Seller financing is as old as real estate market itself.  Often a seller desires the higher interest rates obtained from such an arrangement when compared with other types of investments, or want to spread out a tax liability.  Many purchasers cannot qualify for a traditional mortgage loan, or do not want to pay the high cost of obtaining one. Some properties are not suitable as sufficient collateral for the type and amount of a loan desired from a traditional lender.  Seller financing can be a solution for these scenarios and more.

Many individuals and companies also engage in the business of investing in real estate wherein properties are bought, in some instances improved or repaired, and then sold to others for occupancy, rental, or further investment.

In seller financing, often referred to as owner financing, the same core legal documents are executed as used in traditional financing:  a deed from the seller to the purchaser, and a promissory note and a deed of trust from the purchaser to the seller. If the purchaser defaults under the terms of the loan, the seller can foreclose under the deed of trust in the same way as any traditional lender could.

However, seller financing has been severely restricted by the passing in of the Secure and Fair Enforcement for Mortgage Licensing Act of 2008.  This federal law, whether or not valid, required all states to adopt laws licensing anyone who directly engages in the business of originating loans secured by residential real property.  The State of Texas then passed the Secure and Fair Enforcement for Mortgage Licensing Act of 2009 (TX SAFE Act) which, for all intents and purposes, requires anyone be licensed who makes a loan secured by residential real estate.  The law is laudable in its intent to regulate mortgage brokers but has included everyone who desires to make such a loans, even, for example, one who may only make one loan during her lifetime–that of her own residence after she moves into a new home.

Jones Kimball Law Firm has closed hundreds of seller financed transactions, both residential and commercial, and can assist you in complying with current law in achieving your plans.

UPDATE:  Effective August 12, 2010, pursuant to a notice issued by Douglas B. Foster, Commissioner of the Texas Department of Savings & Mortgage Lending, an individual who engages in no more than five mortgage loans in a rolling twelve month period is exempt from licensing requirements imposed by the TX SAFE Act.  This rule may only be temporary, so check back for further updates.

This section deals with non-judicial foreclosures of mortgages.  In Texas, a mortgage is called a deed of trust.  Jones Kimball Law Firm represents lenders in the foreclosure process.

Except for home equity loans, Texas law allows a lender to foreclose its lien on real estate without having to go to court–provided the deed of trust allows it (which they all do, of course).  The Texas Property Code also contains provisions regarding non-judicial foreclosures.

Generally, a debtor must be given notice of default under a loan, and a reasonable time period within which to cure that default.  If the property secured by the deed of trust is the debtor’s residence, the time period must be at least 20 days.  If the default is cured within the stated time period, then “no harm, no foul.”  If the default is not cured within the stated time period, then the lender may accelerate the entire debt and proceed to post the property for sale at a future public auction.  The debtor must be sent notice of this acceleration and posting, which must not be less than 21 days prior to the scheduled sale date.  Sales are held on the first Tuesday of each month at the place designated by the Commissioner’s Court of the county in which the sale is to be held.  Most sales are at or near the county courthouse.

A foreclosure sale is a public auction held by the trustee named in the deed of trust, or by a substitute trustee appointed by the noteholder.  Sales are for cash only.  The noteholder may enter a credit bid up to the amount owed it.  Most sales result in the property being sold to the noteholder.  In sales under a deed of trust lien, there is no right of redemption in Texas for a debtor to reacquire the property.

The Texas Property Code governs the length of notice that must be given a debtor or a tenant of the debtor who remains in the property after the sale.  Until December 31, 2012, the federal law entitled Protecting Tenants at Foreclosure Act of 2009 requires a minimum 90 day notice to vacate be given to certain tenants after the foreclosure of a federally related mortgage.  Other tenants may not be evicted at all, unless they are in default under their lease.  This law purports to extend this requirement to all mortgages, whether or not federally related.  Some question its constitutionality on that point.

No.  In Texas, only licensed attorneys can prepare legal documents for others.  A title company may appear to be preparing legal documents, but it is (should be) really an employee of a licensed attorney.  A charge for such document preparation should appear on your closing statement, payable to the lawyer of law firm that rendered the services.

Yes.  More accurately, you can convey a remainder interest in your property (ownership of the property after you die), retain the property for your lifetime (a life estate), and not have to be concerned about any estate or probate proceedings being done after your death.  This can be a valuable estate planning tool if your estate otherwise would not need to be probated.

No.  Instead, the quitclaim transfers something less.  It only transfers the grantor’s title, if any, to the real property, and not the real property itself.  The distinction is subtle, but important in certain situations.

The grantee under quitclaim cannot be an “innocent purchaser” and therefore defeat certain title claims.  Also, a title holder under a quitclaim cannot obtain any after acquired title of the seller.  A quitclaim is not a deed within the meaning of the five year statute of limitations.  Certain warranties implied under Texas law in a deed from a grantor to a grantee do not exist when a quitclaim is used.  Finally, when receiving a quitclaim, a guarantee cannot, upon later failure of title, recover any money paid the seller.

