Author: rogersg

From Contract to Closing

You’ve found the house of your dreams and you can hardly wait for moving day! If you are a Real Estate Investor, the property is your next deal and you are looking forward to rehabbing and renting or selling. Either way, your excitement level is high and you’re ready to get started.

There are important steps to take before settling into the sofa in this new home and each one is very important and can have financial consequences.

  1. Negotiate the contract with the seller. If your transaction involves a realtor, he or she will supply the contract and handle the negotiation. If you are buying a property directly from the owner, we suggest you involve a Real Estate Attorney to assist you with the negotiations.
  2. Apply for funding. Immediately after the contract is negotiated, the buyer needs to make application at a reputable lender. Buyers will need to provide all necessary information to the lender such as income, assets, debts and credit history. In tight markets where houses are hard to find, it may be necessary to become approved for a loan before looking for a house so you can make an offer on the same day you find the one you want. The realtor will need to stay in constant contact with the lender regarding buyer’s application.
  3. Fully evaluate the property. The contract has a provision for “termination options”. The buyer pays a negotiated amount for the number of days necessary to complete their due diligence. A complete inspection of the property, including a termite inspection, should be ordered and paid for by the buyer from an inspector deemed to be an expert. After reviewing the inspection report, the buyer(s) has a right to request that the seller(s) address all concerns they may have about the property, which may result in a renegotiation, or even a termination, of the contract.
  4. Get the property appraised. The lender will require a property appraisal to make sure that its value is equal to or greater than the requested loan amount. The appraiser’s evaluation must prove that the property is worth at least as much as the buyer agreed to pay.
  5. Wait on loan approval! When the lender has completed the due diligence and made a decision on the loan, the buyer will be notified. The buyer’s agent as well as the seller’s agent should work to ensure that the lender has all the documents necessary and that all steps are taken in the loan approval process in order to avoid a delay in the closing.
  6. Select a title company, preferably one with a Board Certified Residential Real Estate Attorney, who will close the title or supervise the closing and has years of operational experience.
  • The title company does a title search and determines that the real estate title is legitimate and whom the title is vested in, so the buyer can be confident that he or she is the legal owner of the real estate.
  • This process includes searching for outstanding mortgages, judgments, liens, restrictions, leases, easements, unpaid taxes, or other encumbrances against the property that may affect ownership.
  • The title company will strongly recommend to the buyer to purchase title insurance in case the title examiner or other party had made a mistake in the title search or in case there is some unknown issue back in the chain of title, such as a forgery, for example. This insurance is another level of protection. If the buyer chooses (or if the seller is contractually obligated) to purchase the title insurance for the property, the title company then issues a title insurance policy. This insurance protects the owner and/or lender from potential claims or lawsuits that may result over ownership disputes.
  • Bring the following to the closing – valid photo id (driver’s license or passport), cashier’s check or certified check for the down payment and closing costs (never bring cash), proof of insurance, and the final purchase and sales contract. In case there is a small fee that was unanticipated, it is always a good idea to bring a blank personal check.
  • Expect to sign these and other documents at the title closing. (a) Closing Disclosure or HUD-1 Settlement Statement (multiple pages), (b) Warranty Deed, and (c) title company requested documents.
  1. Purchase homeowners’ insurance. If you are the intended homeowner, expect the lender to have pre-determined requirements. The seller’s agent should help the buyer ensure that proper coverage is purchased. If you are purchasing for cash or if you are a real estate investor, depending on the transaction, either you will purchase it or an end-buyer will acquire the insurance with you as an additional insured.
  2. Transfer utilities. It is prudent for the buyer and seller to make arrangements for the utilities to be transferred to the buyer if necessary, usually upon the closing date. Buyers may need to make application to the various utility companies.

CONCLUSION

Purchasing a house for yourself or as an investor is much more than one big step! It is a series of important actions that must be completed in order to ensure that you will be the lawful owner of the property, take only a suitable financial risk in securing funding, and that the property is in good shape to mitigate big surprises after you take possession.

