Real Estate FAQ

A deed is a legal instrument used to transfer an interest in the property. In most cases, a deed will be used to transfer an interest in real property.

A deed in lieu of foreclosure is when a borrower transfers property to the lender. In exchange, the lender does not pursue a foreclosure. In many cases, the lender will accept a deed in lieu as a settlement of the total amount due. A popular term for this is “cash for keys.”

A deed in lieu is typically employed when a borrower (or mortgagee) can no longer afford to keep the property, and cannot find a buyer. The property should be vacant at the time, and the lender (or mortgage company) will have to approve the deed in lieu prior to the borrower relinquishing ownership rights.

A general warranty deed is an instrument that transfers title to real property. The transferor is making a guarantee that the transferor has good title to the property.

A ‘liar loan’ is a nickname for a ‘stated income’ loan. These loans were popular from 2000-2007. They were also called ‘no-doc’ and ‘non-verified’ or ‘streamlined’ loans. Basically, with these loans, a bank or mortgage company would simply ask a borrower what his or her income was, and offer loan products based on the person’s statement of income. The banks usually did not verify the person’s ‘stated’ income. In some cases, people were overstating their income to qualify for houses they couldn’t afford. The typical hope was that the person could use a short-term ARM loan or teaser loan to keep the house (and mortgage) afloat for a year or so, and then sell the house for a profit due to the rising house values. Once home values stopped rising, people’s ARMs adjusted upward, or the teaser rates ended, and the people wound up with homes they couldn’t afford. The practice of overstating income on a ‘liar loan’ is a criminal offense, per Texas Penal Code Sec. 32.32.

A liz pendens is a filing that informs the public of a dispute regarding a parcel of real property. For example, if someone is claiming an ownership interest in land, but is afraid that the person in possession of the land will sell the land prior to a suit being filed, then the person can file a liz pendens, informing a would-be purchaser that the property is in dispute. There are heavy penalties if someone wrongfully files a liz pendens.

Typically, a loan modification is the alteration of a mortgage so that a borrower may have a chance to keep his or her home. The most common example is a person who has an “Adjustable Rate Mortgage” (ARM) loan, or an interest-only “teaser rate” loan, and can no longer afford their house. A borrower may contact the lender and ask for help in modifying the loan so that s/he can keep the house.

A muniment of title is a summary proceeding in probate court. In this proceeding, a person trying to get a will admitted to probate will have to introduce evidence that (1) a person is deceased, (2) that person left a valid will, and (3) there is no reason to administer the person’s estate. Typically, number 3 means that there are no debts of the estate. If the court approves the application for probate as a muniment of title, then the court will issue an order, and the estate property is automatically considered transferred per the terms of the will. There is no executor or administrator of the estate.

A quitclaim (also referred to as a quitclaim deed) is a document that releases interest in real property. Many people attempt to use quitclaims as a transfer of ownership without warranty (e.g. you have what I have, and if I have nothing, then you have nothing.) However, quitclaims are generally disfavored by Texas title companies, and should not be used.

“Prime” loans (also referred to as “A paper” loans) refer to loans made to borrowers with good credit. “Sub-prime” loans (also known as “B paper” loans) refer to loans made to borrowers with less than perfect credit. Sub-prime loans are considered riskier than A paper loans. This means that B paper loans will usually have higher interest rates, or larger down payments, to reduce the financial institution’s exposure should a borrower default.

A teaser rate loan is a nickname for ARM loans and interest-only loans. A typical teaser rate is a loan in which the borrower pays only interest on the loan for the first few years. After that, the “teaser” is over, and the regular rate (interest plus principal) kicks in, usually with a high-interest rate. These loans were widely used by speculating investors and credit investors. The thinking was that one could buy a house, pay interest on it for a year or two (while the land appreciated in value) and then “flip” the house at a profit. When housing prices failed to keep rising as expected, the teaser rates ended, leaving borrowers with very large house payments that they could not afford.

A wrap-around mortgage is a mortgage in which a seller owes money to the bank, secured by a property. The seller resells the property to a buyer, usually for an amount higher than the original mortgage. The buyer pays the seller, the seller then pays the bank on a monthly basis. This transaction violates most bank-backed mortgages, and gives the bank the right to “call” the entire note due.

