Archives for posts with tag: real estate

There are two types of protests normally available to a homestead exempted property owner: (1) determination of the appraised value of the property; and (2) unequaTexas Property TAZl appraisal of the owner’s property. The first protest type is what is says it is, that the property owner simply disagrees with the value of the property provided in the notice of appraised value. The second type deals with taking a reasonable number of comparable properties within the taxing district, appropriately adjusted based on the factors above, and showing that the appraised value of the subject property in the notice of appraised value is above the median of those property values. Disparities in the timing of the reappraisal of properties within the district may lend certain properties to be at lower values. Due to advancements in technology and the growing need for governmental funding, larger taxing districts have significantly cut down on this time lag.

The property owner will be notified of the hearing time, date, and place at least 15 days prior to the date of the hearing. The chief appraiser is required to provide notice of the rights of the taxpayer, notice of the right to inspect and copy the district’s evidence, and a copy of the hearing procedures. The property owner may appear at the hearing in person, through an agent, or by affidavit. If the property owner fails to appear in some form, they will be precluded from appealing the appraisal review board’s decision. The hearing procedures are very informal. All parties are allowed to offer evidence, examine and cross examine witnesses, and present argument to the board. The property owner is permitted to testify to the value of their property, and may offer an opinion of market value or the inequality of the appraisal by the district.

So long as all of the administrative procedures have been followed to completion, a property owner may further appeal the appraisal review board’s decision to a district court or may elect to engage in non-binding arbitration. Under either avenue, the property owner is required to pay the taxes determined to be due before their delinquency as a precondition of further review. The taxpayer’s petition for review must be filed with the district court within 60 days of the receipt of the appraisal review board’s notice of determination of protest. The review by the district court or arbitrator will be “de novo” or new, so neither the taxing authority nor the property owner is bound by the prior rendition of value. Thus, it is possible for the appraisal district to seek a higher value than it sought in the protest hearing or that set by the appraiser.
A taxpayer may pursue non-binding arbitration by moving the district court to refer the case. However, if the taxpayer wants to engage in non-binding arbitration, the appraisal district must give its consent.

A taxpayer who prevails in a judicial review proceeding may be awarded reasonable attorney’s fees. Those fees may not exceed the greater of $15,000.00 or 20% of the total amount by which the property owner’s tax liability is reduced by the appeal. Further, the fees may not exceed $100,000.00 or the total amount by which the property owner’s tax liability is reduced by the appeal, whichever is less. These fee caps prevent property owners from receiving reimbursement for attorney’s fees where the reduction being sought is only a relatively small amount. The award of fees is, however, mandatory when the taxpayer prevails on a judicial review.

R. Scott Alagood is board certified in residential and commercial real estate law by the Texas Board of Specialization and can be reached at alagood@dentonlaw.com or http://www.dentonlaw.com.

 

Texas Property TAZThe State of Texas’ power to tax does not come from the U.S. or Texas Constitution. It is an inherent power associated with the sovereignty of the state. On the other hand, the taxing power of Texas counties, cities, and school districts is solely derived from the Texas Constitution, statutes, and municipal charters. The Texas Tax Code grants these subdivisions of the state the authority to tax all real property located within the state. Real property includes land, improvements, mines, quarries, minerals in place, and standing timber.

Only real property located within the jurisdiction of a particular taxing unit as of January 1 is taxable by that unit for that tax year. The tax on real property is primarily based upon the market value of the property as of January 1 of a particular tax year. Market value is determined by using generally accepted appraisal methods and techniques which are supposed to be consistent in appraising the same or similar kinds of property. Each property must be appraised in light of the specific individual characteristics that affect market value, and appraisal process must consider all available evidence in determining a property’s market value.

Typically, sales of nearby residential property will be used to determine comparable property values in the appraisal process using the market data method. These sales, which may even include certain foreclosure sales and properties located in a declining market, must have occurred within 24 months, and should have similar locations, square footages, ages, conditions, access, amenities, views, occupancy, easements, deed restrictions, and other benefits and burdens which may affect marketability. In counties with a population of at least 150,000, sales must have occurred within 36 months and be adjusted to account for changed market conditions.

