Bulletin: TX000051

Dear Associates:

The Texas Legislature passed many bills relating to real estate in 1999. The following are some of the more important bills relating to title insurance.

NEW DISCLOSURES

Seller Disclosure of Annexation (HB 167; Section 5.011, Property Code) Effective 1/1/2000
A seller of land must give the buyer notice in the contract or by separate notice that the land may be annexed by a city. The requirement does not apply to some sellers, such as a mortgagee who acquired by foreclosure or deed in lieu of foreclosure. The requirement does not apply if the land is in the city limits. If the seller fails to give the notice, the buyer can terminate the contract no later than the date of closing. [See Disclosure in Exhibit 1]

It is not your responsibility to see that the seller gives the disclosure.

Landfill Disclosure (SB 1447; Section 363.064, Health and Safety Code) Effective 9/1/99
The county clerk must record a notice identifying former municipal solid waste landfills.

Company Policy: Except to the Notice of Former Landfill if it applies to the land.

MUD District Notice (HB 641; Section 49.452, Water Code) effective 9/1/99
The MUD notice law is amended to provide for three separate notices: districts in extraterritorial jurisdiction of a city; districts in a city; and, districts not in a city or the extraterritorial jurisdiction of a city. A person is not liable for unintentionally using the wrong form. [See Disclosures in MUD District Notices available through the references section at the end of this bulletin]

Notice of Membership in Property Owners' Association (HB 2224; Section 5.012, Property Code) Effective 9/1/99, but applicable only to contracts on or after 1/1/2000
A seller of residential property, subject to membership in a property owners' association, must give the buyer a written disclosure. The notice must be given with or in the contract. If not given, the buyer may terminate the contract before closing. The disclosure is not required on some sales, such as by a mortgagee who acquired title by foreclosure or deed in lieu of foreclosure. [See Disclosure in Exhibit 2]

It is not your responsibility to see that the seller gives the disclosure.

Property Owners' Association Resale Certificate (SB 434; Chapter 207, Property Code) Effective 9/1/99
Upon request of the seller, seller's agent, or seller's title company, the property owners' association must provide a resale certificate, which shall include: the amount of the current assessment; any assessments due, but not yet paid; capital expenditures approved; reserves; unsatisfied judgments; current budget; and current owner violations of restrictions. The association may charge a reasonable fee, which is not established by statute.

If asked by the parties, you may request the resale certificate. You are not required by law to do so.

Coastal Erosion (SB 1690; Section 61.025, Natural Resources Code) Effective 9/1/99
The bill amends the coastal erosion notice that a seller must give. The seller must give the notice if the land is seaward of the Gulf Intracoastal Waterway. [See Disclosure in Exhibit 3]

It is not your responsibility to see that the seller gives the disclosure.

NEW PLATTING LAW

Platting outside of Cities (SB 710; Sections 232.0015, Local Government Code) Effective 9/1/99
The law now requires platting if an owner divides land into two or more parts to lay out a subdivision, lots, or streets, alleys, squares, parks, or other parts to be dedicated to public use or for use of owners fronting on the parts. The law exempts sales of tracts exceeding 10 acres in area if the owner does not lay out part of the land for use by the public or adjoining owners (e.g. streets or parks). [See new exemptions from platting with County in Exhibit 4]

Company Policy: The title insurance policy does not insure against subdivision violations unless a notice of enforcement appears in the public records.

HOMESTEAD

10 Acre Urban Homestead and End of Business Homestead Unless Adjacent to Home (SB 496 and SJR 22; Section 41.002, Property Code, and Section 51, Article XVI, Texas Constitution) Effective 1/1/2000 if approved 11/2/99
The constitutional amendment (SJR 22, Proposition 6) will be voted on November 2, 1999. If it passes, we will send a new bulletin.

Overburdening of Homestead (SJR 22; Section 51, Article XVI, Texas Constitution) Vote 11/2/1999
Overburdening of homestead occurs if a mortgage on homestead is refinanced against a smaller part of the homestead without a proportionate reduction in principal. The overburdening of the remaining part of homestead subject to the refinance may result in a partially invalid lien. The proposed constitutional amendment would expressly allow "overburdening."

Company Policy: You may immediately insure refinances of valid liens on homestead, where the new mortgage covers only a part of the homestead previously mortgaged. You should verify that the new mortgage includes the home.

Urban Homestead vs. Rural Homestead (SB 496; Section 41.002, Property Code) Effective 9/1/99
Prior law said that homestead would be considered rural if not served by municipal utilities and fire and police protection. The new law provides that land is considered urban if located in a municipality, the extraterritorial jurisdiction or platted subdivision and is served by police protection, and three utility services provided by the city or under contract with the city.

