Only in Texas: Homestead Protections

If you reside in Texas, homestead protection is built into the Texas Constitution. It allows you to maintain your home free from the possibility of seizure by certain creditors. This protects Texas citizens from having their home taken from them in order to satisfy a judgment from creditors. And Texas is the only state that provides such safeguards.

Even if your salary is in the millions and you own a home in which you reside, you can have multiple judgments from creditors against you and basically be secure from those creditors because of the homestead protections under our state Constitution.

Under what conditions does the Texas Constitution actually protect your homestead from creditors?

The Texas Constitution protects Texas families or single adults from being forced to sell their homestead in order to pay debts and judgments. Although there are exceptions, these provisions are a great asset for homeowners. When you understand the basics, you can determine how this information can help you personally and how you can educate your real estate clients.

What is the definition of a “homestead”?

Posession of, actually living on, and using the real estate as your home is what makes the property a homestead in the eyes of Texas. If you don’t actually reside on the property, evidence of preparation for occupancy is needed. For example, a vacant lot can qualify so long as the owner expects to build a home on it. While mobile homes alone do not qualify, a mobile home permanently attached to real estate can be a homestead. These protections are applicable exclusively to individuals and families; however, only one property can qualify for homestead protection.

What is excluded from homestead protection?

  1. Corporations, partnerships, and LLCs
  2. Owner-financed mortgages
  3. Financial transactions between spouses related to divorce
  4. Taxes on the property and/or federal tax liens against both spouses
  5. Home improvement loans
  6. Reverse mortgages
  7. Home equity loans
  8. Liens that predate the homestead’s establishment
  9. Conversion or refi of a lien on a mobile home that is attached to the homestead
  10. Debtor’s ownership in corporations or business partnerships

How do the homestead protections affect real estate investors and their transactions?

Many times in connection with distressed properties which happen to be the seller’s homestead, the homeowner/seller will have liens and judgments against them for outstanding credit card debt and other consumer type indebtedness. These liens and judgments must be cleared from title in order to close with a title acceptable to the buyer. This is the case, although under the homestead provisions, these liens are not valid against someone’s homestead. Title underwriters, however, take the position that they are not going to determine what is and what isn’t someone’s homestead so these must be cleared in order to issue title.

Under Texas law, it is unlawful for a creditor to refuse to partially release a lien such as the above that is clouding the title of a person’s homestead. These liens can be cleared from the homestead often without the payment of any money to the creditor if attacked properly.

Many title companies leave it to the homeowner/seller to clear these liens. At the Lonergan Law Firm, we perform this legal service for individuals, whether we are closing the transaction or not.

Another key point to remember is that homestead protection is only available to a primary residence, so we recommend that investors place their investment properties in an LLC or other entity structure to protect these properties from any personal creditors.

Texas homestead provisions protect a non-owner spouse

One of the benefits to families of this protection is that the residence cannot be sold or financed with a lien without the express joinder of the non-owning spouse.

From the early days of the Texas Republic, our leaders felt the need to protect the spouse and children from the unilateral actions of the spouse holding the title to the family’s home. Our public policy has always placed a premium on maintaining the family home.

So if you, as an investor, are purchasing someone’s home (whether by cash, subject to, or with a loan), you must have BOTH spouses execute the Warranty Deed or there will be title issues down the road.

The title company will probably require the seller to execute a Marital Status Affidavit, in which the seller swears under oath to his/her marital status since owning the real property. This is essential for the title company to make sure that all required parties execute the warranty deed and other closing documents.

Gaylene Rogers Lonergan is a Board Certified Residential and Commercial Real Estate Attorney. If you have other questions about Texas homestead protection provisions, contact Gaylene at grogers@lonerganlaw.com.

© Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2017. All rights reserved.This article is provided for educational reasons exclusively and is not meant to be construed as legal advice. The Lonergan Law Firm, PLLC, will represent you only after being retained and that agreement is made in writing.

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Gaylene Rogers Lonergan | Lonergan Law Firm, PLLC | grogers@lonerganlaw.com | 214-503-7509

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Eager to sell your home quickly and possibly make a greater profit?

How would you like to have the potential to sell your home faster, sell it “as is”, and possibly get a better interest rate than on some other investments? Consider owner financing.

owner-financing-available

Make your home stand out in the market by adding these three words to the listing (and we suggest to a yard sign!) — Owner Financing Available. Now it’s a different game. This cuts out the bank or mortgage company.

Here’s an overview of owner financing, the possible upside and downside, and some suggestions to make it easier on everyone.

WHAT IS OWNER FINANCING?

