Archives for the month of: March, 2013

photoOwner financing in Texas has historically been a valued tool to sell real estate to parties who for various reasons couldn’t qualify to borrow from institutional lenders.  However, in 2008 and 2009, owner financing was directly affected by federal and state regulatory changes.  In 2009, Texas was directed by federal law to adopt Chapter 180 of the Texas Finance Code, now better known as the Texas SAFE Act.  The acronym “SAFE” stems from the Secure and Fair Enforcement for Mortgage Licensing Act which was part of the federal Wall Street Reform Act of 2008.  These Acts were spurred by the belief that the liquidity crisis in the financial markets was caused in part by mortgage fraud and subprime mortgage loans.

One of the objectives of the federal SAFE Act was to provide uninform requirements for State licensed loan originators, or what we in Texas formerly referred to as mortgage brokers.  The Texas SAFE Act renamed the mortgage broker as a “residential mortgage loan originator” or “RMLO” and broadened the State licensing requirements necessary to perform certain functions associated with the issuance of a residential mortgage loan.  This is where the problem arose for Owner financed transactions.

The Texas SAFE Act defines a RMLO as any individual who for compensation or gain, or the expectation thereof, either takes a residential mortgage loan application or offers or negotiates the terms of a residential mortgage.  Certain exclusions and exemptions from licensing are provided in the statute, including licensed real estate brokers and salespersons, licensed manufactured housing brokers, no interest/fee loans, loans to an immediate family member, and loans involving the sale of the Owner’s homestead.  Even licensed attorneys may be subject to further licensure where the negotiation of a mortgage loan is not an ancillary matter to the attorney’s representation or the attorney takes an application and offers or negotiates the mortgage terms.  Any Owner financing transaction which does not otherwise fall under one of the exempted categories will clearly meet the definition of an RMLO and require licensure by the party offering or negotiating the mortgage loan.

The Texas agency responsible for enforcing the SAFE Act is the Texas Department of Savings and Mortgage Lending.  Violations of the SAFE Act include license suspension, a fine of up to $25,000.00, and restitution to the Buyer.  At this point, it is unclear what “restitution” means.

Fortunately, the Commissioner of the Department of Savings and Mortgage Lending issued a notice in August of 2010, setting forth a seller financing “de minimus” exception to the Texas SAFE Act.  Before the federal and Texas SAFE Acts, Section 156.202(a)(3) of the Texas Finance Code exempted from licensing “an owner of real property who in any 12 consecutive month period makes not more than five mortgage loans to purchasers of property for all or part of the purchase price of the real estate against which the mortgage is secured. “  The Commissioner pointed out that in adopting Chapter 180 of the Texas Finance Code, the legislature had amended Section 156.202, but left Section 156.202(a)(3) intact.  Since the amendments to Section 156.202 were passed after Chapter 180, the Commissioner determined that the legislature intended that the de minimus exception remain.  Unless there is a subsequent statutory amendment  or rule, or the U.S. Department of Housing and Urban Development issues a conflicting ruling, the Commissioner has stated that the de minimus exception will continue to be allowed by the Department of Savings and Mortgage Lending.

In considering whether or not a transaction falls within the de minimus exemption, the 12 month period is a rolling period, and not determined on the basis of a calendar year.  Also, for business organizations, the term “owner” will in all probability be viewed at the ultimate ownership or control level.  This means that a person will not be allowed to transfer ownership into separate business entities (i.e. corporation, partnership, LP, LLC, etc….) for purposes of eluding the 5 transaction limit in any 12 month period.

Clearly, financing the sale of your own property is now more tricky than it used to be.  For situations where a transaction clearly falls within the licensing requirements of the SAFE Act, you are advised to seek the services of a licensed RMLO and/or an experienced attorney.  With some careful planning and consideration of the transaction, the regulatory pitfalls of the SAFE Act may be avoided.

Scott Alagood is Board Certified by the Texas Board of Legal Specialization in both Commercial and Residential Real Estate Law and may be reached at alagood@dentonlaw.com and www.dentonlaw.com.
 

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As stated previously, the law of adverse possession is founded on notice.  Thus, a claimant must make an actual, visible, appropriation of the land in dispute.  Tex. Civ. Prac. & Rem. Code Section 16.021(1).  The requirement of an open, notorious, and visible claim is based on the policy that existing rights in land should not be lost without giving the owner an opportunity to take preventive action by taking prompt action to dispute the claim.

