CHARGE A FEE IN CONNECTION WITH ANY ADVANCE; (5) THE MAXIMUM PRINCIPAL AMOUNT THAT MAY BE EXTENDED, WHEN ADDED TO ALL OTHER DEBTS SECURED BY YOUR HOME, MAY NOT EXCEED 80 PERCENT OF THE FAIR MARKET VALUE OF YOUR HOME ON THE DATE THE LINE OF CREDIT IS ESTABLISHED; 8

(6) IF THE PRINCIPAL BALANCE UNDER THE LINE OF CREDIT AT ANY TIME EXCEEDS 50 PERCENT OF THE FAIR MARKET VALUE OF YOUR HOME, AS DETERMINED ON THE DATE THE LINE OF CREDIT IS ESTABLISHED, YOU MAY NOT CONTINUE TO REQUEST ADVANCES UNDER THE LINE OF CREDIT UNTIL THE BALANCE IS LESS THAN 50 PERCENT OF THE FAIR MARKET VALUE; AND (7) THE LENDER MAY NOT UNILATERALLY AMEND THE TERMS OF THE LINE OF CREDIT. THIS NOTICE IS ONLY A SUMMARY OF YOUR RIGHTS UNDER THE TEXAS CONSTITUTION. YOUR RIGHTS ARE GOVERNED BY SECTION 50, ARTICLE XVI, OF THE TEXAS CONSTITUTION, AND NOT BY THIS NOTICE. 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. (g) 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. (h) 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: (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. (i) 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. 9

(j) 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; (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 received counseling regarding the advisability and availability of reverse mortgages and other financial alternatives; 10

(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. (k) 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. (l) 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 mortgage loan agreement. (m) 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. 11

(n) 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 borrower s home and not proceeds from a loan. (o) 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) an initial advance at any time and future advances at regular intervals; (2) an initial advance at any time and future advances at regular intervals in which the amounts advanced may be reduced, for one or more advances, at the request of the borrower; (3) an initial advance at any time and future advances at times and in amounts requested by the borrower until the credit limit established by the loan documents is reached; (4) an initial advance at any time, future advances at times and in amounts requested by the borrower until the credit limit established by the loan documents is reached, and subsequent advances at times and in amounts requested by the borrower according to the terms established by the loan documents to the extent that the outstanding balance is repaid; or (5) 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. (p) 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. 12

(q) 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. (r) 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. (s) A home equity line of credit is a form of an open-end account that may be debited from time to time, under which credit may be extended from time to time and under which: (1) the owner requests advances, repays money, and reborrows money; (2) any single debit or advance is not less than $4,000; (3) the owner does not use a credit card, debit card, or similar device, or preprinted check unsolicited by the borrower to obtain an advance; (4) any fees described by Subsection (a)(6)(e) of this section are charged and collected only at the time the extension of credit is established and no fee is charged or collected in connection with any debit or advance; (5) the maximum principal amount that may be extended under the account, when added to the aggregate total of the outstanding principal balances of all indebtedness secured by the homestead on the date the extension of credit is established, does not exceed an amount described under Subsection (a)(6)(b) of this section; (6) no additional debits or advances are made if the total principal amount outstanding exceeds an amount equal to 50 percent of the fair market value of the homestead as determined on the date the account is established; (7) the lender or holder may not unilaterally amend the extension of credit; and (8) repayment is to be made in regular periodic installments, not more often than every 14 days and not less often than monthly, beginning not later than 2 months from the date the extension of credit is established, and: (A) during the period during which the owner may request advances, each installment equals or exceeds the amount of accrued interest; and (B) after the period during which the owner may request advances, installments are substantially equal. (t) The legislature may by statute delegate one or more state agencies the power to interpret Subsections (a)(5) (a)(7), (e) (p), and (t), of this section. An act or omission does not violate a provision included in those subsections if the act or omission conforms to an interpretation of the provision that is: (1) in effect at the time of the act or omission; and (2) made by a state agency to which the power of interpretation is delegated as provided by this subsection or by an appellate court of this state or the United States. 13

