Category Archives: Deeds

As of May 15, 2018, the new TREC residential contract forms are mandatory for use in Realtor-negotiated residential contracts in Texas. While these forms are designed for use by licensed real estate professionals, many consumers (and attorneys, for that matter) rely on the forms as a well-balanced, comprehensive document to facilitate the sale and purchase of homes and other forms of residential and farm and ranch property.

This article shall summarize the recent changes to the forms, focusing on the TREC One-to-Four Family Residential Contract. Other TREC forms contain the same changes. There are a few changes of relative inconsequence; as a result, those revisions will not be highlighted here.

The Effective Date box above the parties’ signature has been modified to make clear that the date placed in the box, which should correspond to the last date both parties have signed and initialed all pages and changes thereto, is a defined term (“Effective Date”) for purposes of calculating time deadlines throughout the Contract.
Paragraph 2 of the Contract adds a section, 2E, making clear that if the Seller desires to retain minerals, he or she must use the mineral reservation addendum rather than just adding the word “minerals” to the Exclusions section (2D). The reason? An agreement to reserve minerals needs to include many more details (as found in the addendum) than just one word.
MAJOR CHANGE: Prior to these new forms, the TREC contract was silent as to how many days a buyer had to deliver Earnest Money to the Escrow Agent. Such omission has led to many disagreements, as Sellers sought to terminate contracts prior to the Earnest Money being deposited in order to accept later, more attractive offers. Under the new changes, the Buyer is allowed three days to deliver the Earnest Money to the Escrow Agent (typically the title company). Please note that the time period is not three BUSINESS DAYS; just three calendar days. HOWEVER, if the LAST day to deliver Earnest Money is a Saturday, Sunday or legal holiday, the deadline is extended to the next day that is not a Saturday, Sunday or legal holiday. Some pointers:
- Unless otherwise agreed, a Buyer would have until 11:59 PM to deliver the Earnest Money on the last day of the period; however, because delivery after-hours to a closed title company is both difficult and hard to prove, Buyers are encouraged to deliver the Earnest Money during the normal business hours of the title company.
- Buyers should ask that a title company not only date the receipt of Earnest Money on the receipt page following signatures, but add the time of day the Earnest Money was received. The new Receipt language has been modified to include a place for date and time, and title companies should routinely include both bits of information when receipting Earnest Money.
- What is a legal holiday? The safest guideline would be to consider legal holidays to be days that banks and post office are closed; however, it is highly suggested that if the title company is open for business on one of those days, such as Columbus Day or President’s Day the Earnest Money should be delivered on that day.
Paragraph 6A, dealing with exceptions to any title insurance policy issued as part of a transaction, has been expanded to include 6A(9), providing that every title policy can (and will) include a Dept. of Insurance-approved exception to minerals. With this addition, Buyers can no longer successfully object to the regulatory exclusion; however, if the title commitment contains other exceptions specifically describing certain mineral issues, a Buyer should still be able to object to those.
Paragraph 6D was modified to clarify the procedures and time deadlines Sellers face in attempting to cure any title/survey objections made by Buyer. One item of note: if objections are made and Seller is unable/unwilling to cure, the former contract called for an automatic termination of the contract. The new changes do not allow for an automatic termination; rather the Buyer is given an election of whether or not to terminate. And a practice pointer: Make sure Buyer is given enough time to review, digest and seek legal assistance on a title commitment; a short deadline inserted in 6D may effectively cause title issues to be inadvertently waived by not timely objecting.
Two new Addendums (highlighted below) have been promulgated for use, and are now included in the list of potential addendums in Par. 22.
Since presumably the Earnest Money may often be delivered to the title company separately from the contract (due to the three day allowance), the Receipt section has been divided into two separate boxes. Title companies are encouraged to “time stamp” their receipt of Earnest Money to reflect the time of actual delivery.
TREC Farm and Ranch contracts are now constructed to provide for the use of the normal TREC mineral reservation addendum when appropriate; that addendum has heretofore been discouraged in farm and ranch transactions.
A new Addendum has been promulgated, the Addendum for Authorizing Hydrostatic Testing. This addendum (along with language in Par. 7A of the Contract) requires the Seller to consent before any hydrostatic testing is performed on behalf of Buyer during an inspection. Such testing is feared to potentially cause damage to the plumbing system, so the Seller needs to agree to such testing. The Addendum contains a choice as to who is responsible for damages to the system. The suggestion would be for Buyer to be responsible for all damages occurring during its inspection.
MAJOR ADDITION: Due to recent market competition, Buyers have often submitted contract offers above listing price in order to sway the Seller into accepting their offer. However, if Buyers are willing to pay a price over and above a listing price, there is often a chance that the property will not appraise for that inflated price. In addition, Sellers have long wrestled with the problem that many appraisers retained by non-local lenders undervalue many properties due to an unfamiliarity with local market nuances. Licensed real estate agents have struggled to draft wording to deal with the inevitable low appraisals, so TREC has finally offered up an Addendum to cover the issue, including three different options depending on the parties’ needs. Of particular note is that none of these options require a modification of the sales price based on the appraisal; rather, the parties adjust (raise) the cash down payment a buyer pays in order to satisfy the lender’s loan -to-value ration requirements. The first option calls for the Buyer to agree to pay any amount necessary to convince a lender to fund a loan at the agreed Sales Price; the second option limits how much extra a Buyer may be required to pay; and the third option allows a Buyer to unilaterally terminate the transaction if the property doesn’t appraise for a certain value, regardless of what the lender is willing to do.
Two new TREC forms are on the way as well: The TREC Buyer’s Termination form adds sections dealing with Buyer’s right to terminate based on the Appraisal Addendum (discussed above), and the right to terminate due to an uncured title objection. Lastly, TREC is in the process of unveiling its first ever form for Seller’s use in terminating a contract due to Buyer’s default. In the past, TREC refrained to issue such a form, since it requires a legal determination that a Buyer is in default before a Seller can exercise the right to terminate. The new form includes two options: the first allows a Seller to terminate due to Buyer failing to timely deliver Earnest Money, and the second allows Seller to terminate for any other specified reason. Sellers are encouraged to specify with particularity the alleged default, rather than just listing a paragraph number.