© 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, PLLC                                escrow2@lonerganlaw.com | 214-503-7509

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Incorporate as an LLC to Protect Your Personal Assets and Reduce Your Risks

If a lawsuit were filed against your real estate business, are you sure your personal assets would be protected?

      

“Consider the situation in which the owner of an investment property leases it to a tenant who decides to throw a big party, during which one of the tenant’s guests falls over a balcony. In today’s legal climate, it is quite possible that the injured guest would pursue a claim based on the ‘unsafe condition’ of the rental dwelling. More often than not, the owner would be named in any lawsuit resulting from the incident.

“If that rental property were owned by a real estate investor individually, he or she would be named in the lawsuit and would have to defend his or her personal assets from the plaintiff’s claims. In contrast, if that property were owned by an LLC, the owner’s risk exposure would be insulated by the protection of the company, leaving only the assets owned by the LLC (as opposed to all of the owner’s personal assets) exposed to potential lawsuits.”1

As a real estate investor, you know you have a lot at stake. Incorporating as an LLC can provide numerous protections to help you preserve your personal assets and reduce other key risks that could cripple or devastate your business.

Here are six of the most significant benefits of incorporating as an LLC.

  1. Reduce Risk of Personal Exposure

If your business is incorporated as an LLC, your personal finances have a veil of protection against lawsuits and creditors. As in the illustration above, if you were to be sued in relation to a property you own, being incorporated as an LLC limits your personal liability. So rather than the lawsuit being aimed at you personally, it will be aimed at the corporation and only the corporation’s assets are exposed. And there is no shortage of potential lawsuits. If a fire were to erupt on one of your properties and spread other places, the corporate veil of the LLC would protect your personal assets from paying for the damages. A testy tenant could cost you untold amounts personally unless the LLC is in place, the title is held by the LLC, and the lease is with the LLC. If a tenant’s guest is harmed, a lawsuit could be pursued. There are many other examples but the point is clear!

  1. Protect Other Investments

If each of your properties is held in a separate LLC and a tenant sues the LLC, all your other properties are protected. In Texas, a Series LLC can also provide that protection without the necessity of separate LLCs being incorporated.

  1. Receive Tax Benefits

Perhaps the most significant tax benefit afforded to owners of LLCs is avoiding double taxation. “Since there is no separate LLC tax, the owner can avoid double taxation on both the rental income generated by the property and the appreciation in value of the property upon disposition. Moreover, the owner of a single-member LLC can deduct mortgage interest similar to a sole proprietor based on current IRS rules.”2

  1. Protect Against Co-Investors

If your real estate partner should die, become incapacitated, or oppose you professionally, your business risk would increase dramatically unless you have an LLC operating agreement in place. This document allows partners to determine the protocols for disputes or if one owner decides to leave the corporation.

  1. Improve Credibility

Having initials after your name that indicate an education level or certification carries a lot of weight! For the same reason, the term “LLC“ being a part of your company name demonstrates that you take your business seriously.

  1. Peace of Mind

Knowing that you have taken such a significant precaution to protect your personal assets by incorporating can allow you to relax a little better when your head hits the pillow!

Your personal assets need to be separate from your business assets in order to protect you and your family from any of the mishaps that can happen in business. Incorporating your real estate business as an LLC provides the necessary corporate veil to do just that. When each of your properties is incorporated separately, you have additional protection that may save your business should you be sued.

There is one warning, however. You must operate the LLC as a standalone entity with its own identity, i.e., separate bank account, separate books, and accurate paperwork. Otherwise you could lose the “corporate veil” and others could reach your personal assets. A lawyer can help you with advice on how to ensure you are protected.

Next Step

The Lonergan Law Firm, PLLC, can help you protect your real estate business by setting up your LLC. Contact us by emailing Escrow2@LonerganLaw.com or by calling us at 214-503-7509 and asking for Gaylene’s personal assistant, Moe.

