Protect Yourself from Listing Fraud

Listing fraud and seller impersonation has become
a very serious threat in the real estate community. 

 
Agents are getting deceived into taking listings from fraudsters and in some cases even going all the way under contract or closing!  The instances of fraud continues to rise and rise. 

Join us on February 8th to attend our fraud avoidance class taught by Latra Szal, President of Texas National Title.  In this class we will discuss various types of fraud that we are seeing and the steps agents can try to take to avoid accidentally participating in a fraud.  You will also learn how this recent fraud can affect your real estate closings. 


Wednesday, February 8
10:00-11:00am | Zoom Video

Our closing teams at Texas National Title are the experts that you need and the partners that you can trust in all things escrow and title! Please join us for the Zoom and do not hesitate to contact us with any questions that you have.

MUD, PUD, or PID?

What is the difference and what should a realtor know?

When a property is located in a PUD, MUD or PID there are disclosures that are required of the transaction and failure to obtain that disclosure can result in termination of the contract or even a monetary penalty.

MUD: Municipal Utility District
A MUD is a district created under the Texas Water Code or by an act of the legislature to provide certain utilities such as water, sanitary sewer, drainage and flood control, and any of these services or facilities have been financed with bonds that are payable by the persons who live in the district.

Chapter 49 of the Texas Water Code requires a person selling a property that is in a MUD to give notice to the buyer of those potential fees for owning this property. This same law states that the notice must be given to the buyer prior to the buyer entering into the contract OR as an addendum to the contract at the time the contract is negotiated. If the notice is not timely provided, the buyer can terminate the contract at any time.

MUDs are often collected through a homeowner’s property tax bill.

PUD: Public Utility District
A PUD is created by the community and generally operates under a board, similar to how a homeowner’s association works. This PUD is created for the sole purpose of providing electricity, water, sewer and telecommunications to a subdivision.

PID: Public Improvement District
A PID is similar to a MUD in that it can be used for subdivision infrastructure items, but it can also be used for additional items like landscaping, parks, sidewalks, roadways and public safety items. These districts are provided for in Chapter 372 and 382 of the Local Government Code.

Where a PID differs from a MUD is that the PID is not a political entity. A PID is funded through bonds
secured by liens against the property and once issued, the bonds are paid back by way of a special assessment. These assessments are typically levied for a set number of years.

Tips for Realtors
It is important to keep in mind that a disclosure for each of these matters is required to be signed before the contract is executed. The TREC contracts have been modified (effective now, mandatory for use 2/1/2023) to provide a space to list all disclosures previously provided:

Failure to have these provided prior to closing can result in a painful outcome, so real estate agents should always make sure the appropriate forms are getting filled out.

Not sure what form you need? Your closing team at Texas National Title can help you determine which forms are required.

Closings Involving a Trust

TRUSTS IN GENERAL: What are they?
Trusts in themselves are not legal entities which can own, manage or sell property.  A trust operates through one or more trustees, who usually are individuals but may be corporations.  It is these trustees who hold legal title to the property for the benefit of the beneficiaries of the trust. 

WHAT DOES A TITLE COMPANY NEED WHEN A PROPERTY IS HELD IN TRUST?
To be able to close, a title company needs to be able to review the client's Trust Agreement.  When we are reviewing we look for three main things:

  1. Who are the trustees?
  2. What powers have they been given under the Trust Agreement?
  3. What limitations, if any, were placed on those powers?

The biggest piece of the equation is getting a copy of the client's Trust Agreement, which can be a challenge as this document typically contains confidential information. 

IDENTIFYING THE TRUSTEES
The Trust Agreement will outline the parties to the agreement.  Typically we see the parties to be:
"Settlor or Grantor": The party that is creating the trust and transferring property into the trust.
"Trustee": The person responsible for management of the trust.
"Beneficiaries": The parties on whose behalf the trust has been created. 
These definitions can be all the same person or each definition can be a separate person.  

TRUSTEE POWERS
The Texas statutes generally provide that a trustee of a trust has the power to sell, buy, encumber, and lease the property.  The Trustee has a fiduciary duty to the trust beneficiaries in their management of the trust.  A Trust Agreement can limit or expand the power of the trustee for management of the trust which is why the Trust Agreement must be provided to the title company.  The Trust Agreement must be carefully reviewed to make sure that the power the trustee needs to complete the transaction is specifically given to the trustee.    