Adverse possession is a doctrine of law that governs claims on the land. Essentially, the doctrine states that if you treat a portion of land as your own for long enough, you can claim that land as your own through the doctrine of adverse possession. This is an oversimplified explanation of a complex legal principle, but it gets the point across. An example of adverse possession would be a neighbor who accidentally builds a fence several feet over a property line. The error isn’t discovered for several decades. During that time, everyone believed the fence to be on the property line. After the expiration of enough time, the person who built the fence could claim the additional foot of land under the doctrine of adverse possession.

ARM stands for an adjustable-rate mortgage. This means that the mortgage is at a fixed rate of interest for several months. After the initial time is over, the interest rate is allowed to adjust or “float”. This typically means that the interest rate (and therefore monthly payments) will increase. ARM loans were originally meant to be very short-term loans and were created for situations in which someone either planned to be in a house for a very short period or planned to refinance. Many people, however, were not told this when they applied for ARM loans and found out, to their horror, that their homes were no longer affordable.

An assumable loan is a loan in which the borrower is allowed to transfer the loan (and collateral) to another. Assumable mortgages are not as common in Texas anymore. In a typical assumption, a person wants to sell their house, but there are no buyers. A buyer finally comes in, but can’t qualify for a full mortgage. The buyer and seller agree to allow the buyer to “assume” the loan. This means that the buyer now pays the mortgage directly, and the seller (usually) transfers title, subject to the mortgage lien. These deals usually break down when the buyer fails to pay as promised. The seller then discovers (usually to his or her horror) that the seller’s credit rating is severely impacted by the buyer’s failure to pay. Things typically worsen for the seller when they then discover that the buyer has further ‘sold’ (on an assumption loan) the house to a person with even worse credit, who is also not paying. The house is typically abandoned, or in a state of disrepair by the time the original borrower (who is always ‘on the hook’ for the house payments) finds out.

LTV is a common acronym for “Loan to Value”. It’s often listed as a ratio or a percentage. This refers to the amount of a mortgage compared to the value of a property. The higher the LTV, the greater the risk for the lender. Accordingly, the higher the LTV, the less likely a lender will proceed with a loan.

Usury is the charging of excessive interest rates. The default maximum interest rates are 10% with a written contract, and 6% without a contract, pursuant to Article 16, Sec. 11 of the Texas Constitution. Other Texas statutes govern maximum interest rates for financial institutions, mortgage companies, etc.

There are a few different terms of the mortgage that can be changed:

1. You can request that the interest rate be lowered during the term. This can reduce the amount of interest that you pay for your loan and lower your monthly payment. This is helpful if you have a high interest or adjustable-rate mortgage (ARM) loan.

2. You can request that the principal of the loan be reduced. This is usually requested where the value of the home has decreased such that a borrower owes more than the home is worth.

There are other modifications, including changing the loan’s length.

Foreclosures can offer buyers and investors an opportunity to purchase a house at slightly less than the appraised value. However, just because a house is being foreclosed does not mean that there is a clean title. Some of the more common missteps in a foreclosure:

1. The person buying the foreclosure doesn’t realize that s/he is buying a second lien. This means that there is another mortgage on the property that must be paid (and may be ‘called’ or ‘due’) immediately following the foreclosure. These first liens can be in the hundreds of thousands of dollars.

2. The person buying the foreclosure doesn’t realize that there are tax liens on the house. A buyer will not obtain a clear title if the debtor has tax liens attached to the property. Typically, these will be property and income tax liens.

3. A foreclosed property typically carries NO warranties of any kind. The house may be uninhabitable, or the property may have serious environmental problems. There may also be superior easements on the land which may need to be addressed.

In order to answer this question, one needs to review the Texas Property Code (Sec. 41.001) and Section 50(a)(6), Article XVI of the Texas Constitution. These statutes govern which debts can “attach” to a homestead.

In simple terms, a lien will attach to a homestead if the lien was for:

(1) purchase money for the home;
(2) taxes on the property;
(3) work and material used in constructing improvements on the property (under specific circumstances)
(4) an owelty of partition or pursuant to a divorce proceeding;
(5) the refinance of a lien against a homestead, (including a federal tax lien in certain circumstances) resulting from the tax debt of both spouses if the homestead is a family homestead, or from the tax debt of the owner;
(6) an extension of credit that meets the requirements of Section 50(a)(6), Article XVI, Texas Constitution; or
(7) a reverse mortgage that meets the requirements of Sections 50(k)-(p), Article XVI, Texas Constitution.