Footnotes:

1 Weaver, Jeff, Esq. LegalZoom.com. “Forming an LLC for Real Estate Investments: Pros and Cons”. https://www.legalzoom.com/articles/forming-an-llc-for-real-estate-investments-pros-cons. Retrieved 9/29/17.

2Weaver, Jeff, Esq., “Forming an LLC for Real Estate Investments: Pros and Cons”. https://www.legalzoom.com/articles/forming-an-llc-for-real-estate-investments-pros-cons, LegalZoom.com, January 2014. Retrieved 9/29/17.

RESOURCES

Esajian, J.D., “Five Mistakes to Avoid when Forming an LLC”,   https://www.fortunebuilders.com/forming-a-real-estate-llc/, Fortune Builders. Retrieved 9/29/17.

Incorporate.com., “Incorporate a Real Estate Company or Form an LLC”.   https://www.incorporate.com/real_estate.html, The Company Corporation. Retrieved 9/29/17.

Law Inc., “Why LLCs are Crucial for Real Estate Investing.” https://www.lawinc.com/llcs-crucial-real-estate-investors/, LawInc.com, July 26, 2017.  Retrieved 9/29/17.

Merrill, Than, “A Beginners Guide to Starting LLCs for Real Estate: Part 1.” https://www.fortunebuilders.com/beginners-guide-starting-an-llc-part-1/, Fortune Builders. Retrieved 9/29/17.

Weaver, Jeff, Esq., “Forming an LLC for Real Estate Investments: Pros and Cons”.   https://www.legalzoom.com/articles/forming-an-llc-for-real-estate-investments-pros-cons, LegalZoom.com, January 2014. Retrieved 9/29/17.

© Gaylene Rogers Lonergan and Lonergan Law Firm, PLLC, 2017-2018. 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 | Escrow2@lonerganlaw.com |

214-503-7509

How will the new Texas Senate rulings on Wholesaling, Assignments and Double Closes affect your real estate business?

If your real estate investor business includes wholesaling, assignments and double closes, you need to know how you will be impacted by Texas Senate Bill 2212 after September 1, 2017.

Perhaps you have been helping buyers who have experienced financial struggles, divorce, the need to relocate for business, or other matters by purchasing their properties below market value and “assigning” your purchase rights to another person. It’s done every day in Texas. Everyone wins.

Will you be able to continue using this and related real estate investment strategies?

The Bill

Texas Senate Bill 2212, which was enacted in the recent legislative session, effectively changes the way wholesale properties are to be advertised and sold. Specifically the bill amends section 1101 of the Texas Occupations Code to add a new Section 1101.0045 and adds a new Section 5.086 to the Texas Property Code. The new statute takes effect September 1, 2017.

New Section 1101.0045

“(a) A person may acquire an option or an interest in a contract to purchase real property and then sell or offer to sell the option or assign or offer to assign the contract without holding a license issued under this chapter IF THE PERSON:

“(1) Does not use the option or contract to purchase to engage in REAL ESTATE BROKERAGE; AND

“(2) Discloses the nature of the equitable interest to any potential buyer.

“(b) A person selling or offering to sell an option or assigning or offering to assign an interest in a contract to purchase real property without disclosing the nature of that interest to a potential buyer IS ENGAGING IN REAL ESTATE BROKERAGE.”1

New Section 5.086 to Texas Property Code

“EQUITABLE INTEREST DISCLOSURE”

“Before entering into a contract, a person selling an option or assigning an interest in a contract to purchase real property must disclose to any potential buyer that the person is selling only an option or assigning an interest in a contract and that the person does not have legal title to the real property.”1

What is “Real Estate Brokerage”?