In most situations, the chief appraiser of the taxing district is required to send each property owner a notice of appraised value for homestead exempted property on or before April 1, and for other properties on or before May 1. This notice must accompany a copy of a notice of protest form and instructions on completing and mailing the form to the appraisal review board to request a hearing. If the taxing district fails to provide any required notice to the taxpayer, the taxpayer’s due process rights are violated, and any appraisal or tax assessed on the property is void. It should be noted that “failing to provide notice” doesn’t mean mailing the notice to the wrong address because the taxpayer failed to notify the taxing district of an address change. Failing to provide notice means that no notice was ever sent anywhere. It is the taxpayer’s duty to keep the appraisal district supplied with a current address.

If a property owner disagrees with a notice of appraised value, they are normally entitled to file a protest with the appraisal review board. The protest must be in writing and timely filed. Generally, the protest must be filed not later than the 30th day after the notice of appraised value was delivered to the property owner. For a homestead exempted property, the notice of protest must be filed before May 1 or not later than the 30th day after the notice of appraised value was delivered, whichever is later. Failing to comply with the administrative protest procedures will result in the preclusion of any further appeal of the appraisal review board’s ruling. Appraisal districts in counties with a population of 500,000 or more must allow a property owner with a homestead exemption to file a notice of protest electronically.

Scott Alagood is board certified in residential and commercial real estate law by the Texas Board of Specialization and can be reached at alagood@dentonlaw.com or www.dentonlaw.com.

Unfortunately, many homeowners have experienced the effects of hailstorms on the roof of their homes. For many an unsuspecting owner, a nice man will show up at their door touting his company’s ability to quickly repair the roof for the insurance proceeds and promising to cover the owner’s deductible. Such an arrangement clearly is beneficial to the owner, in particular where the owner’s insurance carries a high deductible. The roofer is more than happy to procure the work by increasing the price of the work in excess of the normal charges to cover the deductible. By entering into and performing such agreement, the owner and roofer may very well be committing a crime under Texas Law.

Under Section 27.02 of the Texas Business and Commerce Code, the roofer claims an offense where (1) it sells goods or services and advertises or promises to provide the good or service by paying all or part of any applicable insurance deductible or gives the other party a rebate of the applicable insurance deductible; (2) the good or service is paid for by the owner from proceeds of an insurance policy; and (3) the roofer knowingly charges in excess of the usual and customary charges by an amount equal to or greater than all or part of the deductible or relates the deductible to the owner. Such conduct is a Class A Misdemeanor in Texas punishable by a fine up to $4,000.00 and/or a jail term of up to one year.

The owner commits a Class A misdemeanor by simply submitting a claim under an insurance policy where the roofer is in violation of Section 27.02 or knowingly allows such a claim to be submitted, unless the owner promptly notifies the insurer of the excessive charges.

Such an arrangement can also support a felony under Texas law. Pursuant to Section 35.02 of the Texas Penal Code, the roofer or the owner commits an offense where either of them prepares and presents, or causes such to be presented, to the insurer a statement to support an insurance claim that the person knows to contain false or materially misleading information with the intent to defraud the insurer. Additionally, Section 35.02 of the Penal Code provides that the roofer or the owner commits an offense where either of them solicited, offers, pays or receives a benefit associated with the furnishing of goods or services where an insurance claim has been made with the intent to fraud the insurer.

The range of punishment under Section 35.02 is dependent on the value of the claim submitted. The following chart sets out the respective punishment classes:

Value of Claim Punishment Class

Less than $50.00 Class C misdemeanor

$50.00 < $500.00 Class B misdemeanor

$500.00 < $1,500.00 Class A misdemeanor

$1,500.00 < $20,000.00 State Jail Felony

$20,000.00 < $100,000.00 Third Degree Felony

$100,000.00 < $200,000.00 Second Degree Felony

more than $200,000.00 First Degree Felony

The value of the claim may be calculated by subtracting the amount of the valid portion of the claim from the total claim made. A rebuttable presumption exists that the owner or roofer caused the fraudulent claim to be prepared or submitted by simply submitting a fraudulent bill for payment of goods or services to the insurance carrier.

Class C misdemeanors carry the punishment of a fine not to exceed $500.00. Class B misdemeanors carry the punishments of a fine not to exceed $2,000.00, or a jail term of up to 180 days, or both. Class A misdemeanor punishments are discussed above.