Company Policy: You may rely upon an affidavit claiming that the land is urban homestead if the land is located in a municipality or the extraterritorial jurisdiction of a municipality, the borrowers sign the affidavit in Affidavit of Urban Homestead and Designation of Homestead (available through the references section at the end of this bulletin) and you do not know that the land is rural in character. If the affiants indicate that any of the statements in the affidavit are untrue, please call our underwriting personnel.

Spreading of Homestead Lien (SB 496; Section 5.042, Property Code) Effective 9/1/99
Prior law did not allow a refinance on homestead to include land not previously encumbered. The new law allows an existing valid homestead lien to be refinanced by a new mortgage that covers additional homestead property.

Company Policy: You may insure refinances of valid liens on homestead where the new mortgage covers additional homestead land, so long as one of the prior liens covered the home. Please call our underwriters if you are asked to insure other transactions.

Refinance of Manufactured Home Lien (HB 1086; Sections 62.001, et seq., Property Code) Effective 9/1/99
If a manufactured home is "converted" to real property, the law now provides that the purchase money lien on the home is converted to a purchase money lien on the land. This is similar to the bill allowing "spreading" of liens on homestead.

Company Policy: You may insure refinances of purchase money liens for manufactured homes, even though the purchase money lien is not secured by a mechanic's lien contract. You must process the cancellation of the certificate or document of title and record the certificate of attachment after closing. You must secure a copy of the purchase money contract and pay off the balance owed on that contract for the manufactured housing unit. We prefer that the new deed of trust say that it is refinancing the purchase money loan on the manufactured housing unit. For example, the new deed of trust could say "The note renews and extends the balance that Grantor owes on a loan or credit advance document for the purchase of a manufactured home. Grantor expressly acknowledges that the lien on the manufactured home has been converted to a lien on the real property described in this instrument pursuant to Chapter 62, Texas Property Code, and that the lien is hereby renewed and extended in full force on the real property described in this instrument to secure the payment of the note."

Reverse Mortgages (SJR 12; Article 16, Section 50, Texas Constitution) Vote 11/2/99
This amendment to the constitution would change the requirements for a reverse mortgage on the homestead residence. If it passes, we will send a new bulletin.

TITLE INSURANCE

Title Insurance Audit (SB 105; Article 9.39, Insurance Code) Effective 9/1/99
The title insurance agent must send, by certified mail, to the department of insurance an annual audit of trust fund accounts before the 91st day after the end of its fiscal year. The title insurance agent must send a copy of the audit report with its letter of transmittal to its underwriters. If an underwriter does not receive the audit report before the deadline for mailing, it must report that omission to the department not later than 30 days after the expiration of the 90-day period for mailing the report.

Tax Coverage (HB 1453; Article 9.07A, Insurance Code) Effective 9/1/99
This bill allows the commissioner to adopt tax coverages on residential owner policies issued to individuals. The policy may insure against taxes for prior years that are delinquent because of rollback taxes. The policy also may insure against taxes for prior years because of homestead exemptions granted to former owners or because of omitted improvements not previously assessed. The Commissioner will adopt coverages relating to such taxes pursuant to proposals submitted at the recent title insurance hearing. We will send a new bulletin when the Commissioner rules on the proposals.

Surrender or Forfeiture of License (SB 92; Articles 9.37, 9.55, 9.56, Insurance Code) Effective 9/1/99
The commissioner of insurance may institute disciplinary proceedings against a title insurance agent or escrow officer after surrender or forfeiture of that person's license for prior misconduct. This law is primarily designed to prevent a common loophole: individuals turn in a license if they are suspected of wrong doing and then they secure a new license.

COMMERCIAL TRANSACTIONS

Letters of Credit (SB 85; Chapter 5, Business and Commerce Code) Effective 9/1/99
This bill changes the law on letters of credit. Letters of Credit may be issued electronically. A letter of credit is revocable only if it says so. If the letter of credit has no expiration date, it expires one year after date of issuance. If a letter of credit says it is perpetual ("evergreen") or rolls over perpetually, it is effective for five years. The letter of credit may not be transferred unless it says so. An issuer has up to seven business days after receipt of documents to honor or give notice of refusal to pay to the presenter, unless the letter of credit has a shorter time for review.

Suggestion: Consider the following if you accept a letter of credit: it must say it is irrevocable; it must contain an express expiration date (do not exceed five years and do not have automatic rollover); it should not require you to certify facts or default; it should require the issuer to honor the letter of credit or give notice of discrepancies within two business days. Before accepting a letter of credit as security for an indemnity, please call our underwriting personnel.