(u) A reverse mortgage must provide that: (1) the owner does not use a credit card, debit card, preprinted solicitation check, or similar device to obtain an advance; (2) after the time the extension of credit is established, no transaction fee is charged or collected solely in connection with any debit or advance; and (3) the lender or holder may not unilaterally amend the extension of credit. Amended Nov. 6, 1973; Nov. 7, 1995; Nov. 4, 1997, eff. Jan. 1, 1998; Nov. 2, 1999; Nov. 6, 2001; Sept. 13, 2003; Nov. 8, 2005; Nov. 6, 2007. 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) an 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 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. 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 Section 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 14

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. There is no set procedure or 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 denied). Fixtures Textbook page 3 Texas uses all of the tests referred to in the Textbook in order to determine whether an article of personal property has been so affixed to real property as to become real property. The courts give priority to the parties intention. Logan v. Mullis, 686 S.W.2d 605 (Tex. 1985). Physical Elements of Real Property Water Rights Textbook page 5 Texas acquired water law from both Spain/Mexico (to the extent that the title to land was derived from Spain or Mexico) and from England (to the extent title was derived from the Republic of Texas (after 1840) or from the State of Texas). 15

Consequently, Texas used both of the areas of water law referred to in the Text, riparian rights and appropriation. However, in 1967, Texas adopted the Water Rights Adjudication Act. Texas Water Code 11.301 et seq. This act grants authority to regulate the taking of water to the Texas Natural Resources Conservation Commission, the Texas Water Development Board, and a myriad of water districts. Barshop v. Medina County Underground Water Conservation District, 925 S.W.2d 618 (Tex. 1985) held that the Edwards Aquifer Authority could constitutionally regulate the taking of water from the Edwards Aquifer and that such regulation did not constitute a taking requiring condemnation and compensation under Article 1, 17 of the Texas Constitution. Inheritance and Devise Textbook page 8 The Texas statutes relating to inheritance or intestate (without a will) succession are Texas Probate Code 38 (as to separate property and unmarried decedents) and 45 (as to community property). Adverse Possession Textbook page 9 The statutes of limitations as to a suit to recover title to land are: 1) Texas Property Code 16.024 provides a 3-year statute of limitations as to a person in peaceable and adverse possession under title or color of title; and 2) Texas Property Code 16.025 provides a 5-year statute as to a person in peaceable and adverse possession who cultivates, enjoys, or uses the property, has paid taxes assessed against the property, and who claims under a duly registered (and not forged) deed; and 3) Texas Property Code 16.026 provides a 10-year statute as against a person in peaceable and adverse possession. However, the statute limits the property to 160 acres unless a larger amount is actually enclosed (by a fence) or there is a duly registered deed or other memorandum of title that fixes the boundaries; and 4) Texas Property Code 16.027, 16.028 provide for a 25-year period as to a person under legal disability against a person in peaceable and adverse possession who cultivates, enjoys, or possesses the property or one who claims under a duly registered deed, even though the deed is void. Trespass to Try Title Textbook page 10 A Trespass to Try Title action is the method of determining title or ownership of land in Texas. Texas Property Code 22.001. 16

CHAPTER 2 CONCURRENT OWNERSHIP Joint Tenancy with Right of Survivorship Textbook page 21 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. When the predecessor to 46 was first passed, it was entitled Joint Tenancy Abolished and it did just that. However, in 1961, the Legislature amended 46 to allow the creation of a joint tenancy if the joint tenants agreed to the creation in a written document. Shortly afterward, 46 was declared to be in violation of Article 16 5 of the Texas Constitution insofar as it allowed spouses to create joint tenancies in their community property. Williams v. McKnight, 402 S.W.2d 505 (Tex. 1966). However, Article 16 5 has been amended to allow spouses to partition community property by written agreement so that the property set aside by the agreement to each spouse becomes that spouse s separate property. Once property has been partitioned, the spouses can put the property back together and enter into a joint tenancy agreement under 46, bypassing the decision in the Williams v. McKnight case because they created the joint tenancy out of their separate property. This became known as the Texas Two-Step and is evidenced by the signature cards used for joint accounts in most Texas banks. On one side is a partition agreement and on the other is a joint tenancy agreement. If the depositors are spouses, they are urged to sign the partition agreement before signing the joint tenancy agreement. Tenancy by the Entirety Textbook page 25 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. Community Property Textbook page 25 In addition to the amendments allowing partition of community property, Article 16 5 of the Texas Constitution was further amended to authorize premarital and postnuptial agreements between spouses as to existing and/or future acquired property so that it becomes separate property. This, in effect, allows spouses or spouses-to-be to completely eliminate community property. 17