A state jail felony carries the punishment of confinement in a state jail for a minimum term of 180 days up to 2 years. A third degree felony provides for confinement with the Texas Department of Criminal Justice (TDC) for a term from 2 to 10 years. A second degree felony imposes imprisonment with the TDC for a term from 2 to 20 years. A first degree felony provides for a maximum confinement term of 5 to 99 years. Each of those felonies may also carry fines of up to $10,000.00 assessed in addition to imprisonment.

When confronted with a “too good to be true” situation, care should be taken not to turn an unfortunate casualty event into conduct that may cost additional money or personal loss of freedom.

I would like to thank my law partner Brian T. Cartwright for his significant contributions to this Article

R. Scott Alagood is board certified in Commercial and Residential Real Estate Law by the Texas Board of Specialization and can be reached at alagood@dentonlaw.com or http://www.dentonlaw.com.

Commercial LeaseThe holidays and new year are busy times for businesses which may be locating or moving into leased retail, office, or industrial space. These businesses spend extensive time and resources choosing the right broker, location, and tenant mix. Finding the right location is not the end of the endeavor. Before occupying the leased space, a commercial lease will have to be negotiated.

The terms of the commercial lease will govern the financial relationship between the business and the landlord. The lease will determine the tenant’s occupancy rights. The lease will establish how the parties deal with default and termination. The lease will supply the base upon which the business operates for years to come. It is important that the tenant understand the terms contained within the lease and how the lease will impact its business.

Commercial leasing is a complicated process which involves hundreds of business, practical, and legal considerations. This article will address just a few of the legal issues which are typically found in a commercial lease and shed some light on how they may apply to a tenant.

Parties, Legal Description, and Term

Most commercial leases will be for a term in excess of a period of one year. As such, the statute of frauds requires that the lease be in writing, signed by the party who is to be bound, contain an identifiable legal description of the property being leased, and contain all material terms between the parties. Absent these requirements being met or an exception, the lease will be unenforceable.

The tenancy may be for a fixed term or periodic. For reasons of certainty, most commercial leases are for a fixed term. Periodic tenancies may arise where the lease does not provide for a fixed term, but is for a period to period at the will of the parties. A month to month lease is an example of a periodic tenancy. Where a lease allows either party to have a right of termination, a periodic tenancy is not created so long as the lease is otherwise specifies a definite term.

Execution, Delivery, and Recordation

For a lease term in excess of one year, it must be signed by the parties to be enforceable. The person signing the lease must have authority to do so. Representatives of a business entity should have a resolution or minutes from the governing authority. A common mistake is made where an individual signs a lease on behalf of a business being conducted under an assumed name or “DBA” (doing business as). An individual cannot bind a DBA entity because a DBA is no more than an assumed or trade name of that individual and has no separate legal existence. Also, where an individual signs a lease on behalf of a business entity that is not in existence or fails to indicate the capacity or position in which the individual is signing, the individual may become personal liable for the lease obligations.

Delivery is an essential element to bind the parties to the lease. No particular act or words are necessary. Typically, delivery will be shown by the parties’ actions in conformity with the lease regardless of whether physical delivery has occurred.

Recordation is not a necessary element of an enforceable lease. Recordation is simply a method of providing actual or constructive notice to third parties of the tenant’s leasehold interest. So long as there is physical evidence of the tenant’s occupancy, recordation is unnecessary. If the lease will be effective prior to the tenant’s physical possession, it may be advisable to file a memorandum of lease in the county real property records.

Rent

Rent appears self-evident. It is the compensation received by the landlord for allowing the tenant to use and occupy the leased premises. In a commercial lease the tenant typically has other financial obligations such as paying the taxes, insurance, and maintenance costs. The term “rent” does not necessarily include these other financial obligations unless those payments are determined to be part of the rent.

Permitted and Exclusive Use

The landlord will control the use of the leased premises. This is particularly important where the leased premises is a part of a larger commercial development. The landlord will control the “tenant mix” through the use restrictions contained in each lease. The landlord may also create restrictive covenants applicable to the entire commercial development. Tenants must ensure that its intended business operations do not violate the lease or covenants.

Tenants may want to ensure that other tenants within the commercial development are not allowed to operate similar businesses. This is done through exclusive use provisions. Care should be taken that appropriate remedies are provided for a breach of an exclusive use clause. Otherwise, a tenant may find themselves in litigation over the tenant’s intended and specified use.

