Homestead is Homestead is Homestead

 

Remember Texas has very strong "homestead laws" created by the state Constitution and further defined by statute. The purpose of these homestead laws is to protect the homestead from forced sale by creditors to pay debts of the owner.

 

There are only 8 kinds of liens that can be validly created and enforced against homestead:

1. purchase money

2. construction of improvements for owner occupancy

3. securing loans to pay ad valorem taxes thereon

4. to refinance federal tax lien of both spouses

5. home equity

6. reverse mortgage

7. owelty lien imposed by divorce court or created by agreement of spouses.

8. conversion and refinance of installment contracts for purchase of a manufactured housing unit (MHU) plus costs of installation (the MHU must be permanently affixed to the land).

 

Special care must be taken when insuring the validity of any of these "homestead" liens or a refinance thereof. Of particular difficulty is No. 2 above - homestead construction.

 

REMEMBER: The Texas Constitution and statutes require that for a construction lien to be valid against homestead:

 

1. A valid Mechanic's Lien Contract must be created between a real builder (not a brother or brother-in-law or a wholly owned entity) and the owners (including the owner's spouse if only one is in title) of the land on which improvements are to be made or added, before any work begins on the land or any supplies are delivered to the land.

2. The Mechanic's Lien Contract must be recorded in the real property records of the county where the land is located before any work begins on the land or any supplies are delivered to the land.

 

SPECIFIC PROBLEMS:

 

a. The Mechanic's Lien Contract (MLC) needs to clearly describe "the improvements that the parties agree and intend are to be built by the Contractor pursuant this contract and lien agreement." Lenders and many attorneys that draft this document do not want to be specific in describing the improvements to be made. Many will simply describe the improvements as "improvements" or "a one story house" or even "improvements as agreed to by the parties." This is not acceptable to insure the construction lien. These are all too vague to create any certainty as to what the "Contract" actually covers or means and thus the "validity" of the contract is in question.

b. To insure the lien created for homestead construction, the MLC needs to state fairly specifically in the document what the improvements are to be, such as: "a 3 bedroom, 3 bathroom, one story brick home with attached 2 car garage and 20'X18' rectangular pool." OR, the description can be by direct reference to construction plans, such as: "a brick home as per plans and specifications dated ___________, drawn and created by _____________ ", or by reference to a contractor's construction contract which itself incorporates the detailed construction plans.

 

Under either of these examples immediately above, you need to see and preferably retain copies of such specific plans in your file in order to later be able to prove up the validity of the MLC.

 

Many customers and their attorneys do not want to share any documents that relate to the cost of the homestead construction or specifics of the layout claiming "privacy" concerns or that it is not necessary for "insuring" the lien. Privacy concerns are relevant but in most instances they are not controlling. If you look at and verify the plans and the description of those plans referenced in the MLC, even if you don't get a copy of them, there is no privacy issue because that knowledge is noted in your GF but not disseminated further unless we need it to prove the validity of the lien insured.

 

Don't hesitate to call underwriting counsel with any questions regarding the wording and descriptions used in a MLC and the DT that renews such lien.

 

Bruce D. Liesman, Chief Texas Counsel

 

Bruce D. Liesman, CTIA, CAEA

VP - Chief Texas Counsel

[email protected]

Cell: 210-265-6816

 

Jay Fitzgerald

Texas Counsel

[email protected]

Cell: 512-757-0199

 

Eric McNeese

Texas Counsel

[email protected]

Cell: 325-203-3313

  

Tava Patterson

Acct. & Office Admin.

[email protected]

Office: 512-852-7600
 

 

Teresa Frost, CTIA

VP - Texas Agency Manager

[email protected]

Cell: 512-497-2054

 

Lisa Garrett

VP - Texas Agency Representative

[email protected]

Cell: 210-602-0752

 

Julie Kidwill

VP - Texas Agency Representative

[email protected]

Cell: 817-832-6457

 

Denise Smith Holmes

Texas Regulatory Compliance Coordinator

[email protected] 

Office: 512-852-7600
 

 


National Investors Title Insurance Company | 5900 Shepherd Mountain Cove | Bldg. II, Suite 220 | Austin | TX | 78757