When the homeowner lends the money to the buyer, allowing him or her to make payments, the transaction is referred to as “owner financing”.

HOW DOES IT WORK

The seller and buyer sign a promissory note that includes the interest rate, repayment schedule, consequences of default, and all other details, such as a balloon payment.

POTENTIAL BENEFITS TO THE OWNER

  1. Property may sell more quickly, reducing sales costs
  2. Increases the chances of getting the full asking price
  3. May be able to sell “as is”, another way to increase net profit
  4. Property will stand out in listings because the offer is attractive.
  5. Owner gets the property back and retains all monies received if the buyer stops making payments.
  6. May provide you a better interest rate than some other investments

IMPORTANT CONSIDERATIONS FOR OWNER

  1. This strategy will only work if the owner does not require the full amount of the sale in order to purchase his/her next home.
  2. If you do not own the home outright, a sale can still happen under certain circumstances.
  3. There is a risk that the buyer will stop making the payments, which requires you to foreclose.
  4. If the buyers do not fulfill the terms and the house reverts back to you, there is a risk that the property will require repairs.

POTENTIAL BENEFITS TO THE BUYER

  1. Down payment is more flexible
  2. Closing costs are lower and the process is faster
  3. Prospective buyer who does not qualify for a mortgage may be able to purchase a home.
  4. Investors can acquire property with lower initial investment.

IMPORTANT CONSIDERATIONS FOR PROSPECTIVE BUYER

  1. Buyer must prove worthiness to borrow.
  2. Interest rates are likely to be higher.

ESSENTIAL FOR BOTH SELLER AND BUYER

  1. It is imperative for both parties that a real estate lawyer be engaged to draw up the contract and the promissory note.
  2. Sellers may want to speak with a CPA regarding tax benefits of selling the home using the owner financing strategy.
  3. Sellers may want to run a credit check on all prospective buyers.
  4. We strongly suggest sellers require and check references on all prospective buyers.
  5. When determining the down payment amount, sellers should consider an amount that will help ensure that the buyer feels vested and reduces the risk of him/her not fulfilling the agreement.

Like any business deal, this one has its risks. The Lonergan Law Firm, PLLC, can help you ensure that your deal goes as smoothly as possible. We specialize in non-traditional real estate transactions!

© Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2017. All rights reserved. This article is provided for educational reasons exclusively and is not meant to be construed as legal advice. The Lonergan Law Firm, PLLC, will represent you only after being retained and that agreement is made in writing.

Gaylene Rogers Lonergan | The Lonergan Law Firm | info@lonerganlaw.com | 214-503-7509

 

 

 

 

 

 

 

 

“Subject To” Purchases: Fast Track to Profitable Real Estate Transactions

What if you could reduce the amount of time it takes to acquire the deed to a property you are purchasing? How is it possible to own multiple properties and not be legally bound with multiple loans in your personal name? Why not use your real estate business to help others who are in a pinch so both you and they win?

You can gain these benefits by purchasing a property “Subject To” the current mortgage that a property owner already has negotiated with a lender. The terms and name on the loan remain the same with the lender without your assuming the loan.

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After a Dallas-Fort Worth couple decided to get a divorce, they had to choose what to do about their house. The wife wanted to stay in the house but could not afford to make the mortgage payments. One of my clients, a real estate professional, purchased the property “Subject To” from them for approximately $20,000 over the outstanding balance of the loan. My client was then able to pay $10,000 to both the man and woman so each could restart in a new home.

Why consider adding “Subject To” properties in your real estate portfolio? You don’t need a lender. You close quickly. The closing costs are low. You don’t need credit. You can use the owner’s interest rate. You have long-term financing in place.

We’re pulling back the curtain to give you a good look at the world of “Subject To” purchases.

Who would sell their property “Subject To”?

When someone needs to move quickly or needs to be relieved of the debt on the house, he or she is more likely to be motivated to sell you the property “Subject To”. If someone has just taken a job in another city and needs to move or undergoes a decline in income and needs to reduce debt, you can help them by buying their property today so they can accomplish their goals quickly! As mentioned in the story above, when a couple is divorcing and neither party can afford to make the mortgage payment, they need to sell the house.

How do I make money on “Subject To” sales?

  1. You make money by rehabbing the property and selling it quickly for a profit.
  2. You make money by selling the property by owner finance.
  3. You make money because of interest deductions and depreciation breaks afforded to homeowners.
  4. You make money by turning the property into rental property and then profiting on the spread between the lease payment you receive and the mortgage payment you make.
  5. You make money by selling the house without any rehab for more than you paid for it.

What are my responsibilities?