R. Scott Alagood is board certified in Commercial and Residential Real Estate Law and can be reached at alagood@dentonlaw.com and http://www.dentonlaw.com.

 

……THIS ARTICLE WILL CONTINUE IN NEXT MONTH’S EDITION

R. Scott Alagood is board certified in Commercial and Residential Real Estate Law and can be reached at alagood@dentonlaw.com and http://www.dentonlaw.com.

reversemortgage7_zps4a2074baTexas allows lenders to make “reverse mortgages” which are secured by a borrower’s homestead.  A reverse mortgage is an instrument that allows a borrower to borrow money against the equity in his or her home in a single installment, in annuity-like installments, or a line-of-credit available on demand.  Like home equity loans, reverse mortgages are subject to a litany of state constitutional restrictions.

A reverse mortgage may only be created voluntarily by the borrower through a written contract.  Each owner and each owner’s spouse must join and consent to the reverse mortgage.  A reverse mortgage may not be made unless the borrower or borrower’s spouse is at least 62 years of age at the time the loan is made.

If the reverse mortgage provides for the annuity-like string of payments, those payments must be made at regularly scheduled intervals.  However, the lender may also make advances on the borrower’s behalf where the borrower fails to pay taxes and assessments, insurance, repairs to the secured dwelling, or any lien with priority over the reverse mortgage.  The proceeds received from a reverse mortgage may be used for anything.  A reverse mortgage will accrue interest at either a fixed or variable rate of interest which may be compounded during the term of the loan.  Most reverse mortgages will accrue interest at a variable rate.  Interest on interest is permitted, and will typically compound monthly.  However, during the term of the loan, there are no monthly repayment requirements.  The principal balance and accrued interest do not become due and payable until one of the following occur:

  • All borrowers have died;
  • The property securing the loan is sold or transferred;
  • All borrowers cease occupying the secured property for longer than 12 consecutive months without prior written approval of the lender;
  • The borrower defaults on an obligation specified in the loan documents to repair and maintain the secured property, pay taxes and assessments, or insure the secured property;
  • The borrower commits actual fraud in connection with the loan; or
  • The borrower fails to maintain the priority of the reverse mortgage after receiving notice from the lender and an opportunity to cure.

Unless voluntarily repaid, when the note becomes due the lender may only satisfy the outstanding balance of principal and accrued interest from foreclosure of the secured property.  Reverse mortgages may only be foreclosed through a lawsuit for judicial foreclosure or an expedited legal proceeding allowing foreclosure under the deed of trust.  Neither the note nor any deficiency occurring from the foreclosure sale may be satisfied from the borrower’s estate.  Said another way, the borrower is not personally liable for the repayment of the loan.

A reverse mortgage may not be made unless the borrower and each owner receive counseling regarding the advisability and availability of reverse mortgages and other financial alternatives.  The borrower and each owner must attest in writing that they each received the required counseling.  If the lender fails to make any required loan advances after receiving notice from the borrower, then the lender forfeits all principal and interest on the reverse mortgage.

Reverse mortgages are not for everyone.  Since the loan will not be typically repaid until after the death of the borrower or the sale of the home, family and heirs should be consulted before entering into the loan.  Life insurance may be an available option to use to pay off the reverse mortgage upon the borrower’s death.  Reverse mortgages may include high closing costs.  Because of a life expectancy factor in the loan repayment formula, less money will be available from the loan for younger borrowers.  Also, if a reverse mortgage is obtained, seniors may be prohibited from receiving available deferrals of ad valorem taxes.

Available alternative options to a reverse mortgage may include:

  • Cashing out whole or variable life insurance policies on the borrower;
  • Obtaining a home equity loan;
  • Selling or leasing the property; or
  • Applying for tax credits and tax abatements for seniors.

While no one plans to run out of money during retirement, the longer folks live, the harder it becomes to sustain the necessary income to provide for living expenses.  A reverse mortgage is one option that may be considered for seniors needing addition income.  However, care should be taken to make sure that all of the resulting consequences have been considered before entering into a reverse mortgage.