The notice provided to the record owner need not be actual, express notice.  Instead, constructive notice may be presumed from the nature and extent of the acts of adverse possession.  However, if no expressed claim is presented to the record owner, the adverse possession must be so open and notorious, and manifested by such open or visible acts, that knowledge on the part of the title holder may be presumed.  Visible appropriation is typically a fact issue.

The claimant’s appropriation of the land must wholly exclude the record owner.  Mowing the grass, planting flowers, or maintaining the hedge does not constitute a type of appropriation sufficient to give notice of exclusive and adverse possession by the claimant.  However, planting a hedge to establish a boundary line and barrier between the property claimed and the adjacent property may constitute a type of action which will support the basis for adverse possession.

Allowing cattle to graze on another’s land is insufficient, by itself, to establish title by adverse possession.  However, grazing combined with the construction of sturdy enclosures, such as a boundary line fence, may rise to such level.

Fencing of land is one form of visible appropriation.  However, a fence which exists before the claimant takes possession of the land is considered a casual fence that does not support a claim for adverse possession unless the claimant can show the purpose why the fence was erected.  Maintaining or repairing a casual fence generally does not transform a casual fence into a designed enclosure.  Where a casual fence is substantially modified to give the record owner notice that it’s character has changed (such as removing a barbed wire fence and constructing a chain link fence), such may constitute a basis for adverse possession.

Scott Alagood is Board Certified in Commercial and Residential Real Estate Law by the Texas Board of Legal Specialization and may be reached at alagood@dentonlaw.com or www.dentonlaw.com.
 

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To establish a claim by adverse possession, a claimant must enter the land with a claim of right inconsistent and hostile with that of another person.  Tex. Civ. Prac. & Rem. Code Section 16.021(1).  A “claim of right” is defined as the claimant’s intention to appropriate or claim the land as his or her own.  Such claim of right may be established by a public declaration of the claim or by visible and apparent acts.  The verbal assertion of a claim is not necessary.

The claimant need not understand or maintain that the claim of right he or she is relying upon is actually adverse to that of the record title holder.  However, a mistake as to whom actually holds record title is not sufficient to establish adverse possession where the land is shared.

If the appropriation and possession of the land was done through permission or with the consent of the record title holder, then such will not suffice to establish adverse possession.

Adverse possession cannot be established where the claimant recognizes that another person holds title to the land or has offered to purchase the land from the title holder in such a way that would show that the claimant admitted that the title holder is the real owner.

In certain instances (as will be discussed in Part III), visible appropriation may be taken as evidence of a claim of right when the claim of right is not otherwise expressed.

As you can see the law of adverse possession is founded on notice.  Existing rights in land should not be lost without giving the owner an opportunity to take preventative action by taking prompt action to dispute the claim.

R. Scott Alagood is a board certified attorney in both Commercial and Residential Real Estate Law by the Texas Board of Legal Specialization.
 

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To establish a claim by adverse possession, a claimant must enter the land with a claim of right inconsistent and hostile with that of another person.  Tex. Civ. Prac. & Rem. Code Section 16.021(1).  A “claim of right” is defined as the claimant’s intention to appropriate or claim the land as his or her own.  Such claim of right may be established by a public declaration of the claim or by visible and apparent acts.  The verbal assertion of a claim is not necessary.

The claimant need not understand or maintain that the claim of right he or she is relying upon is actually adverse to that of the record title holder.  However, a mistake as to whom actually holds record title is not sufficient to establish adverse possession where the land is shared.

If the appropriation  and possession of the land was done through permission or with the consent of the record title holder, then such will not suffice to establish adverse possession.

Adverse possession cannot be established where the claimant recognizes that another person holds title to the land or has offered to purchase the land from the title holder in such a way that would show that the claimant is admitted that the title holder is the real owner.

In certain instances (as will be discussed in Part III), visible appropriation may be taken as evidence of a claim of right when the claim of right is not otherwise expressed.

As you can see, the law of adverse possession is founded on notice.  Existing rights in land should not be lost without giving the owner an opportunity to take preventative action by taking prompt action to dispute the claim.

R. Scott Alagood is a licensed Texas attorney and Board Certified by the Texas Board of Legal Specialization in both Residential and Commercial Real Estate Law and may be contacted by email at Alagood@dentonlaw.com or www.dentonlaw.com.