The Real Estate License Act that took effect June 1, 2003, defines what acts constitute “real estate brokerage”:

Specifically a “Broker” means a person who, in exchange for a commission or OTHER VALUABLE CONSIDERATION, or with the expectation of receiving a commission OR OTHER VALUABLE CONSIDERATION, performs for another person one of the following acts:

(1) Sells, exchanges, purchases or leases real estate;

(2) Offers to sell, exchange, purchase or lease real estate;

(3) negotiates or attempts to negotiate the listing, sale exchange, purchase or lease of real estate;

(4) Lists or offers, attempts, or agrees to list real estate for sale, lease or exchange;

(5) Auctions or offers or offers, attempts or agrees to auction real estate;

(6) Deals in option on real estate, including a lease to purchase or buying, selling or offering to buy or sell options on real estate;

(7) Aids or offers or attempts to aid in locating or obtaining real estate for purchase or lease.2

What is the effect on wholesale (assignment) transactions?

1) Must disclose in any advertising to buyers that the wholesaler does not own legal title but only equitable title as buyer under a contract;

2) Should offer to sell only the contract, not the property for a designated Assignment Fee price;

3) Assignment Contracts will need to be amended to specify that the wholesaler is only offering an assignment fee for a set fee; and

4) A new disclosure probably should be added to the closing documents for a buyer to sign at closing acknowledging that they were advised that the wholesaler did not own the property and they were aware of the nature of their interest.

Possible Examples of Advertising Dos and Don’ts

“973 Smith Street for Sale – $100,000”

Constitutes real estate brokerage pursuant to the Occupations Code – Offering the underlying real estate for sale.

“Assignment contract for real property at 973 Smith.  Assignment fee of $10,000 payable to XYZ Wholesaler”

Should comply with the new Property Code provision and does not constitute real estate brokerage as it does not market the underlying real estate.

Will this effect double close transactions?

Although not directly addressed by the new law, a wholesaler could have an issue on a double close transaction as well.

In particular the wholesaler would still would have to be careful in advertising a property that they do not own.  Doing so could cause the advertising to fall within the definition of real estate brokerage.

One fix could be to just add in advertising:

“Under contract – offering 973 Smith for $100,000 subject to XYZ Wholesaler’s closing on the purchase”

Penalties for Noncompliance

Section 1101.758 Texas Occupations Code

(a) A Person commits an offense if the person acts as a broker or sale agent under this Chapter without holding a certificate.

(b) An offense under this Section is a Class A Misdemeanor.

This would be a Class A misdemeanor for EACH OFFENSE. Multiple Class A Misdemeanors can result in a Felony Charge.

In addition, the Occupations Code provides for a private cause of action for violations such as receiving consideration as a result of acting as a broker.  The aggrieved person may receive a penalty of not less than the amount of money received or more than three times the amount received by the violator.3

Conclusion

Wholesaling in Texas can be a lucrative endeavor. However, under this new law, changes are going to have to be made in the way wholesale investors market their properties. Once the law goes into effect in September 2017, we will see how this new law is enforced and investors will need to adjust their behavior accordingly.

Resources

1Texas Senate Bill 2212. LegiScan. https://legiscan.com/TX/text/SB2212/id/1557149. Retrieved July 25, 2017

2 Texas Real Estate License Act. Texas Legislature. http://www.statutes.legis.state.tx.us/Docs/OC/htm/OC.1101.htm. Retrieved August 3, 2017.

3 Texas Occupations Code. Texas Legislature. http://www.statutes.legis.state.tx.us/?link=OC. Retrieved August 3, 2017.

© 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

Avoid One of the Biggest Real Estate Financial Risks of a Lifetime

What is the risk of using seller financing to purchase your home without closing at a title company or attorney’s office?

emply pockets

Here’s a perfect example.

The Dallas Morning News (Dallasnews.com) reported a story on August 2, 2017 about a construction worker in Dallas who responded to an ad on a popular online shopping site about a house for sale. The man who answered the phone told the buyer to meet him at the Dallas County Records Building, where the construction worker gave him a certified check in exchange for a warranty deed. It seemed legitimate. Even when someone knocked on their door a couple of months later and claimed to own the house, the new home owners simply considered the incident a scam attempt. Unfortunately they and six other families indeed had been victimized and lost their homes, including all the money they had invested in repairs. 1

How could such a tragedy happen and how can you avoid it?