All in all, the newest TREC revisions continue to refine the contract forms into one of the better sets of promulgated forms available in the industry, and are recommended for use in most customary residential transactions.

Jeffrey A. Rattikin is an AV Pre-eminent rated attorney, Board -Certified in Residential Real Estate Law by the Texas Board of Legal Specialization. Mr. Rattikin has provided transactional legal services to clients across the State of Texas for over 28 years, emphasizing real estate, business and title law. Mr. Rattikin continues to define new legal frontiers through his incorporation of technology to enhance the attorney-client experience, as evidenced by his firm’s innovative websites www.rattikinlaw.com and www.texaslegaldocs.com.

Contracts, Deeds, Legal Documents, Real Estate Law, Wills

Life Estate, Rights of Survivorship and Transfer on Death Deeds: Which is Right for You?

May 1, 2018 Jeff Rattikin

Current warranty deeds are not necessarily the best choice to avoid probate.
Dying without a will, while holding real estate, leads to much complexity and unintended consequences.
A life estate deed allows owner to maintain possession, but the transaction is final and cannot be reversed without consent.
A Right of Survivorship can avoid probate, but cannot be reversed without consent and may lead to loss of valuable tax exemptions.
A Transfer on Death Deed allows for the execution of a present document whereby an owner can maintain possession and tax exemptions, avoid future probate, and retain the right to rescind at any time before death.

In today’s world of online searches for quick and economical legal solutions, consumers are often faced with a daunting task of attempting to decipher what document may best fit their specific situation and needs. Online computerized providers of generic legal forms are simply incapable of asking all the pertinent questions needed to accurately assess a situation. As a result, consumers often select, fill out and file legal documents that not only fail to meet their objectives, but cause more harm than good.

Such is the case in deciding what document may be best to transfer title to real estate when an owner’s death is on the horizon. Certainly there is no “one-size fits all” solution, as the parties’ actual intent in desiring a conveyance must be evaluated to narrow the choices. A key example: If a party’s intent in transferring ownership of real estate is driven not by the current need or desire to sell to another, but more the desire to avoid the perceived cost and expense of a future probate of the current owner’s estate after death, then a common warranty deed or quitclaim deed is probably not the best choice of documents. Rather, the parties should consider several options:

No conveyance – If a property owner dies while still holding title to the real estate, then title will pass either to the beneficiaries of the last will and testament, if there is one, or by operation of Texas law (intestate succession). While the probate process in Texas is not relatively expensive, many parties mistakenly assume probate should be avoided, and search for other mechanisms. Moreover, passing away without naming beneficiaries in a valid will leads to all kinds of complexities and unforeseen/unintended future ownership consequences.

Present Conveyance – The present conveyance by warranty deed would serve to immediately transfer title to the grantee; the property would no longer be owned by the grantor. As such, the property may lose certain valuable tax exemptions (such as homestead and over-65 exemptions), and the grantor could no longer legally control the future of the property. Since the deal is done, the grantor cannot later change his or her mind and leave the property to some other loved one or beneficiary.

Life Estate Deed, or a Deed Reserving a Life Estate – Under this type of instrument, a property owner may presently convey the property to his/her intended beneficiaries, but reserve the right to continue living on the property until death. This option serves to avoid future probate upon death (at least as to the real estate), give the intended beneficiary some peace of mind that they have secured title to the property, but allows the grantor to retain possession, along with any tax exemptions they may qualify for in most counties. The drawback is that in conveying title now, the grantor cannot change their mind and “undo” the transaction later without the consent of the beneficiaries.