Secured Transactions (SB 1058; Revisions to Chapter 9, Business and Commerce Code) Effective 7/1/2001
This bill allows a secured party to perfect a security interest in a promissory note (secured by a mortgage) in the Secretary of State's Office. The filing will be ineffective against a subsequent buyer or secured party who takes possession of the promissory note.

The bill ends the requirement that a crop filing in the Secretary of State's Office contain a legal description.

Fixture filings are not changed and remain effective for five years unless extended by a continuation statement.

LIENS

Mechanic's Liens - Corrective Legislation (HB 2054; Chapter 53, Property Code) Effective 9/1/99
The bill amends several provisions relating to mechanic's liens. It defines "completion" of construction, so that warranty and repair work do not postpone completion. The bill clarifies the limitation period for constitutional and statutory mechanic's liens: one year after the deadline for recording on residential construction projects; and the later of one year after completion or two years after the deadline for recording on other property.

Company Policy: You may waive a mechanic's lien on a residence of the individual owner 15 months after the lien is recorded, if no suit or bankruptcy (according to your plant) has been filed by or against the owner or contractor. You may waive a mechanic's lien on other property 2 years and 4 months after recording, if no suit or bankruptcy (according to your plant) has been filed by or against the owner or contractor.

The bill amends the disclosure to the owner of a residence on a residential construction project. It also allows the owner to waive the right to receive the list of subcontractors and suppliers.

The bill amends the title of Section 53.260 to say "Conveyance to Contractor Not Required" (formerly it said "Conveyance to Contractor Prohibited." Some builders will receive a deed on unimproved land, build improvements and secure a construction loan, and then convey the land to the former owners, subject to a new purchase money mortgage.

Company Policy: You may insure on a conveyance of an unimproved lot to a builder by an owner who may repurchase the lot, a mortgage by that builder and a purchase money financing transaction from the builder to the former owner if you secure the affidavit set forth in Affidavit Relating to Conveyance to Builder (available through the references section at the end of this bulletin). If the affiants indicate that any of the statements in the affidavit are untrue, please call our underwriting personnel.

Mechanic's Liens for Landscaping (HB 2135, Sections 53.021, 53.024, Property Code) Effective 9/1/99
A person who provides labor, plant material, or other supplies for installation of landscaping, including a retention pond, retaining wall, berm, irrigation system, fountain or similar installation under a written contract with the owner may have a mechanic's lien. The lien relates back to the date of recording of the affidavit.

Company Policy: You should secure your customary affidavit of debts and liens. If you actually know of recent unpaid landscaping, you should verify that the landscaping is paid.

Commercial Real Estate Broker's and Appraiser's Lien (HB 1052; Chapter 62, Property Code) Effective 8/30/99
A broker's or appraiser's lien may be filed against commercial property of a buyer, seller or lessee for commission earned. The lien may not be filed against residential property, such as one-to-four family residence or land more than three miles from a city that will continue to be used primarily for farming and ranching. A waiver of the broker's right to a lien is void.

The seller of commercial property and the broker representing the seller must, upon request of the buyer or escrow agent, sign an affidavit stating each broker who has a commission agreement with the seller.

Company Policy: If commercial land is being sold, you should require the seller and seller's broker to include the following in an affidavit:

"The following are the only brokers with whom the affiant knows or believes [the seller] or [the seller's] authorized agent has signed a commission agreement under which a commission is claimed or earned and has not been paid: [here list brokers or say "none"]"
This provision can be included in an affidavit of debts and liens.

The lien is effective when recorded.

Under some circumstances the broker's lien is subordinate to refinances or other liens recorded after the broker's lien.

Company Policy: If the owner claims that the broker's lien will be subordinate to a new mortgage, require a full and unconditional subordination from the broker.

The broker must bring suit to foreclose the lien within two years after the lien is recorded. If the lien secures deferred commission (not yet payable when the lien is recorded), the lien is effective for no longer than 10 years after the lien is recorded or refiled.

Company Policy: You may waive a broker's lien if no suit is brought to foreclose the lien within two years after the lien is recorded. However, if the lien discloses that it secures deferred commission, you may not waive the lien unless 10 years expires after the latest recording of the lien.

If the broker's recorded lien will not be satisfied, the seller must: (1) escrow the amount of the claim, plus at least 15% extra for interpleader costs; or, (2) file a statutory bond to remove the lien. If money is escrowed, the broker has the legal obligation to provide a release of the lien against the land.

Company Policy: If you close without securing a release or bond against the broker's lien, you must escrow funds for the claim and you should insist on a recordable lien from the broker. You should have the seller sign an escrow agreement, which includes authority to interplead the funds at your sole election. If you receive notice of a broker's lien at or before closing the transaction, you should require an escrow for the broker's lien and a release by the broker.