Dower and Curtesy Textbook page 27 Texas does not recognize dower or curtesy. Elective Share Textbook page 27 A widow does not have an elective share in Texas. A spouse may disinherit the other spouse through a will just as parents may disinherit children. Other Legal Entities Textbook pages 35 Texas also recognizes professional corporations, professional associations, professional limited liability companies, limited liability partnerships, and limited liability limited partnerships. 18

CHAPTER 3 SURVEYS AND LAND DESCRIPTIONS LAND DESCRIPTIONS Textbook page 46 In Texas, real property is usually 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. However, in several areas of Texas, large, generally agricultural use, properties have been subdivided into sections as used in the Rectangular Survey System. 19

CHAPTER 4 PUBLIC REGULATION AND PRIVATE ENCUMBRANCES POWER OF EMINENT DOMAIN Textbook page 85 The court procedure by which the state or a local government exercises its power of eminent domain is referred to as condemnation. Tex. Property Code 21.001 et seq. Taxation Textbook page 86 Taxes assessed against real property in Texas are referred to as ad valorem taxes. Mechanic s and Materialmen s Liens Textbook page 87 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), contains a 3-day right of cancellation, is signed by the owner (if the owner is married, both spouses must sign), is signed only at the office of a third party lender, an attorney-at-law, or a title company, 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. Property Code 53.254. 20

CHAPTER 5 EASEMENTS AND LICENSES Creation of Easements Textbook page 102 In Texas, easements may also be created by reservation. For example, the owner of a large tract of land may sell the front portion on a busy street to a developer. However, because the owner will still own the rear portion and must be able to get from it to the street, the owner could create an easement and reserve it to said owner in the deed to the purchaser. 21

CHAPTER 6 CONTRACTS Real Estate Broker Textbook page 130 There are two categories of Real Estate Sales Licenses in Texas, Real Estate Brokers and Real Estate Sales Persons. Persons applying for both categories must meet certain levels of education (depending on the license applied for) and must pass a test administered by the Texas Real Estate Commission (TREC) in order to be licensed by TREC. However, a Real Estate Sales Person can only possess an active license if sponsored by and working under a TREC licensed broker. Services Provided by a Real Estate Broker Textbook page 132 Real Estate Brokers and Sales Persons, licensed by TREC, may prepare real estate sales contracts provided that they use the contract forms prepared by the Texas Real Estate Broker-Lawyer Committee and make no substantive change to the form. 1101.155. Rules Relating to Contract Forms (a) The commission may adopt rules in the public s best interest that require license holders to use contract forms prepared by the Texas Real Estate Broker-Lawyer Committee and adopted by the commission. (b) The commission may not prohibit a license holder from using for the sale, exchange, option, or lease of an interest in real property a contract form that is: (1) prepared by the property owner; or (2) prepared by an attorney and required by the property owner. 22

CHAPTER 7 PREPARATION AND REVIEW OF A REAL ESTATE CONTRACT THE AGREEMENT Textbook page 146 It is likely that a real estate broker or sales person will prepare the earnest money contract on standard, preprinted forms published by the Texas Real Estate Commission. As we have already seen, brokers and sales person are required to use the contract if said broker or agent prepares the contract. However, many lawyers, particularly those who deal in residential transactions, use the forms when preparing contracts for clients and they are the forms in commonly used legal document assembly software. 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. Property Code 5.008. Other disclosures also are provided such as water district disclosures, certain pipeline and rollback taxes disclosures, informational disclosures concerning EPA rules covering lead-based paint, possible annexation, and membership in property owner s associations. EXECUTION Textbook page 164 Nonhomestead Community Property Issues in Texas Can an interest in nonhomestead 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). 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 23

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 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: 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. 24

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 for $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 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 25

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 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.). Copyright 2008 Delmar Learning. All Rights Reserved. 38 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. 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 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 26