Joint Tenancy with Right of Survivorship – Under this mechanism, an owner may add another person to the title, and allow the survivor of either owner to take full title upon death of the other without the need for probate. But not all title companies will insure properties subject to these type deeds without involvement of the probate court, and again, the grantor cannot change their mind and “undo” the transaction later without the consent of the grantee. Further, the amount of tax exemptions may be reduced due to the addition of another owner, who may not qualify for the same exemptions.

Which leads now to a new option, known as the Texas Transfer on Death Deed – This new type of deed allows a present property owner to convey an interest now to an intended beneficiary and thereby avoid probate upon their death; but in the meantime, the grantor can continue to occupy the property, qualify for present tax exemptions, and even change their mind and rescind (cancel) the deed at any time prior to death. The grantor may also sell their property and keep the proceeds without the joinder of the grantee. Because of the increased flexibility this instrument affords, the Transfer on Death Deed should prove to be a very popular instrument in Texas, one that families should consider as part of their overall estate planning efforts.

Contracts, Deeds, Legal Documents, Mortgage/Finance, Real Estate Law

Warranty Deed or Quitclaim Deed? Not Even Close

April 15, 2018 Jeff Rattikin

Quitclaim Deeds are not acceptable conveyances in most instances; they merely “release” claim of title
Warranty Deeds are the preferred instrument to convey title to real estate.
General warranty deeds contain expansive warranties of title.
Special warranty deeds are limited in nature, providing lesser protection from claims.
Special warranty deeds should be accepted only if backed by adequate title insurance protection.

How do Texans effectively transfer real estate ownership from one to another? While mid-century Hollywood would lead you to believe that signatures on the back of a cocktail napkin, or better yet, the good ole handshake, serve as acceptable and perfectly enforceable forms of agreement, today’s consumers must be much more careful, especially with the myriads of legal forms swamping the internet.
When conveying property title in Texas, the content and structure of a proper written, signed and notarized agreement is of utmost importance. But what form of agreement is needed? If the goal is to simply transfer property title, either in whole or in part, from one or more parties to another, without the necessity of contracts, closing statements, mortgage payoffs, title insurance, etc., then that goal may be accomplished with a warranty deed. Examples may be a transfer between former spouses during/after divorce, a gift of property from one to another, or a transaction where the parties are familiar with each other, do not require a closing, mortgage payoff, title insurance, etc., and just need the legal documentation to evidence the transfer, choosing to handle any financial considerations between themselves. If the seller plans to “seller-finance” the transaction and receive future payments, additional loan documents would be necessary.

But what kind of deed? A quick search of the internet will uncover a plethora of forms, most often the quite popular but oh-so-troublesome Quitclaim Deed (often mistakenly referred to as a “quick-claim” deed”). In Texas, quitclaim deeds should be avoided in all situations. Why? Because, contrary to long-held beliefs that they serve to transfer title, in actuality they fall short of that goal. Rather than “conveying” title from one owner to another, they merely “release any claim” to a property in favor of another. That “stepping-aside” and releasing any claim is not NEAR strong enough to convince a title company, for example, to insure the grantee’s ownership. Title attorneys and title companies typically require that all transfers in a chain of title be accomplished by actual conveyances, not releases.

Which leads to the need for the most commonly accepted form of deed, the warranty deed. A warranty deed serves to convey title, while at the same time warrants to the grantee that they will hold title free and clear of any superior lien or claim of others. Especially combined with title insurance, a warranty deed provides a grantee the security they need to acquire such a major asset.
Warranty deeds typically come in two different flavors: general warranty deeds, and special warranty deeds. Despite its perhaps attractive name, a special warranty deed isn’t so special after all. It is a limited deed, whereby a grantor warrants that title is free and clear of claims only during the time of the grantor’s ownership, but not prior in time. Conversely, a general warranty deed contains warranties of title from the beginning of time, providing a grantee much greater security.

If a grantor simply insists on signing only a special warranty deed, a prudent grantee should accept only if they obtain title insurance from a reputable title insurance company, providing third party protection from prior claims of others.

Deeds

Deeds in Texas: It’s the Type that Counts!

August 5, 2014 Jeff Rattikin

One of the most puzzling issues confronting Texas consumers when attempting to document a real estate transfer is deciding which type of transfer deed is appropriate to use. For generations, well-meaning advisors have unknowlingly led their questioners astray by repeating a well-circulated but extremely inaccurate mantra: In order to transfer title to real estate, the seller should give the buyer a quitclaim deed, often mispronounced a quickclaim or quick claim deed. On innumerable occasions, consumers have contacted my office asking for such a document, claiming that the county clerk’s office at the courthouse advised them to utilize this document. And the bad advice is not limited to just the non-attorney public. Many, many divorce lawyers and probate lawyers routinely subject their clients to potential title issues by including quitclaim deeds in their work product. How such misinformation and misuse has become so widespread is a mystery; however, Texas law is very clear that in most instances, a quitclaim deed is not appropriate, and could lead to future problems.

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