Seller financing is one of many legitimate ways to finance your home purchase, and is often a great option. However, when you use seller financing to purchase your main residence, close at a title company or attorney’s office. Otherwise you could lose your home and the money you have invested in it with no reprisal.

What is seller financing?

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

Why would someone choose seller financing?

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

Why is it essential to have a real estate attorney and a title company involved?

Here’s what personal finance expert Amy Fontinelle stated in an article about real estate mortgages. “Because seller financing is uncommon, the buyer and seller would be wise to each consult financial and legal experts who understand how it works before entering into such a transaction. These experts should look out for their clients’ best interests and guide them through the process.”2

David Krulac, a licensed real estate professional with over 30 years’ experience and real estate investor, made this comment in a discussion forum related to using title companies. “I have been professionally trained in title searching and I get title insurance.  There can be an ex-spouse that can claim an interest in the property.  There can be un-recorded mechanic’s liens.  There can be Federal Tax Liens.  There can be state & local government liens.  There can be delinquent taxes.  Here the tax delinquencies are not recorded until the year after they occur, for example. Another big one not recorded is nursing home liens, and public welfare liens.  Often times they don’t get recorded until the recipient passes away.”3

“Don’t just think about hiring a real estate attorney, hire one as soon as you move into the closing phase. There is just too much at stake to risk letting some sort of legal snafu torpedo your sale. Your state might require you to hire an attorney, but even if that’s not the case, don’t skimp on this worthwhile expenditure.

“An attorney will guide you through the paperwork, ensuring that you are complying with state law every step of the way. Your real estate attorney will also work closely with the title or settlement company and the buyer’s attorney to make sure that the transaction proceeds smoothly. A local real estate attorney is likely to have worked with the title company and opposing attorney on past transactions, making it even more likely that your deal will move forward without complications.

“The last place you want to be is at the closing table with a professional closer and your buyer’s attorney staring at you and expecting you to respond to a legal question that you are not prepared to answer. You need an experienced advocate on your side to be certain that your interests are always represented,” stated Steve Flanagan, author at forsalebyowner.com, owned by Tribune Publishing Company.4

Bottom Line

Regardless of the source of your financing, to protect your investment, you need to close at a title company, preferably one that has a real estate attorney as well. If you live in an area where there is no title company, then you need to close at the office of a real estate attorney who is familiar with these types of transactions.

— 

References

1Martin, Naomi. “Undocumented immigrant family sees dreams dashed in home scam”. Dallas Morning News, 2 August 2017. https://www.dallasnews.com/news/dallas-county/2017/08/02/undocumented-family-sees-dreams-dashed-home-scam Retrieved 8/17/17.

2Fontinelle, Amy, “The Ins And Outs of Seller-Financed Real Estate Deals”. Investopedia.com, Investopedia.com, February 8, 2017. http://www.investopedia.com/articles/mortgages-real-estate/10/should-you-use-seller-financing.asp. Retrieved 8/17/17.

3Krulac, David, “Closing Without Title Company” [Msg 3] Message posted to https://www.biggerpockets.com/forums/311/topics/173436-closing-without-title-company. Retrieved 8/17/17.

4Flanagan, Steve, “When to Hire a Real Estate Attorney and Title Company”, ForSaleByOwner.com, ForSaleByOwner.com  (a Tribune Publishing Company),  https://www.forsalebyowner.com/sell-my-house/closing/hire-real-estate-attorney-title-company. Retrieved 8/17/17.

© 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

When and How to Evict a Tenant in Texas

If you invest in rental properties, your income depends on your tenants’ making their full payments on time . . . and on the Texas Property Code.

If your tenants do not pay on time, what are your options?

It is important for you to know the legal protocol to deal with evictions as well as options other than evictions. Here is the essential information you will need before deciding to evict and the steps to take to evict if you decide it is necessary.

What is an eviction?
An eviction is a lawsuit filed by the owner of property being occupied by others, usually tenants, to remove all persons and their personal assigns from the property.