Occasionally the initial Trustee is now deceased or has declined to serve as Trustee. We then have to look for the Successor Trustees in the agreement.  Usually the Trust Agreement will provide for a successor trustee upon the death, disability or resignation of the original trustee.  It is important to verify that we are dealing with the current trustee of the trust and we look to the agreement for that information.  If the trust agreement does not provide for a successor, or if the named successor cannot so act, it may be necessary to seek court appointment of a successor. 
 
CLOSING SCENARIOS WITH TRUSTS TRUSTS AND POWER OF ATTORNEY DOCUMENTS
Historically a trustee was not permitted to delegate their fiduciary duty of operation of the trust to someone by way of a Power of Attorney.  A legislative change in the last few years altered that limitation and now use of a Power of Attorney may be possible under a trust.  The Trust Agreement must not exclude that power from the Trustee's fiduciary responsibilities though, so review of the Trust Agreement by the title company's underwriter is a must before a Power of Attorney can be considered.       

SELLER PROCEEDS
Many underwriters require that the proceeds from sale be distributed only to the named persons or entities that are in title.  That means if title is held as "John Doe, Trustee of The John Doe Trust" a title company should be depositing funds into a bank account that is styled "The John Doe Trust."  Many times sellers come to closing and instead want to deposit funds into an account owned by the individual.  This may be permitted under very limited circumstances but the title company needs to know if this is the intent of the parties well before closing.  If a seller comes to closing and then wants to disburse proceeds to an account that is not in the name of the trust there can be delays in funding the file.  If your seller does not have a bank account set up in the trust name please notify your closing team well before closing. 

BUYERS IN TRUST
When your buyer wants to take title in the name of a trust, the Trust Agreement must be reviewed if they are getting a loan to purchase.  It is also important that title is taken in the name of the trustee for the trust and not just the trust name alone. 

BUYERS THAT TAKE TITLE INDIVIDUALLY BUT LATER DEED TO THEIR TRUST
This second conveyance can negatively affect title policy coverage for the purchaser.  If you have a client that wants to later deed into a trust they should contact us before they file a deed.  There is an additional endorsement to their Owner's Title Policy that can be purchased to extend the coverage to the trust instead of just them individually.  

CLOSINGS WITH TRUSTS:  WHAT SHOULD A REALTOR DO?
As a realtor, it can be a big help to notify your clients when they list the property that the title company is going to request a copy of the trust agreement and it is necessary for the file.

It is also very helpful to notify the title company if your clients intend to purchase in the name of the trust so that we have advance warning and can work with them to properly structure the file.   

Our closing teams at Texas National Title are all well versed in the complexities associated with closing into or out of a trust. We are the experts that you need and the partners that you can trust in all things escrow and title! Please do not hesitate to contact us with any questions that you have.

Surveys: What is Important for a Realtor to Know

What is a Survey?
A real property survey is a report that indicates the location of improvements relative to the boundaries of a property. A real property survey report generally contains an illustration of the physical features of the property and a written report detailing the surveyor's opinions and concerns.

What are some reasons why we have to have a survey?
The first reason that a survey is needed for closing is because many of the TREC contracts require a survey.  Additionally, most lenders require one to approve the loan. 
 
As far as title needs are concerned, here are some ways that we use surveys: 

Who is responsible for providing the survey?
The short answer is: This is negotiable between buyer and seller.  In looking at the Texas Real Estate Commission's One to Four Family Residential Contract there are three main options.  The second and third options are pretty easy to understand as Option 2 has the buyer paying for a new survey and Option 3 has the seller paying for a new survey.
It is Option 1 that can create some confusion between the parties.  That paragraph reads as follows (emphasis added):

(1)Within ________ days after the Effective Date of this contract, Seller shall furnish to Buyer and Title Company Seller's existing survey of the Property and a Residential Real Property Affidavit promulgated by the Texas Department of Insurance (T-47 Affidavit). If Seller fails to furnish the existing survey or affidavit within the time prescribed, Buyer shall obtain a new survey at Seller's expense no later than 3 days prior to Closing Date. If the existing survey or affidavit is not acceptable to Title Company or Buyer's lender(s), Buyer shall obtain a new survey at Seller's Buyer's expense no later than 3 days prior to Closing Date.
 