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. 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 98 th Judicial District Court, Travis County, Jon Wisser, J., entered judgment ordering husband s executrix to convey a onehalf 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-incommon 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 community 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 1 After 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. 27

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. 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 nonhomestead 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 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. Copyright 2008 Delmar Learning. All Rights Reserved. 42 28

In Vallone, v. Miller, supra, the plaintiff sought specific performance of a contract to purchase nonhomestead 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 nonhomestead 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 nonhomestead 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 nonhomestead 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 Williams. (This is the end of the case.) 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. 29

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 5.101 5.107), a Texas homestead may neither be sold nor encumbered without the joinder of both spouses. (Tex. Fam. Code. 5.001). 5.001. Sale, Conveyance, or Encumbrance of Homestead Whether the homestead is the separate property of either spouse or community property, neither spouse may sell, convey, or encumber the homestead without the joinder of the other spouse except as provided in this chapter or by other rules of law. A spouse may acquire homestead in the other spouse s separate property. If so and the other spouse dies, the surviving spouse has the right to continue to occupy the property as homestead even though the deceased spouse s ownership passes to third parties through a will or inheritance. Thompson v. Thompson, 149 Tex 632, 236 S.W.2d 779 (1951); Hunter v. Clark, 687 S.W.2d 811 (Tex. App.-San Antonio 1985, no writ.); Tex. Const. Art. XVI, 52. 52. Descent and distribution of homestead; restrictions on partition Section 52. On the death of the husband or wife, or both, the homestead shall descend and vest in like manner as other real property of the deceased, and shall be governed by the same laws of descent and distribution, but it shall not be partitioned among the heirs of the deceased during the lifetime of the surviving husband or wife, or so long as the survivor may elect to use or occupy the same as a homestead, or so long as the guardian of the minor children of the deceased may be permitted, under the order of the proper court having the jurisdiction, to use and occupy the same. 30

CHAPTER 8 DEEDS BASIC REQUIREMENTS OF A VALID DEED Textbook page 224 Witnesses of Deeds Texas law does not require a deed to be witnessed, acknowledged, or sworn to in order be valid, but a deed must be acknowledged or sworn to in order to be recorded in the real property records. See Texas Property Code 12.001 below. 12.001. Instruments Concerning Property (a) An instrument concerning real or personal property may be recorded if it has been acknowledged, sworn to with a proper jurat, or proved according to law. (b) An instrument conveying real property may not be recorded unless it is signed and acknowledged or sworn to by the grantor in the presence of two or more credible subscribing witnesses or acknowledged or sworn to before and certified by an officer authorized to take acknowledgements or oaths, as applicable. The language in subsection (b) is confusing to some who are unfamiliar with what the terms acknowledged and sworn to mean. Notice that there are two choices in (b), either signed and acknowledged or sworn to in the presence of witnesses or acknowledged or sworn to before an authorized officer. Now see Tex. Civ. Prac. & Rem. 121.003, which says that only certain officers (for real estate purposes, usually a notary public) may accept acknowledgements. Other provisions of the Civil Practices & Remedies Code make it clear that the same thing is true as to administering oaths and someone cannot swear unless first sworn. The point is that there must be a notary public present as to both choices. Why have the witnesses in the first place? If there is a notary present, just use the second choice. In fact, 121.009 requires that at least one of the witnesses must be sworn or acknowledged. So although the use of witnesses is authorized, the procedure is so cumbersome that none use it, except when a grantor is signing by mark, which is discussed in the next section. General Warranty Deed Texas Textbook page 245 The Texas Warranty Deed contained in the textbook is a commercially printed form, which is no longer in general use. Why it contained spaces for witnesses, no one knows but the spaces were universally ignored except when a grantor could not write his or her name and was signing by mark. In that case, the deed would be altered to read, 31

Witnesses to His (her) Mark at Request of Grantor. Of course, as previously discussed, the witnesses would have to be acknowledged or sworn before a notary public or other authorized officer. Now, virtually everyone uses the so-called State Bar of Texas forms for deeds and other real estate instruments. The major exceptions are lending institutions and in larger commercial transactions. These forms are available from the State bar of Texas as paper forms or in digital format. They are also available on some legal document assembly software, such as Prodoc. Quitclaim Deed Georgia Textbook page 251 It is important in Texas that quitclaims NOT use either of the words grant or convey, as use of either implies the warranties provided in Tex. Prop. Code 5.023. It then, in effect, becomes a special warranty deed. Hence the deed, instead of providing Remise (in Texas, usually Sell ), Convey and Quitclaim, it should say Remise, Release and Quitclaim. 32