Buying “Subject To” comes with a serious responsibility to the original homeowner to make timely payments on the loan. When the owner sells the home “Subject To” an existing mortgage, the buyer is required to make the payments on that mortgage or the property will go into foreclosure, just as if the seller had not made the loan payments.

Are there any risks involved?

Here are the facts. You determine whether you are comfortable with them.

  1. A “due on sale” clause gives the lender the right to require that the entire note be paid if any terms in the initial agreement are not met. The bottom line is that the lender is concerned about being paid! However, keep in mind that money is loaned at a rate higher than their payment rate, which is how a lender makes money. It may not make sense for them to call the loan if it can be refinanced at a lower rate than it currently carries because that would decrease their profit. Note also that when a lender calls a note due, Federal guidelines call that “bad debt” and it affects the lender’s ability to lend money.
  2. If you don’t make the payments on time, the lender can foreclose, just like on all your other loans. In this case, you could lose the property and any equity, just like on all your other loans.
  3. You must carry insurance. You may want to be added to the current homeowner’s policy. Be sure to consult with an insurance professional who understands the “Subject To” transaction and can assist you.

“Subject To” purchases often will make you money faster than some other real estate purchase options. These are not “traditional” deals and should be handled by a real estate closing office that has helped hundreds of other real estate professionals close the title on these transactions and make money fast.

The Lonergan Law Firm, PLLC, and title closing office specializes in non-traditional real estate title transactions. How can we help you with your “Subject To” real estate deals?

© Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2016. All rights reserved.

PROBATE: The Steps to Make Money on Inherited Properties

80% of all properties left to the family after a death get sold within 1 year.

Most people who inherit property almost always want to sell.

Generally they do not want to invest money to make the properties attractive to retail buyers and therefore are often more willing to sell at wholesale.

dont-wish-for-it-work-for-it

We had an investor bring in a transaction where he was buying the property from the grandson of the original owner. This grandson was disabled and needed the funds from the sale of the house to pay for his care. His step grand father had died and left the property to him in his will, which had been probated.

Then the challenges began. Because the step grandfather and grandmother owned the property together and she had died 25 years earlier without a will, her interest in the property had to be dealt with, which means we had to go by the Texas Intestate Succession laws. When she died, her husband and her only son were alive and thus were her heirs. Because she had no will, we had to do an affidavit of heirship for her.

Unfortunately her only son died without a will after she died, so we did an affidavit of heirship for her son as well.

This son had 5 children. Three of the 5 children signed a deed to the disabled brother so he could sell the property, but the 4th of 5 had died without a will a month before the closing. So we did the affidavit of heirship for him — the 3rd in this single real estate transaction.

It was the responsibility of his only heir to act in his place in order to deed the property to his uncle, the disabled man who was trying to sell it. This heir was a 16 year old boy who could not legally sign the deed, so we had to go to court for the mother to get permission to sign the deed.

We did all the work required in this challenging deal and were able to get the title cleared and closed in a couple of months, so the man could successfully sell the property and have the funds needed for his care, and the investor was able to purchase the property. The investor then sold the property a couple of months later for a good profit, even after paying the fees for all of the legal work done by our firm.

Probate is the legal process of administering the estate of a deceased person, resolving all claims against the estate, and distributing the deceased persons property and probate is one of the most lucrative niches in real estate investing.

But where do you begin?

FIND THE DEALS

You may want to use these resources to begin the process.

  1. Real Estate/Title Attorneys
  2. Accountants and other professional executors
  3. Wills and Estates Attorneys
  4. Commercially produced lists (i.e., Roddy Probate Report)
  5. Obituaries

MARKET TO THE ESTATE

  1. Promote benefits used to marketing other wholesale properties. It’s a quick close. The buyer will pay all the fees. It will be a cash transaction.
  2. Remember this can be an emotional transaction for the heirs, so be sensitive to their needs.
  3. Offer assistance with resolution of legal issues that are involved with property transfer.

BE AWARE OF LAWS AFFECTING PROBATE PURCHASES, WHICH GOVERN THE BUYING PROCESS

Texas Estates Code (Effective January 1, 2014) governs all things regarding the transfer of deceased individuals’ properties in Texas, whether through validation of a will by the court or through intestacy (with a will or without proving a will).

If there is a will, then once a will is submitted to the Probate Court, a hearing date is set, which is generally 30 days out (Dallas County). Following the hearing, the Probate Court Judge will have its clerk issue Letters Testamentary to the Executor. This authorizes the Executor to Act under the will, including the power to sell the property.

The most common situation arises, however, when there is no will. In the investor niche ($50,000-$150,000), a very small percentage of owners have a will.