Under this paragraph the seller is responsible to deliver their existing survey accompanied by the Residential Real Property Affidavit (T-47).  Failure to deliver either the survey or the T-47 in the prescribed amount of time means that the buyer now has the right to require that a new survey be ordered – at the seller's expense! A prudent real estate agent should make sure that their client can deliver both the survey and the T-47 in the stated timeline before they allow their sellers to choose this option. 

Additionally, the T-47 itself is often the subject of confusion among the parties. The purpose of the T-47 is for the seller to provide a sworn affidavit that accompanies the survey to provide information that is required by the Texas Department of Insurance which governs the issuance of title policies.  A title company relies on the statements made in the T-47 to determine if we are able to provide the coverage required by an owner and their lender. 

Since we are relying on this affidavit for policy issuance it is critical that a seller make sure they complete this question in full detail:



Notes made in this section will need to be reviewed by the escrow officer well before closing to make sure that the survey is acceptable for the transaction to be insured. 

Our closing teams at Texas National Title are very knowledgeable about reviewing and understanding surveys. We are happy to help review surveys before the property goes under contract and we are here to be your partners in navigating this topic.  We are the experts that you need and the partners that you can trust to get your deals closed!

Taxes and Closing Pitfalls

In previous Closer's Corner articles we have discussed taxes and how they can affect your transaction:
Property Tax Time

Property Taxes

This month we will specifically look at the Over 65 exemption and how it can affect a buyer or seller.

When looking at tax prorations we find that there is little to no guidance offered by the contract. The contract states:

Taxes for the current year, interest, maintenance fees, assessments, dues and rents will be prorated through the Closing Date. The tax proration may be calculated taking into consideration any change in exemptions that will affect the current year's taxes. If taxes for the current year vary from the amount prorated at closing, the parties shall adjust the prorations when tax statements for the current year are available. If taxes are not paid at or prior to closing, Buyer shall pay taxes for the current year. 

The contract does not offer instruction on how taxes should be prorated when there is an exemption that applies to the seller but does not also apply to the buyer. 

To further complicate the matter the entity that decides how to handle the tax exemptions is the county tax office and their methods can be quite difficult to understand. We often see the county remove an exemption that was on the property post closing which can mean (1) the buyer gets a larger tax bill for the year and (2) the prorations at closing may not balance to the taxes the county will be assessing for the year

Since the power to alter exemptions falls on the county and not the title company, it can be a real challenge to properly prorate taxes between buyer and seller for closing. For this reason the title company often has to seek guidance from the listing and selling agent as to how to prorate taxes for any given file.    

Over 65 Exemption
If a taxpayer is eligible for an Over 65 they can pay their taxes in installments without penalties instead of having to pay it all at one time.  The taxpayer may also “defer” or postpone tax payments, with the consent of their lender, by filing a “tax deferral affidavit.”  This only defers the tax liability and interest continues to accrue.  With a deferral, the taxes are due in total 181 days after the death of the owner that qualified for the exemption.  

These types of exemptions are transferable to another home. Note however, if the taxpayer claims another homestead during the year, the exemption is no longer allowed on the prior homestead for the remainder of the year and the taxing units will prorate the taxes based on the number of days elapsing after the taxpayer ceases to qualify to the end of the year.

Typically the seller carrying an Over 65 exemption also has very reduced taxes. 

Let's look at a sample scenario:
John has owned his property for five years and he carries an Over 65 exemption. His property is valued at $900,000 and his annual property taxes are $4,000 due to the exemption. Jane is buying the property and Jane does not qualify for the exemption. Without the exemption the property taxes would be $10,000. 

If the taxes are prorated with the exemption the daily proration amount would be $10.96.
If the taxes are prorated without the exemption the daily proration amount would be $27.40.
If closing were to occur at the end of the September the difference in the tax proration / credit to the buyer would be $2,992.08 compared to $7,480.20. 

Let’s assume that the exemption was not raised for discussion between the buyer and seller and instead the title company just prorated without considering the exemption at all.  In that scenario the buyer could receive the smaller credit from the seller but if the county removes the Over 65 exemption that same buyer could get a tax bill for closer to $10,000 for the whole year.  When this happens the buyer has the option to go back to the seller and seek reimbursement for the increased amount due from their ownership period.