MARITAL RIGHTS

Reimbursement of Separate and Community Property (HB 734; Sections 3.006, 3.401, et seq., Family Code) Effective 9/1/99
If separate property is enhanced in value because of financial contribution by community property or if community property is enhanced in value because of the financial contribution of separate property, the contributing estate has an equitable right of reimbursement upon dissolution of the marriage. The right of reimbursement does not create an ownership interest.

Company Policy: You do not need to except to rights of reimbursement unless a court proceeding or recorded claim reflects a current claim. You should continue to require joinder of a spouse where otherwise appropriate, such as where the spouse may have homestead rights. Do not inure that property is "separate" or "community".

Conversion of Separate Property to Community Property (HB 734; Sections 4.201, et seq., Family Code; HJR 36) Vote 11/2/99 - Effective 1/1/2000 if approved
This proposed constitutional amendment would allow spouses to agree that separate property is converted to community property. The agreement is presumed to provide fair and reasonable disclosure if such a disclosure is in a form similar to the statutory form. If this amendment is adopted, we will send you a new bulletin.

PROBATE MATTERS

Affidavit of Heirship (SB 1106; Sections 52, 52A, Probate Code) Effective 9/1/99
This bill provides a statutory form of heirship affidavit. The law does not require use of this form. [See Affidavit of Facts Concerning the Identity of Heirs, available through the references section at the end of this bulletin]

Company Policy: We prefer use of the statutory form of affidavit, when possible. WE STRONGLY ENCOURAGE YOU TO PROVIDE THIS STATUTORY FORM TO ANY ATTORNEY WHO WANTS OUR "APPROVED" FORM. If the affidavit discloses that the decedent left an unprobated will, please require joinder of all heirs and devisees where more than 4 years have passed since the decedent's death. If the affidavit discloses unpaid bills, estate taxes or inheritance taxes that are owed, please require proof of payment. Please call our underwriting personnel if less than 4 years have passed and the decedent left an unprobated will.

Probate Cleanup Legislation (HB 1852; Sections 128B, 149D, et seq., Probate Code) Effective 9/1/99
The law clarifies the law to state that a will may be probated as a muniment of title more than four years after the death of the testator or testatrix (if the applicant is not in default). The testator's heirs must be notified of the proceeding.

The independent executor can apply for an action for final discharge on or after distributing the assets, except for a reserve for court expenses.

PUBLIC RECORDS

Branch Offices of County Clerks (HB 1138; Section 292.006, Local Government Code) Effective 8/30/99
This bill allows county clerks to maintain branch offices for recording of instruments. If the recording of instruments is permitted in branch offices, the recording must be by electronic means and must be available without delay at the county seat.

Electronic Recording (SB 888; Chapter 195, Local Government Code) Effective 5/10/99
The new law allows, but does not require, a county clerk to accept instruments which are filed by electronic means. The persons who may file electronically include title companies, lending institutions, and attorneys. This law will not be implemented until the Library and Archives Commission adopts appropriate regulations. Regulations have not yet been proposed. We will send a new bulletin when the Commission adopts regulations.

Waiver of Filing Fees (HB 649; Section 118.0135, Local Government Code) Effective 5/17/99
The commissioners court may elect (but is not required) to waive recording fees for filing real property records for persons buying or improving a home with federal or state assistance for low income families.

TAXES

Restricted-Use Timber Land (SB 977; Subchapter H, Chapter 23, Tax Code) Effective 9/1/99
New Section 23.9803, Tax Code provides that the appraised value of qualified restricted-use timberland is one-half of the appraised value of timber land. The land is subject to a five year rollback because of change of use.

Tax Law Revision (HB 3549) Effective 9/1/99 in part, 1/1/2000 in part
Section 11.42, Tax Code, provides that the over 65 homestead exemption is effective as of January 1 if the person qualifies during the year and applies to the entire tax year.

Section 31.081 requires the buyer of a business to withhold unpaid property taxes on the business, unless the buyer gets proof taxes are paid.

Section 32.01 allows the owner of land which includes the homestead tax exemption to file an affidavit describing that homestead parcel.

Red River Boundary Compact (HB 1355; Chapter 12, Natural Resources Code) Effective 5/24/99
This bill authorizes a compact with Oklahoma concerning the boundary along the Red River. The boundary would be the line of vegetation along the south bank. The compact would not affect existing titles. The county shall accept certified copies previously filed in the other state. Liens for prior taxes of the former jurisdiction are recognized and may be claimed for five years after the compact.