If there is no will, The Texas Estates Code specifically sets out who the heirs of the deceased individual are based upon the family situation of the deceased and the nature of the property (separate property or community property).

When there is no will, generally title companies require that an Affidavit of Heirship be signed by the family member selling the property. This Affidavit sets forth the details of the deceased owner’s life and family situation, i.e., birth, marriage, children and death. This Affidavit must be corroborated by 2 disinterested persons who knew the deceased for at least 10 years.

It will also help you to become familiar with the Medicaid Estate Recovery Program. By law Medicaid may make a claim against the estate of a deceased Medicaid recipient for recovered Medicaid long term care services, provided that the recipient was age 55 years or older at the time the services were received and applied for covered Medicaid long term care services on or after March 1, 2005. There are cetain exceptions from these claims by Medicaid and additionally waivers are possible depending on the family circumstances. The Lonergan Law Firm, PLLC, can help you with such matters.

Probate deals, like many other non-traditional real estate transactions, have their challenges. They are often time consuming. The buyer is dealing with multiple sellers (family members).

It is quite common to encounter title issues which much be resolved.

If your goal is to make a lot of money on single real estate transactions, probate properties may be a great market for you. It’s a way for you to make a lucrative profit on inherited properties!

Have you ever worked on a probate deal? Share your successes and challenges with us.

© Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2016. All rights reserved.

 

Potential Instant Equity for Real Estate Investors

Potential Instant Equity for Real Estate Investors

If you are a real estate investor looking for a deal that may provide instant equity, consider a short sale. Everyone involved in a short sale can benefit. The seller can avoid foreclosure and his/her mortgage lender avoids foreclosing and reselling, reducing their losses. And the investor (or buyer) gets a property with fair market value often with instant equity!

A group of real estate investors were considering purchasing an apartment complex in Dallas. Unfortunately the property was run-down — especially the roof, which needed to be replaced due to weather damage. Their real estate agent negotiated with their out-of-state lender, who agreed to having the roof replaced.

The outcomes were great for everyone. The out-of-state owner avoided a foreclosure and the investors who bought the apartment acquired it at a reduced price agreed to by the lender. After holding it for a relatively short time, they sold the property and made a significant profit and were very happy. The Lonergan Law Firm was pleased to serve these investors and to close the title on the property.

What could instant equity in a single deal mean for you? It could help you accomplish a lot of goals!

Learn what a short sale is and is not, the pitfalls to avoid, and actions to take.

A short sale happens when the sales price of a property is lower than the mortgage amount owed by the homeowner and when the mortgage lender agrees to a discounted payoff to fully satisfy the loan. This situation often occurs when the home owner cannot continue to make the mortgage payments due to health, job change or other dire circumstance, so the lender needs to verify the financial situation of the homeowner. The lender is more likely to agree to a short sale when it is determined that a short sale is a better solution than a foreclosure, particularly for the lender. They have learned that taking a reduced payoff is often more beneficial economically for them rather than incurring the holding costs and resale expenses associated with reselling the property.

This is a complex transaction because everyone affiliated with the deal must agree to take less than originally agreed or possibly no money.

Be prepared. Here is a list of 6 important realities about short sales.

  1. Short sales don’t happen overnight. They generally take a longer time to close than a traditional closing. You should expect 3 – 6 months on average.
  2. This is not a DIY! You will need a team of real estate professionals, each of whom fully understands short sales — from the lender to the realtor to the title company.
  3. Rock bottom offers can slow down the process.
  4. Take extra precautions with the inspection, as potentially serious maintenance issues may not have been readily revealed. These issues need to be made known to the lender.
  5. Make sure the realtor representing the seller can and will provide all the information needed by the lender, such as a hardship letter, a list of any liens against the property, proof of assets, proof of income, and fair comps.
  6. Check out the terms of the property’s current mortgage insurance. The mortgage lender must consent to the short sale and may or may not cooperate.

Why can short sales be a great deal for investors?

  1. If the purchase price of the short sale is lower than the appraised value, then the investor (buyer) gains instant equity.
  2. There are several sources for locating short sale deals, including MLS, real estate professionals who are experienced in such transactions, and research on properties described as “preforeclosure”, “pre-approved by bank”, or “subject to bank approval.” These terms may indicate that the property is a short sale.
  3. As an investor, you have the financial resources, which the bank will want to know in order to approve the deal.

You can help a seller avoid foreclosure and potentially enjoy instant equity on a complex real estate transaction. The Lonergan Law Firm and title closing office specializes in non-traditional real estate transactions and we look forward to working with you on your future short sales.

© Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2016. All rights reserved.