WHAT IS THE BEST WAY TO AVOID THIS SURPRISE?
As a realtor you should be looking at the tax certificate to flag any files with potential exemption issues.  The best time to address a discrepancy is before closing so that the issue can be resolved with mutual consent between buyer and seller. If the issue is discussed and negotiated prior to closing then the parties are aware of the potential risks before closing and there can be no surprise later in the year for either side. 

Since the county controls this process the main focus should be making the clients knowledgeable about the changes that can happen so that they are appropriately prepared. 

From a closing standpoint the title company is able to prorate the taxes in any manner in which the parties jointly approve. Talk to us! While we cannot tell anyone what the county will (or will not do post closing) we can help explain the proration options. When we get to closing we will also have all parties sign a disclosure confirming that they understand the process that was used for closing.  

Our closing teams at Texas National Title are very knowledgeable about property taxes and prorations procedures. We are happy to help review the most up-to-date info before the property goes under contract and we are here to be your partners in navigating this topic.  We are the experts that you need and the partners that you can trust to get your deals closed!

Understanding the Funding Process

One of the most important times in a closing is when the transaction finally funds! That is the time when ownership transfers from the seller to the buyer and there is a lot that goes on behind the scenes to get funding accomplished.  

WHAT HAPPENS DURING THE FUNDING PROCESS? 
First, it is important to understand that working on funding only happens after all parties have signed.  As a real estate agent you want to try and schedule your closings for early in the day (ideally before lunch time) if you are trying to close and fund in the same day.  

After all parties sign the closing documents the title company then has to package up a portion of those executed documents and send them to the lender for review.  Our closing documents then go into a review queue for the lender and the lender is checking the following items: 

Every lender has a slightly different process for funding review and every lender also has a different timeline for their review which can make the funding process occur very quickly or can make it take quite a while.  

WHY DO I SOMETIMES HEAR FROM MY LENDER THAT WE ARE FUNDED BUT TITLE SAYS WE ARE NOT YET? 
For a lender the word “funded” often means that they’ve initiated their wire for the loan proceeds.  For the lender’s purposes their transaction is funded in their system.  From there though there are many more steps that have to happen before the whole file is actually funded.  

WHAT HAPPENS AFTER THE LENDER APPROVES FUNDING? 
Once the lender has issued funding approval the fun begins.  At this point the title company is looking for the loan funds to be wired into our account so that we have all funds necessary to disburse the transaction.  Some lenders will send their wire in advance and just have us hold it before we disburse but many lenders will not release their funding wire until they have reviewed all of the signed documents.  

Another thing that can delay funding is the buyer not sending their funds in timely.  Many buyers wait until they come to closing to wire their funds which means a title company’s ability to fund quickly is arbitrarily delayed.  

The title company has to wait until we have all funds from the parties (buyer, lender and sometimes even seller) before we can fund.  We also have to wait until we have approval from all parties to fund.  

Once all of the money is in and all approvals have been given we go to work on the funding process.  This means we are doing the following items: 

WHAT CAN CAUSE A DELAY IN FUNDING? 
There are several things that can cause a delay in funding.  The most common delays are: 

  1. Signers arrive late for closing (which pushes back the signing time, puts their file further back in the lender’s queue to review and potentially pushes them past a wire out cut off time); 
  2. Buyers not bringing their funds to closing in a cashier’s check (or send their wire prior to closing); 
  3. Buyers do not bring their ID with them to closing; 
  4. Lenders waiting to wire their loan funds until after they’ve reviewed the documents; 
  5. Lender documents containing errors that were caught in the funding review (which can require the buyer to come back in and resign the documents); 
  6. Closings that are scheduled late in the day; and 
  7. Issues with getting mail-out documents back on time for funding.    

Working with an efficient and focused title company is the key to success when it comes to funding!  Our escrow teams are experts in handling your transactions and we are here to help you get your deals closed (and funded) quickly!