CHAPTER 9 FINANCING SOURCES IN REAL ESTATE TRANSACTIONS Savings and Loan Associations Textbook page 258 There are almost no Savings and Loan Associations or Federal Savings Banks in Texas. 33

CHAPTER 10 LEGAL ASPECTS OF REAL ESTATE FINANCE USURY Textbook page 290 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 Texas Finance Code 302.103. In the situations in which the federal preemption provided for in 303.103 does not apply, Texas Finance Code 302.001 allows a prepayment penalty, not to exceed 5 percent of the late payment or $7.50, whichever is greater. It also provides for a grace period of at least 10 days and that the provision is only applicable if the overall interest rate is no more than ten per cent. 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 if required by an agency created by federal law. Texas Finance Code 302.102. MORTGAGES, DEEDS OF TRUST, AND SECURITY DEEDS Textbook page 294 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 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. Comm n App. 1941, opinion adopted); In re Waldron, 65 BR 169 (Bankr. N.D.Tex. 1986). The purchaser s 34

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 5.063. Subchapter D of Chapter 5, Title 2, Texas Property Code ( 5.061 5.085) regulate sales under an executory contract for conveyance (referred to by most as a contract for deed.) Among other things, sections in Subchapter D impose the duty to make certain provisions, disclosures, and warranties in the contract for deed, provides for a 14-day right of cancellation, obligation to translate the contract into a foreign language (if any part of the negotiations was in a foreign language), requires seller to provide buyer with a tax certificate from all taxing units, and mandates that the seller record the contract. Amendments, which became effective September 1, 2005, require an annual accounting by the seller, require the seller to deliver a deed within 30 days of final payment and provide for a penalty of $250 a day for the first 90 days and $500 a day thereafter, gives a buyer the right to convert the contract for deed to recorded, legal title by tendering to the seller a promissory note (containing the same terms as the contract) and an executed deed of trust, and some additional requirements. EFFECT OF A VALID FORECLOSURE SALE Textbook page 303 Section 51.002 of the Texas Property Code provides the procedures, which must be strictly followed, for nonjudicial 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. A 2005 amendment allows the County Commissioners to designate a site other than the courthouse. 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. As to January 1, 2005, the debtor is required to advise the mortgage-servicing agency of debtor s current address. 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 lienholders 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. Effective September 1, 2009, the trustee (who conducts the foreclosure sale) has discretion to agree to a reasonable time for the purchaser to pay the purchase price from the foreclosure sale. Prior to this change in the statute, the purchase price was payable immediately on acceptance of the bid by the trustee. However, the amended statute 35

now provides that the purchase price is due and payable on acceptance of the bid or within such reasonable time as may be agreed upon by the purchaser and the trustee Tex. Prop. Code 51.0075(f). If the proceeds of the sale from the auction are not enough to satisfy the debt, the lender has 2 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 nonjudicial 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 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 4 years if the borrower failed to disclose some lien or other encumbrance on the property. 36

CHAPTER 11 MORTGAGE FORMS AND PROVISIONS RESIDENTIAL MORTGAGE PROVISIONS Textbook page 335 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 prepayment 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. NONUNIFORM COVENANTS Textbook page 354 A waiver of homestead by persons who have already acquired a right of homestead in the property is probably ineffective (and void) in Texas. Lincoln v. Bennett, 138 Tex 56, 156 S.W.2d 504 (1941). 37

CHAPTER 12 TITLE EXAMINATIONS The Appendix to Title 2 of the Texas Property Code contains the Texas Title Examination Standards, which were adopted by the Real Estate, Probate and Trust Section and the Oil, Gas and Energy Section of the State Bar of Texas. RECORDING STATUTES Textbook page 383 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 the 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; (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 or sworn to with a proper jurat. However, common practice is to use acknowledgements rather than jurats in real estate document and only to use jurats on affidavits relating to real estate. (Section 12.001). 38

