When loaning money to property owners, especially when the loan proceeds are used to purchase real estate, the lender is well advised to take back a security interest in the property, which allows the lender to foreclose and take the property back in the event the borrower defaults on its obligations. Otherwise known as a mortgage, in Texas a security interest in real estate is known as a deed of trust. Texas laws are very strict and unique in the form the documents must take to be enforceable. Likewise, the state statutes limit borrowers from putting their homestead up as collateral except in very specific circumstances. If the property to be secured is indeed the homestead of the borrower, you are advised to call our office at 877.TLD.7773 to discuss the specifics. Otherwise, if the real estate is not the homestead of the borrower, a promissory note secured by a deed of trust is the proper way to document your transaction. In the Note, the parties should address issues related to payment terms, interest rate, late fees and prepayment penalties, among other issues. The document is signed by the borrower, but does not have to be filed of record. The lender should retain possession of the original Note, and return it marked “Paid in Full” upon full payment.
Documents to be prepared for you: “Follow-Through” Instructions, Promissory Note, Deed of Trust.