Area and Boundary Coverage a/k/a Survey Deletion

What is it?
When putting an offer together, realtors have the option of checking a box in the contract that could end up being very important to a buyer down the line. Paragraph 6 (A) (8) gives the following options:

This paragraph in the contract controls whether or not a buyer will get Survey Deletion in their Owner’s Title Policy.  Survey Deletion (also known as “Area and Boundary Coverage’) is important coverage for a buyer.  To see why, let’s start with the understanding that all matters shown on Schedule B of the title commitment are exceptions – meaning things that will not be covered by the title policy.   In Schedule B (Item #2) of every title commitment the following exception is included:

“Any discrepancies, conflicts or shortages in area or boundary lines, and 
any encroachments, protrusions, or overlapping of improvements.”
 

That means that if any of the matters listed exist on the property at the time of closing the buyer does not have coverage for these matters in their title policy.  If a loss resulted from one of these items and the buyer needed to hire counsel to help them litigate the matter, the cost of the litigation and attorney’s fees would rest entirely on the buyer.  Some examples of things that would not be covered are:

An adjoining landowner with improvements encroaching on to your buyer’s property;
An adjoining landowner claiming your buyer’s improvements protrude into their property;
Surveyor errors in locating improvements or the boundary lines of a property;
Fences lines not following the actual boundary lines of the property; or
Improvements from your buyer’s property that sit into an easement or over a building restriction on the property. 

How can this coverage be added to the policy?
When the title company is presented with a survey, adding some coverage back into the title policy becomes an option.  Once we have reviewed a survey we are able to add back in (a/k/a “delete” portions of the exception) to put this coverage back into the title policy. That is why you can think of this as “survey deletion.”  We delete exceptions to coverage.  When we add survey deletion to the policy the exception above is amended to read as follows:

“Shortages in area.”

The result for the buyer is that coverage for discrepancies, conflicts in boundary lines, and any encroachments, protrusions, or overlapping of improvements is now included in the policy. 

What is required to issue this coverage?
In order to issue Area and Boundary Coverage we must be presented with a survey prior to closing.  If we are using an existing survey we also must receive a Residential Real Property Survey Affidavit (“T-47) that describes any improvements that have been made to the property. We must also collect the premium for Survey Deletion at closing.  On a residential policy the cost of Area and Boundary Coverage is 5% of the Owner’s Title Policy (15% for non-residential).  Let’s look at the math for a $500,000 sales price as an example.  The base premium for the Owner’s Title Policy, typically paid for by the seller, is $2,940.00.  In that transaction the buyer would pay $147.00 to add this coverage to their title policy.  That’s pretty minimal cost for some pretty important coverage for a buyer!     

A realtor putting together an offer should only mark “will not be amended” if they have had extensive conversation with their customer to be sure the customer understands what they are declining.    
Our closers at Texas National Title are always available to discuss Area and Boundary Coverage in more depth with your clients.  We are here to be your partner!  

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Title Policy Coverage

WHAT IS A TITLE POLICY? 
One of the single most expensive transactions someone may enter into in their personal lives is often the purchase of real estate. Because of the significant investment involved in a real estate transaction, purchasers and their lenders want to know their investment is safe when it comes to the title of the property or their lien priority. The buyers want to be sure that the correct seller is selling to them. The lenders want to be sure that there are no liens that have a superior interest to their interest. These are the matters that title insurance was designed to be used for. While title insurance does not guarantee that there are no adverse interests in the property, it is a contract of indemnity that can be issued in favor of an owner, lessee, lender or other holder of an estate, interest or lien on real estate. The policy agrees to protect the insured from actual loss because there was a superior interest in the property that was unknown at the time of closing.

WHAT IS A POLICY OF INDEMNITY? 
Indemnity means the title insurer agrees to insure against loss or damage related to the insured’s right in the property. If loss or damage occurs from a covered risk, compensation can be paid to the insured. This would include coverage against items such as other persons claiming an ownership interest in the property. It can also include defects or liens affecting the property that were otherwise not set out in the policy. Lender’s coverage insures the priority and validity of the lender’s lien against the property.  

HOW DO I KNOW WHAT MY TITLE POLICY WILL AND WILL NOT COVER? 
The title company produces a document called the Title Commitment early on in the transaction. A commitment for title insurance (“Title Commitment”) provides a buyer and lender with terms and conditions for how the final title policy will be issued. An in depth explanation of the title commitment can be found here: https://texasnationaltitle.com/article/understanding-title-commitment

Essentially the title commitment is a report for the buyer (and lender) that discloses how the property will be insured. This commitment is provided up front so that a buyer has the opportunity to review the commitment during their contractual due diligence period, typically referred to as the option period. All buyers should review this document in detail to be sure they understand (a) the coverage they are receiving and (b) what, if any, encumbrances affect their property.  
 
