Bulletin: TX2010005

Dear Associates:

Stewart Title Guaranty Company is simplifying its previous bulletin on this matter. Accordingly we advise all offices and agents in Texas:

Section 5.017 of the Texas Property Code provides that:

(a) In this section, "property owners' association" has the meaning assigned by Section 209.002.(b) A deed restriction or other covenant running with the land applicable to the conveyance of residential real property that requires a transferee of residential real property or the transferee's heirs, successors, or assigns to pay a declarant or other person imposing the deed restriction or covenant on the property or a third party designated by a transferor of the property a fee in connection with a future transfer of the property is prohibited. A deed restriction or other covenant running with the land that violates this section or a lien purporting to encumber the land to secure a right under a deed restriction or other covenant running with the land that violates this section is void and unenforceable. For purposes of this section, a conveyance of real property includes a conveyance or other transfer of an interest or estate in residential real property.(c) This section does not apply to a deed restriction or other covenant running with the land that requires a fee associated with the conveyance of property in a subdivision that is payable to:(1) a property owners' association that manages or regulates thesubdivision or the association's managing agent if the subdivisioncontains more than one platted lot; (2) an entity organized under Section 501(c)(3), Internal Revenue Code of 1986; or (3) a governmental entity."

If your title search and examination discovers such "a deed restriction or other covenant running with the land applicable to the conveyance of residential real property that requires a transferee of residential real property or the transferee's heirs, successors, or assigns to pay a declarant or other person imposing the deed restriction or covenant on the property or a third party designated by a transferor of the property a fee in connection with a future transfer of the property" as set out in Sec. 5.017 Texas Property Code, please include the following exceptions in all commitments, binders and title insurance policies, including the Addendum to the Short Form Loan Policy (T-2R):

Owner's Policy: (Covenants, Conditions and Restrictions, set forth in instrument recorded _____________, together with transfer fees set forth therein). This instrument includes provisions purporting to create a lien on the Land payable upon each transfer of the Land. Notwithstanding any Covered Risk, policy provision, or endorsement to the contrary, this policy does not insure against and excepts all loss or damage due to the failure to pay any fees, amounts, or assessments: (a) on any prior transfers of Title, (b) on the current conveyance of Title, and (c) on any future transfers of Title.

Loan Policy: (Covenants, Conditions and Restrictions, set forth in instrument recorded _____________, together with transfer fees set forth therein). This instrument includes provisions purporting to create a lien on the Land payable upon each transfer of the Land. Notwithstanding any Covered Risk, policy provision, or endorsement to the contrary, this policy does not insure against and excepts all loss or damage due to the failure to pay any fees, amounts, or assessments: (a) on any prior transfers of Title, (b) on the current conveyance of Title, and (c) on any future transfers of Title, and (d) a lack or loss of priority of the Lien of the Insured Mortgage to any lien securing the payment of such fees, amounts, or assessments.

For an Example of a Transfer Fee Covenant, click here. This is only a sample; do not assume that the Transfer Fee Covenant in your chain of title contains the same terms.

If you have questions relating to this bulletin, please contact your local underwriting personnel or Stewart Legal Services.

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