Amendments to the Texas Constitution concerning reverse mortgages are currently scheduled for approval during the November 5, 2013, general election.  If approval, these amendments will become effective upon proclamation by Governor Perry.

R. Scott Alagood is board certified in Residential and Commercial Real Estate Law by the Texas Board of Legal Specialization.  Scott may be contacted at alagood@dentonlaw.com and http://www.dentonlaw.com.

<a href=”https://plus.google.com/+RScottAlagood?rel=author”>Google</a&gt;

ContractsOne of the most frequent questions asked of attorneys goes something like this.

Q:  X and I verbally entered into an agreement concerning [insert subject matter here}.  X didn’t perform his part of the agreement.  Can I sue him over that agreement?

Verbal agreements may be enforceable where they contain all of the legal elements necessary to form a contract.  That is, there is an offer made by one party, an acceptable of the offer by another party, consideration exists, and the agreement is not otherwise illegal or against public policy.  Consideration may be in the form of goods or money, or may be nothing more than mutual promises of each party to perform in accordance with the agreement.  Certain contracts which have been held to be illegal or against public policy in Texas are gambling debts, Mary Carter Agreements, and unreasonable non-compete agreements.

In situations where it appears that an otherwise enforceable contract exists, the law will not enforce a verbal contract or promise unless it is in writing and signed by the person sought to be charged (or his or her authorized agent).  This legal rule is called the Statute of Frauds and is codified in Section 26.01 of the Texas Business & Commerce Code.

The Statute of Frauds applies to the following types of promises and agreements:

–promises from an executor or administrator to pay the debts or damages of the decedent;

–guaranty agreements;

–an agreement made in consideration of marriage or non marital conjugal cohabitation;

–a contract for the sale of real estate;

–a lease of real estate for a term longer than one year;

–an agreement that is not to be performed within one year;

–an agreement to pay a commission on the sale or purchase of an oil or gas lease, royalty, or mineral interest; and

–an agreement, promise, or warranty of cure relating to medical care or results by a physician or health care provider (excluding pharmacists).

There are other types of agreements which must be in writing and signed by the party to be bound, such as:

–loans from certain financial institutions (Tex. Bus. & Com. Code Section 26.02);

–contracts for the sale of goods for a price of $500.00 or more (Tex. Bus. & Com. Code Section 2.201(a);

–agreements between parties or attorneys touching a lawsuit (Texas Rule of Civil Procedure 11); and

–agreements seeking commissions from the sale or purchase of real estate (Texas Occupations Code Section 1101.806(c)).

Where a contract appears to meet the terms of the Statute of Frauds, the writing must contain within itself or by express reference to another writing all of the essential or material terms of the parties’ agreement.  The contract terms must be ascertained from the writing without resort to outside verbal testimony or writings not referenced in the contract.  Certain terms of a contract may be implied by a court if not specifically addressed, such as the time for performance, time and place of payment, and in certain situations, price.

In a contract involving the sale or lease of real estate which is subject to the statute of frauds, the writing must contain itself, or by reference to another existing writing, sufficient data or other means by w which the land may be identified with reasonable certainty.  Failure of the contract to contain a proper legal description in these situations will render the contract unenforceable under the Statute of Frauds.

Of course, there are always exceptions.  Where on of the parties to an agreement partially performs the agreement, a court will not apply the Statute of Frauds.  “Partial performance” occurs when one party to the agreement performs his part of the agreement and in reliance suffers a substantial detriment for which there is no legal remedy, while the other party would reap an unearned benefit.  For example, Seller agrees to sell his house to Buyer for a specified price, but the agreement is never reduced to writing and no deed to the property is ever delivered to the Buyer.  In reliance of such verbal agreement, the Buyer takes possession of the house, pays the agreed price, maintains and improves the residence, pays the property taxes, insures the dwelling, and otherwise does all the things that an owner would do.  If the Seller than refuses to deed the property to the Buyer following the Buyer’s performance, the law will not render the verbal agreement unenforceable under the Statute of Frauds.

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

 

<a href=”https://plus.google.com/+RScottAlagood?rel=author”>Google</a&gt;

May 2013 Newsletter Page 1

Foreclosure Rates

Buying Property at Foreclosure Sales: a Deal or a Dud?