WHAT RECORDS ARE SEARCHED TO PRODUCE THE COMMITMENT? 
When a title company is preparing a title commitment only the official public real property records are searched.  The property is examined for deeds, liens, easements, building lines and similar restrictions. The names of the owners are searched in what is called a general name search to locate things like court cases, bankruptcies, divorces and judgments against the seller. Only the official public records are searched for a title commitment because that is the search needed to issue a title policy.  

WHAT ELSE COULD BE OUT THERE THAT WOULD AFFECT A PROPERTY? 
Lately we have been seeing an increasing trend in post-closing municipal issues. Municipal issues (such as open permits, zoning violations or whether or not the buyer will be able to obtain a permit on their property) fall outside of any type of search done by a title company. Since these items are expressly excluded from title policy coverage they are not searches that are performed by the title company. Researching municipal issues is a buyer due diligence responsibility and the contract provides for an option period in which the due diligence is to be performed. 

Let’s look at a sample scenario pattern to see how this plays out in real life: 
John is buying a property with the legal description of “The West 14 feet of Lot 11 and all of Lot 12.”  John buys from Sam who has owned this same property since 2013.  The parties close and a title policy is issued.  After closing John goes to the city to obtain a building permit on his property.  What John learns is that this was an illegal subdivision of the lot, meaning it was not done with city/county approval, and now the city is assessing a $5,000 fine for the illegal lot status.  The city also refuses to issue any building permits until the property is subdivided.  John’s idea of building an investment property to sell is completely halted by this issue.  

John is obviously upset by this and wants to file a claim under his title policy. This is a municipal issue and municipal issues are excluded from coverage in the title policy, meaning the issue is not covered. Who is John most likely going to go to next about this issue? It is not long before John calls his agent upset about this. 

How do agents protect themselves? To avoid this, an agent should always suggest to their clients that they perform the necessary searches and due diligence to check into municipal, city and county issues.  

The closing teams at Texas National Title are all well versed in the benefits of title insurance. Any time a client has questions about coverage they can be directed to your escrow officer at Texas National Title. We are the experts that you need and the partners that you can trust in all things escrow and title!

TITLE INSURANCE Q&A VIDEO BY TDI
For more details about Title Insurance, check out this “How does title insurance work?“ video by Texas Department of Insurance (TDI): 

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What a Realtor Should Know About Divorce and Title Insurance

If you’ve ever received a title commitment back from your title company showing a requirement related to a divorce for your client you’ve likely wondered why there are additional requirements being made on your Schedule C.  In order for a title company to rely on a client’s divorce decree the decree itself must contain some very important language. If the decree is incomplete a warranty deed from the ex-spouse can be required which often results in an unhappy experience for your clients.  The article below discusses a few scenarios that can create delays in getting to closing.

Title Insurance Requirements for Divorce
Before title to a property can be changed between divorced spouses, a title company must review the divorce decree.  In looking for a valid divorce decree the company will be looking for a final, non-appealable order admitting the decree to the divorce suit.  This decree must have been ordered by the judge at least 30 days prior to closing so that the time for either spouse to file an appeal has passed.  A decree is not “final” (meaning we cannot rely on it) until we have passed the 30 day mark.

Divorce And Actual Transfer of Title
In order for a divorce decree to actually transfer title between the spouses the decree must include language that specifically grants the property to one spouse and divests the other spouse of any and all interest in the property.  Additionally, the divorce decree must contain the legal description of the property.  Citing just the physical address of the property is insufficient to transfer title between the spouses.  The legal description is required because the real property records are indexed under the legal description.  When a decree lacking the legal description is recorded in the county it is not effective to give notice of the title transfer.  If the transfer of the property is not properly recorded as notice in the real property records, the divested spouse’s interest remains exposed to creditors as well.    