How can I determine whether to file a lawsuit?
If your tenant has not paid the rent on time, in Texas the landlord may give the tenant the option to pay the rent late or give the tenant a Notice to Vacate. If you allow the late rent payment, you must notify him/her in writing that the rent is due. Otherwise the tenant must move out.

If the property has been abandoned, can’t I just enter and change the locks?
Not necessarily. If it appears that some possessions have been left on the property, the tenant may not have abandoned and vacated the premises. According to Texas law, a property is considered abandoned if it is “empty, that is, without contents of substantial value . . . the term ‘substantial value’ does not mean merely substantial monetary value, but the term includes value attributable to the utility of the furniture. It is well known that furniture, because of age and condition, may have little monetary value, but to the owner or user has substantial utility, and retention in the house would evidence the absence of complete abandonment. From the evidence recited we are of the view that the reasonable mind could conclude there was furniture of substantial value in the house and therefore it was not vacant.” Knoff v. U.S. Fidelity, 447 S.W.2d 497 (Tex. Civ. App.—Houston, 1969, no writ). In this event, an eviction proceeding would still be required. Otherwise the landlord could be sued for conversion.

How to move forward with eviction
In Texas, if a tenant has not paid the rent, the landlord can begin the eviction process the day after the rent was due.

Unless the lease or rental agreement specifies otherwise, rent is considered late just one day after it is due. Although you must allow a one day grace period before charging a late fee, you are permitted by Texas law to give a Notice to Vacate to a tenant who is only one day late on paying rent.

After receiving this eviction notice, the tenant is allowed three days by Texas law to pay the rent if the lease or rental agreement includes this provision. Of course the agreement may specify a shorter or longer period of time for the rent to be paid.
The Notice to Vacate must include the following information and is required to be in writing:
1. Name(s) and address of tenant(s)
2. Date the notice was served on the tenant(s)
3. The reason for the notice, i,e., failure to pay rent and the period of such failure
4. A statement that the landlord may pursue legal action (an eviction lawsuit) if the tenant does not move
5. A statement that the tenant has three days to move out, including the date and time when the tenant must be out
6. A statement of how the notice was given to the tenant, i.e., by actually giving the notice to the tenant or mailing the notice

If there is an option for late rental payment in the lease or agreement, the Notice must state the number of days the tenant has in order to pay or vacate the property.

Don’t miss this part . . .
If the Notice to Vacate excludes any of the necessary information, then it is not valid. If this were to happen, you would need to provide another notice to the tenant, which starts the 3-day period again.

Process for Delivering Notices to Vacate in Texas
1. The landlord or his/her agent may hand the Notice to the tenant or anyone living in the property who is at least 16 years of age.
2. You may post the notice on the inside of the front door if you can access it legally.
3. You can mail the Notice to Vacate by US Mail or Registered or Certified Mail; however, you must request a Return Receipt.
4. If there is no mailbox on the rental property and if the landlord has no means by which to legally enter the property, then you may post the notice on the outside door of the property — or somewhere visible on the front of the property if there is anything preventing you from gaining access to the inside of the property. This should be the last resort.

And, you guessed it . . .
Texas law requires that the landlord serve the notice properly or a new notice must be created. This starts the process anew.

What if the tenant pays or moves out?
If the tenant pays or moves out within the specified time period, you do not have to proceed to evict and may not evict if they paid as required by the Notice.

The final step
If the tenant does not pay the rent or move out and if you have carefully followed all the processes and desire to evict the tenant, you must proceed to court. File an eviction proceeding (Forceable Entry and Detain) with the Justice of the Peace Court in the district where the property is located. If you are successful in court, the court will issue a writ of possession and a constable will supervise the removal of the tenant.

The Bottom Line: It is your decision
Your rental property provides an income. You have the right to be paid on time. But you may also want to balance the importance of being paid on time every time with the importance of having a good tenant who takes care of your property. In the end, you must decide!

© 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

 

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.

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

 

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