If you ever watch late night television, then you have seen those infomercials touting the ability to make you an overnight millionaire by purchasing financially distressed real estate.  There are many individuals and companies who have built successful lives and businesses through the acquisition of financially distressed real estate.  However, unless the process is fully understood and the risks are knowingly accepted, the purchase of financially distressed property at a foreclosure sale is not necessarily for the cash rich novice.  The following legal and practical issues should be considered prior to acquiring property at a non-judicial foreclosure sale held under a Texas deed of trust.[1]

A deed of trust is the document that a borrower gives to a lender to secure the repayment of a loan with real estate.  In a typical Texas mortgage, the parties involved are the borrower, the lender, the trustee, and the owner of the real estate pledged as collateral (“mortgagor”).  The borrower is the party responsible for the repayment of the loan.  The lender is the party who funded the loan and is the beneficiary of the pledged real estate.  In Texas, a trustee performs the duties and responsibilities contained in the deed of trust when the borrower defaults on the loan.  The mortgagor is the party pledging the property as collateral for the loan.[2]

It should be noted that non-judicial foreclosures in Texas are generally governed by (i) Chapter 51 of the Texas Property Code, and (ii) the documented agreements between the lender and borrower [3] contained within the loan documents.  Certain publicly filed documents which should be reviewed are the deed of trust, renewals/ extensions of the deed of trust, Notice of Trustee’s/Substitute Trustee’s Sale, and any other document affecting title to a mortgaged property (such as easements, leases, liens, restrictions, covenants, estates, and mineral interests, just to mention a few).  Unless a purchaser is adept at researching property titles, it is advisable to purchase an abstractor’s certificate from a title company.

There may be other issues which will affect title to the property being foreclosed which do not appear in the public real property records.  Some of these issues include encroachments, protrusions, overlapping improvements, set-backs, zoning, platting, building ordinances, flood zones, drainage, utilities, bankruptcy filings, lawsuits, and probate records.  Issues which are located on the ground can be addressed by ordering a current survey of the property.  However, permission from the current owner must be obtained before legally entering the property to conduct a survey.  This can be very difficult, if not impossible.  Other issues may be addressed through inquiries of public officials and employees.   While information obtained through governmental offices can be valuable, such information may not be completely reliable, and the persons supplying it are typically not liable for inaccuracies.

Except for warranties of title contained in the foreclosure Deed (from the mortgagor not the Trustee/Substitute Trustee), property purchased at a foreclosure sale is sold “AS IS” without any other warranties and at the purchaser’s own risk.  The purchaser will acquire the property subject to all physical and title conditions which exist on the date of the foreclosure.  Any tenants or occupants of the property on the date of the foreclosure sale may also have rights as parties in possession of the property.  Even if the purchaser acquires a meaningful warranty in the foreclosure Deed, enforcing such warranty may be impractical since the mortgagor is usually in dire financial straits.

A foreclosure sale may be set aside for various reasons within four years of the date of the sale under state law and within two years under federal bankruptcy law.  Any title insurance policy acquired by the purchaser will usually exclude any defects associated with the foreclosure process and any liens or encumbrances which were not removed by the foreclosure sale.  A purchaser at a foreclosure sale is also not a “consumer” relating to the protections afforded by the Texas Deceptive Trade Practices – Consumer Protection Act.

A purchaser should identify these issues, determine acceptability or cost to resolve, and calculate a  purchase price accordingly.  Resolving an unidentified issue post-purchase may cost tens of thousands of dollars.[4]

Purchasing distressed property at foreclosure typically requires a high degree of risk tolerance.  Anyone willing to accept those risks may also want to consider going to Vegas.  At least in Vegas, the drinks are free.


[1] As opposed to foreclosure sales by Court order or for unpaid ad valorem taxes which may have different considerations.

[2] While the borrower and the mortgagor are typically the same party, it is not necessary that they are the same.

[3] The third-party mortgagor’s agreements should also be considered, where the borrower and mortgagor are not the same.

[4] Legal fees necessary to clear up a contested title matter can sometimes exceed $100,000.00.

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
 

<a href=”https://plus.google.com/+RScottAlagood?rel=author”>Google</a&gt;

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.
 

<a href=”https://plus.google.com/+RScottAlagood?rel=author”>Google</a&gt;

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.
 

<a href=”https://plus.google.com/+RScottAlagood?rel=author”>Google</a&gt;