The rule of thumb is, when a grantor has title, give a deed.  When a grantor does not have title but the record shows that he does (or might), give a quitclaim.  An example would be where a man and woman were married, bought real property, and later divorced with the divorce decree awarding the real property to the woman.  If the divorce decree is not recorded in the deed records, the record title would still reflect that the man and woman both owned the property when, in actuality, the divorce decree divested the man of title and awarded it to the woman.  In this case, a quitclaim would be appropriate–not to convey title but only to put third parties on notice that the man no longer owned an interest in the real property.  If the divorce decree did not divest the man of title, then a deed would be appropriate and a quitclaim should not be executed.

For these reasons, title companies are extremely hesitant to insure land titles where a quitclaim has been improperly used instead of a deed.

In Texas, minerals are considered real property.  In fact, the mineral estate is considered the dominant estate and the surface estate is known as the servient estate.  This legal reality reflects our state’s long history of mineral development.

One result of this fact is that whenever real property is conveyed, all minerals owned by the grantor pass to the grantee unless specifically reserved in the deed.

“How can I find out if I own the minerals under my property?”  This is a frequently asked question, and there is no easy answer.

In Texas, title to the mineral estate passes with the title to the land if the conveyance does not specifically reserve minerals to the seller.  However, a review of one’s deed will not answer the question because the seller may not have owned the minerals either.  Minerals to a particular piece of property may have been reserved many years ago.

Reviewing your title insurance policy may not be of any assistance either.  In many portions of the state where there has not been a history of energy development, title searches did not worry about mineral reservations.  Also, many title searches are done from computerized records that don’t permit a reading of the actual document.  Therefore, many mineral reservations (and other matters) are overlooked.

The only sure way to determine if one owns the mineral estate is to have a title search done all the way back to the sovereign, or when the State of Texas patented the land to the original private owner.  Even then, in certain circumstance, the State of Texas by statute owns some or all of the mineral estate.  Mineral title searches are expensive, sometimes costing hundreds of dollars.

As a practical matter, especially in urban areas, if someone is contacting you about selling or leasing minerals, you probably own them.  Most energy companies conduct a minimum level of title search before attempting to lease or buy them from you.  Be careful of language in and lease or contract whereby you warrant title to the minerals, because you really do not know what you own.

Title insurance is an often misunderstood product.  Most individuals do not have an accurate understanding of what title insurance is, what it does, and what it does not do.

Title insurance is an insurance policy.  The policy is a contract of indemnity. In it, the insurance company agrees to indemnify the insured against loss under certain contractual provisions.  In Texas, the business of title insurance it totally regulated by the Texas Department of Insurance.  The title policy contracts are fixed in what they say except for certain property specific matters.  Title insurance premiums are also established by the Texas Department of Insurance and must be charged as promulgated.

A title insurance policy is not a guarantee of clear title.  This is the most common misunderstanding about title insurance.  While the title insurance company hopes the title policy is representative of the true status of title, it sometimes is not.  This is due to numerous factors, from human error in searching the title to unknown title problems such as missing heirs or forgeries.  The insured must also have suffered a loss for there to be an obligation of the title insurance company to pay damages or cure the title.  The title insurance company’s liability is limited to the amount of the policy, and it has several options available in handling a claim.

Title insurance is a valuable product.  All institutional lenders require title insurance to insure that the loan they made to a borrower or owner is secured by a valid first lien against the involved property.  A prudent buyer will always require a title policy be issued in conjunction with his purchase.

Title insurance can be issued on leases and easements.  It can increase in coverage based on construction of additional improvements, and can protect you even after you sell your property.  Credits are usually available for a portion of a title premium previously paid if you refinance your mortgage.

Many options exist to protect your investment in your home or other real estate.  The Jones Kimball Law Firm is available to assist you with all of your title insurance needs.

A Fee Attorney refers to a lawyer who has entered into a contractual relationship with a title insurance company, or an agent of a title insurance company, to close real estate transactions on its behalf in exchange for a portion of the title premium.  In Texas, title insurance premiums are established by the Texas Department of Insurance and must be charged as promulgated.  Other states allow for a range of premiums or even complete discretion on the part of the insurance company as to what is charged.

The business of title insurance consists of three basic functions:  a title search, closing the transaction (escrow), and issuance of a title policy or policies.  A Fee Attorney performs the closing function.  Most all title companies (the agent) or title insurance companies (the underwriter) also have their own employees who handle closings.  For the public, it is often hard to tell whether a title closing office is a company owned office or a Fee Attorney office.  An attorney who is directly involved in his or her Fee Attorney operation (not all are) can be a valuable resource for parties seeking guidance or expertise on certain title or closing issues.  While a Fee Attorney represents the title company or title insurance company with whom he or she has a closing agreement, a Fee Attorney may also represent one or more parties to a transaction if no conflict exists or is likely, and if all parties consent.  A common example would be where a buyer retains the Fee Attorney to represent her in the purchase of a house.  The Fee Attorney may prepare a contract and advise the buyer on certain issues.  The Fee Attorney would also suggest that the transaction close at the Fee Attorney’s office.  The seller may need assistance with title curative matters or need a deed prepared, and a lender may need loan documents prepared.  The Fee Attorney can perform all of these functions if the situation allows.