For demonstration purposes let’s look at the following clauses that are common in a divorce decree.  The language typically starts out with something similar to “It is ordered and decreed that the husband, John Doe, is awarded the following as his sole and separate property, and the wife, Jane Doe, is divested of all right, title, interest, and claim in and to…

So far, so good! The decree divests Jane of any interest that she has. The decree also awards John the property.  Assuming that we are 30 days past the order we are looking pretty good for closing.  Now let’s look at how the decree might describe the property that is now under contract and ready for sale.

“It is ordered and decreed that the husband, John Doe, is awarded the following as his sole and separate property, and the wife, Jane Doe, is divested of all right, title, interest, and claim in and to….
“The homestead property.”
“123 Main Street, Austin, Texas.” 
“123 Main Street, Austin, Texas, also known as Lot 1, Block A, Circle C West, Section 1, as recorded under Volume 3, Page 45, of the Travis County Official Public Records.”

By themselves, the descriptions shown under options A and B are insufficient to transfer title and put the required creditor notice in the public records.  Neither A nor B describes the property with enough specificity that the required public record notice is made.  A decree with either description shown in A or B above will require further action from the ex-spouse before your client is able to sell the property, most commonly in the form of a warranty deed.  

Lien Imposed Against Property by Decree
Any divorce decree between property owners must also be reviewed for lien language.  If the decree imposes a lien against the property in favor of one ex-spouse, that lien must be satisfied at closing or the ex-spouse must sign a release of lien.  If a title company is paying the lien through the closing the ex-spouse will be required to sign a Release of Lien before funds will be released to them.     

Lien on the Property Against One Spouse Before the Divorce
Another surprise that can happen for sellers and their agents involves judgments that were rendered against the spouse whose interest has been divested in the decree.  Many spouses are surprised to learn that when they were awarded the property through the decree they actually took that interest subject to the lien against their ex-spouse, meaning the lien still applies to the property.  The judgment (commonly an Abstract of Judgment, IRS lien, child support lien, etc.) attaches to an owner’s interest at the time the lien is filed.  If this occurs during the marriage, the lien applies to the property.  When the decree grants all of the interest to the other spouse, they take that interest subject to the lien and the lien encumbers the property unless the remaining owner is able to get a Partial Release of Lien on the property. Without the Partial Release of Lien, we must pay off the lien at closing or find another legal remedy to remove the lien.  

Seller With a Pending Divorce
If your sellers are under contract and have a divorce pending, they must both sign at closing unless the divorce is final before closing (remember, that means 30 days after the final decree is ordered).  If they finalize the divorce before closing, it is very important that the decree contain all required language and a good legal description.  Without a final, non-appealable, decree containing all necessary items the proceeds checks will be payable to both spouses, unless otherwise instructed in writing by both spouses and possibly their counsel.   

Purchasers With a Pending Divorce
If someone buys a piece of property during their marriage, the property is presumed to be community property.  If they are asking legal questions about how to take title, they should be referred to their divorce attorney so that a realtor is not providing legal advice to their client.  This can be very sticky and an agent should not offer advice on this piece.      

Most of the conversations regarding divorce and title issues will happen between the title company and the seller of the property. It is important for a realtor to understand why certain requirements are being made so that they can help the client feel comfortable with the transaction. Our closers at Texas National Title are all very well versed in dealing with divorce issues on transactions and are always here to help you navigate these sticky situations. 
 

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Homeowners’ Associations: How Can They Affect a Transaction?

What is an HOA?
A homeowner’s association (HOA) is an organization in a subdivision, planned community, or condominium building that makes and enforces rules for the properties and its residents. Those who purchase property within an HOA’s jurisdiction automatically become members and are required to pay dues, known as HOA fees. Some associations can be very restrictive about what members can do with their properties.

The HOA’s Role in The Closing Process
If the property being purchased has an HOA, the resale certificate, as well as the rules and regulations
documents, must be ordered and delivered to all parties.  These documents are important because they show a buyer the restrictions that an HOA may have in place and they deliver financial information to the buyer to show what their anticipated costs will be with homeownership.  These documents also confirm if the seller is paid current.  

