HOMESTEAD RULES

Wed, 05/15/2019 - 8:28am

I.  WHY DOES IT MATTER IF A PROPERTY IS HOMESTEAD IN A REAL ESTATE TRANSACTION?


The Texas Constitution makes a requirement that before someone’s homestead be sold or borrowed against the owner and their spouse must consent to the transaction.  A common misconception is that the spouse is required to sign because of the Texas community property rules.  It is important to understand that it is not community property rules that require a spouse to consent at closing unless the property was acquired while the spouses were married.  The proper explanation about why a spouse has to sign is because homestead protections provided for in the Texas Constitution require their signature.  The two concepts are often present in a closing, and sometimes overlap in the end result to require a spouse to sign for closing, but they are separate and distinct laws.
 
The Texas Constitution, Article XVI, Section 50(b) states the following: 
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.

II.  MARRIED PERSONS: WHY MUST THEY SIGN CLOSING DOCUMENTS?


In every sale transaction a title company is required to determine if the seller of the property is married.  If they are married, their spouse is typically required to sign a document at closing and the document changes depending on the classification of the property as homestead or investment.  There are a couple of different signature options that can be used:

a.  Homestead Property Was Acquired Before Marriage: 

When a spouse owns a piece of property before they get married that property is separate property.  Absent a written agreement, their subsequent marriage does not change the property’s classification to community property but if they live in the property it is their homestead.  As discussed above, when it is their homestead the Constitution requires the spouse to consent to the sale when the property is sold.  Their consent is documented by signing the warranty deed at closing.  When the spouse signs the warranty deed, they may do so as “pro forma” to evidence their consent to the transaction only.  When they sign this way, they are not necessarily asserting any ownership in the property but they are merely evidencing their required consent under the Constitution.  This prohibits them from later arguing that they did not consent to the sale of their homestead.  

b.  Homestead Property Was Acquired During the Marriage: 

When property is acquired in Texas by married couples the presumption is that the property is acquired as community property. This is where the community property and homestead laws can overlap.  If the couple acquired as community property, they are joint owners and both must sign at closing.  If they occupy the property then they also have to both sign because it is their homestead.  

Some owners will offer their prenuptial agreement for justification for why their spouse is not required to sign.  While a prenuptial agreement may alter the classification of the property from community property to separate property for one spouse, it does not satisfy the homestead requirements.  That means even in cases where a title company is provided with a prenuptial agreement the spouse is still required to sign to consent to the sale of their homestead. 

c.  Investment Property Acquired by one spouse only:

In a sale of non-homestead property a title company may be able to close without the spouse signing the warranty deed as long as the spouse will sign a Non-Homestead affidavit and they own other property that can be claimed as a homestead.  Presuming there are no 
facts that contradict the property being a non-homestead property, this affidavit is used instead of having the spouse sign the deed to obtain the sworn statement that the spouse is not occupying the property.  This removes the concern of needing to comply with the Constitution.
 
The scenarios discussed above are the most common issues addressed with homestead. Different facts can affect the requirements for closing so always check with your trusted escrow team on what will be required for any specific file.