An instrument is acknowledged in Texas if it is signed before an officer authorized to administer oaths (a notary public as to real estate documents) and the signer 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 (Unless an electronic transaction). A statutory form of acknowledgement is provided in Section 121.007 of Texas Civil Practice and Remedies Code (see below.) In 1997, Section 121.005 required the inclusion of a statement of the means used by the acknowledging officer to identify the party signing the instrument. In 1985, Section 121.008 (see below) was added. It provided for a short form acknowledgement, which could be used in place of the acknowledgement provided in Section 121.007. For some reason, the legislature provided that the short form did not have to comply with the 1997 provision requiring the statement relating to the identity of the person signing the instrument (Section 121.005.) The short form is probably used more frequently than the long form. The real estate forms published by the State Bar of Texas use the short form acknowledgement. Texas Property Code 15.001 provides for electronic documents, electronic signatures, and the recording of electronically transmitted documents. 121.007. Form for Ordinary Certificate of Acknowledgment The form of an ordinary certificate of acknowledgment must be substantially as follows: The State of, County of, Before me (here insert the name and character of the officer) on this day personally appeared, known to me (or proved to me on the oath of or through (description of identity card or other document)) to be the person whose name is subscribed to the foregoing instrument and acknowledged to me that he executed the same for the purposes and consideration therein expressed. (Seal) Given under my hand and seal of office this day of, A.D.,. 121.008. Short Forms for Certificates of Acknowledgment (a) The forms for certificates of acknowledgment provided by this section may be used as alternatives to other authorized forms. They may be referred to as statutory forms of acknowledgment. (b) Short forms for certificates of acknowledgment include: (1) For a natural person acting in his own right: State of Texas County of This instrument was acknowledged before me on (date) by (name or names of person or persons acknowledging). 39

(Signature of officer) (Title of officer) My commission expires: (2) For a natural person as principal acting by attorney-in-fact: State of Texas County of This instrument was acknowledged before me on (date) by (name of attorney-infact) as attorney-in-fact on behalf of (name of principal). (Signature of officer) (Title of officer) My commission expires: (3) For a partnership acting by one or more partners: State of Texas County of This instrument was acknowledged before me on (date) by (name of acknowledging partner or partners), partner(s) on behalf of (name of partnership), a partnership. (Signature of officer) (Title of officer) My commission expires: (4) For a corporation: State of Texas County of This instrument was acknowledged before me on (date) by (name of officer), (title of officer) of (name of corporation acknowledging) a (state of incorporation) corporation, on behalf of said corporation. (Signature of officer) (Title of officer) My commission expires: (5) For a public officer, trustee, executor, administrator, guardian, or other representative: State of Texas County of This instrument was acknowledged before me on (date) by (name of representative) as (title of representative) of (name of entity or person represented). (Signature of officer) (Title of officer) My commission expires: 40

In 2005, the Texas legislature enacted Chapter 15 of the Texas Property Code, referred to as the Uniform Real Property Electronic Recording Act. It provides that electronic documents and signatures may suffice where original documents and signatures are required. Specifically, Section 15.004 provides as follows: Section 15.004. VALIDITY OF ELECTRONIC DOCUMENTS (a) If a law requires, as a condition for recording, that a document be an original, be on paper or another tangible medium, or be in writing, the requirement is satisfied by an electronic document that complies with the requirements of this chapter. (b) If a law requires, as a condition for recording, that a document be signed, the requirement is satisfied by an electronic signature. (c) A requirement that a document or a signature associated with a document be notarized, acknowledged, verified, witnessed, or made under oath is satisfied if the electronic signature of the person authorized to perform that act, and all other information required to be included, is attached to or logically associated with the document or signature. A physical or electronic image of a stamp, impression, or seal need not accompany an electronic signature. JUDGMENT LIENS Textbook page 399 Texas Property Code 52.001 et seq. provides for the preparation and recording of Abstracts of Judgment. The clerk of the court that rendered the judgment usually prepares the abstract. When an abstract is filed in the real estate records of a county, it becomes a lien on all real estate owned by the judgment debtor in the county of recordation. 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.) 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). 41