Early in the closing process the title company, on behalf of the seller or buyer depending on the addendum instructions, will request the resale certificate and supporting restrictions, bylaws and insurance from the management company.  Most HOAs require payment in advance to prepare these documents and the HOA addendum requires that these fees be paid prior to ordering the resale certificate:

How Long Does It Take To Get a Resale Certificate? 
Every management company operates on their own schedule and since they are not a party to the contract they are not bound by the delivery dates that real estate agents negotiate in the contract for delivery requirements.  Both selling and listing agents should understand that a failure to timely deliver the resale certificate gives the buyer the right to cancel the contract.  Whether it is the buyer or seller that is responsible for ordering the resale certificate, failure to obtain timely is a cancellation contingency: 

What Things Are Important For A Real Estate Agent To Know Or Do When It Comes to HOAs?
First, when filling out the Addendum for Property Subject To Mandatory Membership In a Property Owner’s Association, a real estate agent should put a reasonable time frame in that allows for title to obtain the resale certificate from the management company.  If a contract has too short of a timeline in this addendum then there is a good chance the buyer can terminate the contract due to failure to deliver the resale certificate. 

Second, your closing teams at Texas National Title will warn you up front if the management company has communicated to us that they cannot deliver by the due date.  When you receive these notices it is important that you review your file to see if an amendment is necessary to preserve the interest of your clients.  

How Does a Real Estate Agent Find The Management Company? 
What if a Client Wants HOA Fees?

Real estate agents are often asked for rough estimates from their clients as to what the expected fees will be for a particular property.  Many times real estate agents are not sure where they can obtain this information and historically there has not been a database that was available to search management information for any given property.        

During the 87th regular session, the Texas legislature passed SB 1588 which amended Chapter 209 of the Texas Property Code governing certain property owners ‘ associations to address a number of HOA-related issues, including providing greater transparency in HOA operations and leadership. HOAs are required to maintain certain information on a “management certificate.”  The required items include the name and mailing address of the HOA, the name and contact information of the person managing the HOA, and the website address used to access the HOA’s dedicatory instruments.  The law also requires HOAs to record their management certificates (or amended management certificates) with the county clerk in the county of record where the HOA is located.  This new law requires HOAs to also electronically file these certificates (and amendments) with the Texas Real Estate Commission (TREC).

Going one step further the law now requires TREC to maintain a website to provide the public access to these certificates.  That website can be found here: www.hoa.texas.gov. This website provides both a means for HOAs to upload their management certificates to a central database and a means by which the public can search for and access the management certificates after they have been uploaded.   The deadline for all HOAs to file their management certificates with TREC was June 1, 2021.  

What About Fees? Who Pays For The HOA Fees?
To answer this lets look again at the Addendum for Property Subject To Mandatory Membership In a Property Owner’s Association

Paragraph A is the paragraph where the parties negotiate who is responsible for payment of the “Subdivision Information” or what is commonly known as the “Resale Certificate.”  This paragraph has not changed.  

Paragraph C underwent a big change last year and under the revised form deposits and reserves are no longer a separate fee group to automatically be paid by the buyer.  Now they are included in all remaining HOA fees (meaning all fees from the HOA excluding the actual resale certificate) to be paid for by the seller except for any amount negotiated between buyer and seller and written into Paragraph C as shown below:  

Practically this is a big change from the older version of the contract addendum because it reclassifies deposits and reserves as a seller fee except for the negotiated dollar amount shown in Paragraph C.  Real estate agents need to be careful in reading this paragraph during negotiations and understand the financial impact to their buyer or seller before the contract is signed.  An agent working up a seller or buyer net sheet also needs to take this change into account when preparing fee estimates.  

Can The Clients Waive Getting a Resale Certificate? 
Paragraph 4(A) provides for the buyer to waive a resale certificate entirely*****:
 
***BUT WAIT! There are complications with choosing this option.  
First, many management companies will require a full resale certificate to transfer the account to the buyer, even if the parties try to waive it.  Once the buyer closes they could be billed for all fees associated with the transfer and resale certificate if not handled at closing or in the contract.  

Second, if the buyer does not get the resale certificate they have no opportunity to discover what the fees will be post-closing or confirm that the seller is current on their HOA dues.   
 
Third, a title company cannot issue important title policy endorsements that lenders generally require in order to give the loan so the loan may not be approved if a certificate is not obtained.  

Moral of the story – before agreeing to waive the resale certificate there are many factors that need to be considered.  
Working with a knowledgeable title company is the key to success!  Our escrow teams are the experts that you need and the partners that you can trust.  Any time you have questions please do not hesitate to contact us! 
 

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