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 1 year following the bankruptcy discharge. 42

CHAPTER 13 TITLE INSURANCE Title Insurance is regulated by the Texas Department of Insurance. Texas Insurance Code Section 2703.002 provides that a title insurance company or agent may not use a form other than one prescribed or adopted by the Commissioner of Insurance. Consequently, the policies issued in Texas deviate to a certain extent from the ALTA policies referred to in the textbook. Insuring Provisions of an ALTA Owner s Policy Textbook page 410 A Texas Policy of Owner s Insurance does not insure marketable title, rather it insures good and indefeasible title. In fact, a title insurer is specifically prohibited from ensuring marketable title. Texas Insurance Code 2502.202. 43

CHAPTER 14 REAL ESTATE CLOSINGS There is no Texas-specific law dealing with this chapter. 44

CHAPTER 15 GOVERNMENT REGULATION OF REAL ESTATE CLOSINGS MORTGAGE FRAUD Textbook page 575 As mandated by the Federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008, Texas passed the Texas Secure and Fair Enforcement for Mortgage Licensing Act of 2009. The new law, among other things, imposes education and licensing requirements for residential mortgage loan originators. 45

CHAPTER 16 REAL ESTATE CLOSING FORMS AND EXAMPLES There is no Texas-specific law dealing with this chapter. 46

CHAPTER 17 CONDOMINIUMS AND COOPERATIVES CONDOMINIUMS Textbook page 654 Title 7 of the Texas Property Code contains the statutory law applicable to condominiums. Chapter 81 of Title 7 applies to condominiums created prior to the adoption in Texas of the Uniform Condominium Act and Chapter 82 is the Uniform Condominium Act, which became effective on January 1, 1994. Time-shares Textbook page 661 Sections 221.001 221.077, known as the Texas Timesharing Act, apply to timesharing arrangements in condominiums, cooperatives, and so on. 47

CHAPTER 18 LEASES Landlord s Remedies for Tenant s Default Textbook page 701 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 3 days written notice to the tenant to vacate, unless the lease agreement provides otherwise. The tenant must appear within 10 days of service of citation, but the tenant can postpone trial for up to 6 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 5 days from date of judgment. The county sheriff executes the writ. The tenant can appeal to the county court at law for a trial de novo (whole new proceeding) if the appeal is filed within 5 days of judgment. Other provisions relating to the commercial landlord s remedies, responsibilities, and restrictions as to action such as locking the tenant out of the leased premises or cutting of the power to the leased premises are found in the Texas Property Code 93.001 93.012. Lease Guaranty Textbook page 710 Texas added Section 92.021 to the Texas Property Code, effective January 1, 2010. The new provision limits a guarantor s liability to the original term of the lease unless the guarantor has also agreed to guarantee a renewal term of the lease, as provided more specifically in the statute: Section 92.021. LIABILITY OF CERTAIN GUARANTORS UNDER LEASE. (a) A person other than a tenant who guarantees a lease is liable only for the original lease term except that a person may specify that the person agrees to guarantee a renewal of the lease as provided by Subsection (b). (b) A person may specify in writing in an original lease that the person will guarantee a renewal of the lease only if the original lease states: (1) the last date, as specified by the guarantor, on which the renewal of the lease will renew the obligation of the guarantor; 48

(2) that the guarantor is liable under a renewal of the lease that occurs on or before that date; and (3) that the guarantor is liable under a renewal of the lease only if the renewal: (A) involves the same parties as the original lease; and (B) does not increase the guarantor s potential financial obligation for rent that existed under the original lease. (c) Subsection (b) does not prohibit a guarantor from voluntarily entering into an agreement at the time of the renewal of a lease, in a separate written document, to guarantee an increased amount of rent. (d) This section does not release a guarantor from the obligations of the guarantor under the terms of the original lease or a valid renewal for costs and damages owed to the lessor that arise after the date specified by the guarantor in the original lease in accordance with Subsection (b), if the costs or damages relate to actions of the tenant before that date or arise as a result of the tenant refusing to vacate the leased premises. Added by Acts 2009, 81st Leg., R.S., Ch. 601, Section 1, eff. January 1, 2010. 49